Finance is very essential in every business venture and real estate business is no exception. If you are considering finance for your real estate business then this article is for you!
A lot of people believe real estate business requires a huge capital, while that is somewhat true, I am about to show you some of the ways you can raise the financing required to actualize your real estate business.
All businesses are set up for one of two reasons or both; making profits and growing the business and real estate business is not an exception. Without money or with the shortage of money, businesses, real estate business inclusive, will be threatened.
If any business will stand the test of time and gain clients as is the goal of all global real estate businesses without folding up, getting finance will be required at some points in the life of the business. It is therefore an advantage to know how and where real estate businesses can get possible financial backups.
I will be dealing with where the funding can come from in this article and leave the job of “how” till some other time.
Getting finance for your real estate business can be very easy and smooth to go by, depending on the possible channels available and the conditions stringed to them.
There are several processes that guarantee financing a real estate business and the possible sources of such grants. Your real estate business can be financed from some of the following;
Bank loans are expedient in a situation that you own properties that may be pledged as collateral for the sum you wish to borrow. In this case, the real estate business must have been in operation for an acceptable length of time or you have cognitive experience in the particular area you are intending to carry out your investment.
Proper financial records must be in place.
This means have been embraced by real estate companies that have their grounds strongly built and have assets that is worth more than the sum of money they are sourcing for as loan.
This process can be as frequent as a business refunds back the sum loaned to them in regular installments as signed and agreed.
There are also loads of disadvantages stringed to this means of getting finance through bank loans which includes a possible delay as a result of the bureaucracy bank’s credit request approval procedures require.
The bank wants to ascertain that the firm or rather real estate business meets with all their requirements and without any shadow of doubts will be able to keep to signed agreements.
The banks may not be the place to go for new entrant companies without cognitive experience and/or bankable collateral for the amount being borrowed, etc.
From Friends and Family
Another means and one that is more flexible is getting finance from friends, family, colleagues and people that are generally within your sphere of influence. A good percentage of personal businesses get funding this way.
The fact that this is a more personal fund raising arena comes with its challenges.
While credibility will help your funding raising prowess here, sympathy plays a bigger role and naturally limits the amount (size) you can raise.
People give mostly out of empathy, not strict consideration and justification of the proposed business. Their expectations are not so high too where it exist at all and that limits what people can and will be willing to give.
Whatever can be raised can however help in the business project. Many real estate businesses have been able to leverage existing relationships and obtain a sure way of finance either in form of a loan, grant, etc.
More so, these transactions are most times done with little formality and without written agreements.
With this advantage, it does has some inherent problems as you place the relationship in jeopardy if things does not go well as expected and the business defaults.
Through Angel Investors
An angel investor is a wealthy individual or group of individuals that invest in businesses that may not meet with the current requirements of banks and other forms of funding a business but could meet their requirements with a capital and management influx.
A real estate business can get finance through an angel investor. There are many angel investor groups who focus mainly on financing real estate businesses because of the advantageous peculiarities of the real estate business sector.
Through this channel, many real estate businesses have attained to the crest of their endeavours with gross satisfaction and appreciation to those angel investors.
Finance can also be gotten through merging or partnering.
Another possible way of getting finance with little stress is by this means. One critical requirement for the success of this type of funding is to have a clearly documented and communicated agreement.
Issues of the share of responsibilities and rewards must be clear.
Also, it may not take the form of an outright partnership but means, systems and initiatives like Investment Clubs, Associations & Societies, Joint Venture (with a party providing the land while another provides the finances needed for construction), Co-operatives, etc can also serve in providing good funding for your real estate business.
Getting Finance Through Clients
Ever heard of Other People’s Money (OPM)?
Sometime ago, I had a chat with a friend of mine working with this very prosperous company and he shared how their clients make down payments well in advance before they get products supply.
That is a classic example of using OPM to fund your business. Your real estate business can also utilize that approach.
It takes a little while, consistency and good demand for your products/services to maximize this means of raising finance. This usually happens during real estate booms or where housing demand far out stripe supply like in the case of Nigeria. A number of developers use prospective tenant’s money to complete an apartment the client will be renting.
If your aim is getting finance for your real estate business, I trust the ways offered here have given you a light on the possible means and ways to go about that.
To your success!
MD/CEO, Realty Point Limited