FUNDING: DEBT VS. EQUITY
taking a leisurely stroll through the park instead of rocketing through the skies. SHARED RISK. If you bring in investors for equity financing, you’re spreading the risk. If your property doesn’t perform as expected, you’re not shouldering the entire financial burden. FLEXIBILITY. Equity financing offers flexibility in how you structure deals. You can negotiate terms with investors and craft agreements that work best for both parties. It’s a bit like customizing your order at your favorite burger joint. NO INTEREST PAYMENTS. Unlike debt financing, equity financing doesn’t come with interest payments. You don’t have to worry about siphoning off your profits to pay interest, leaving you with a more significant slice of the investment pie.
DAMON RIEHL
Financing your real estate investment is a pivotal decision that can shape your journey in the property market. Debt financing offers the thrill of leverage and potential tax benefits, but it comes with the risks of default and monthly obligations. On the other hand, equity financing provides a debt-free, flexible approach with shared risks and profits, but it may require more effort to secure investors. Ultimately, the choice between debt and equity financing depends on your financial situation, risk tolerance, and investment goals. Some investors prefer the high-octane rush of debt financing, while others opt for the steady growth of equity financing. And, of course, there’s always the option to mix and match to create a financing strategy that suits your needs. Before you take the plunge into real estate investment, do your homework, consult with financial experts, and consider your long-term goals. Whether you choose to soar with debt financing or take the scenic route with equity financing, the key is to make an informed decision that aligns with your unique circumstances and aspirations. •
Damon Riehl is the founder and CEO of Investment Property Loan Exchange. He has more than 35 years of lending experience in a broad array of asset classes, including commercial and residential mortgage, small business, and construction lending. Riehl held top leadership positions as head of commercial lending for Ocwen Mortgage, head of unsecured lending for Citibank, global mortgage leader for GE Capital, and head of construction products at Fannie Mae. He is a member of the Harvard Joint Centers for Housing Studies. Riehl has built six de novo lending platforms and used that knowledge to build and grow Investment Property Loan Exchange and the fintech platform LoanBidz.com. Now that you understand the benefits and considerations you need to take when investing in real estate, you may want to start investing in your first property. One of the first steps is to work out a budget and your financing options. Our team at LoanBidz.com can help you figure out affordable options from the most reliable lenders for your exact needs.
And on the flip side, here are the cons:
SHARED PROFITS. Equity financing often means sharing your investment’s profits with others. If your property becomes a goldmine, you’ll have to divvy up the riches with your investors. DILUTION OF OWNERSHIP. When you bring in investors, you might have to give up a portion of your ownership in the property. This is known as dilution. Although it can be beneficial for risk- sharing, it means you won’t have complete control over the property’s decisions. HARDER TO SECURE. Finding investors willing to put their money into your real estate venture isn’t always a walk in the park. It can be time-consuming and challenging, especially if you’re just starting in the real estate game.
16 | think realty magazine :: march – april 2024
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