FUNDING: DEBT VS. EQUITY
Financing Your Real Estate Investment: Debt vs. Equity AN ARTICLES SERIES ON NAVIGATING THE PRIVATE LENDING WORLD
DAMON RIEHL
Y ou’re itching to dive into the world of real estate investment, and you’re eager to make your mark in the property market. But before you start scouting for that dream property, there’s a crucial decision you need to make: How will you finance your real estate investment? Will you go the debt route, or is equity your chosen path to property prosperity?
hurtling straight into the thrilling world of property investment. This financial strategy involves borrowing money from lenders (i.e., banks or mortgage companies) to invest in real estate ventures. In essence, you’re taking on a financial obligation to purchase a property, and you’re responsible for repaying the borrowed funds along with interest over a specified period.
This means you can potentially control a larger asset with less initial cash outlay. FIXED INTEREST RATES. In the world of real estate, where market fluctuations can be as unpredictable as a squirrel on a sugar rush, having a fixed interest rate can be a game-changer. With debt financing, you often have the advantage of knowing exactly how much you’ll pay in interest each month, making budgeting a breeze. TAX BENEFITS. Ah, the sweet sound of tax benefits! Mortgage interest is typically deductible, which means you could lower your taxable income. This can be a significant advantage for real estate investors.
Let’s break down the pros, cons, and everything in between to help you make an informed decision.
Here are the pros of debt financing:
LEVERAGE YOUR INVESTMENT. Debt allows you to leverage your investment capital. You can take a relatively small amount of your own money and combine it with borrowed funds to buy a more expensive property.
DEBT: THE DAREDEVIL’S DELIGHT
Debt financing in real estate is akin to strapping on a high-powered jetpack and
14 | think realty magazine :: march – april 2024
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