As we know, real estate investors face challenges in finding real estate investment capital. Although They need money for House Maintenance, flipping, and purchase. It is not an easy task to find the right lenders but you don’t need to worry. Here we have provided some solutions that will help you to get capital investment in no time.
What is investment capital?
Ever heard of Investment or financial capital?.
Well, it refers to the money obtained to fund real estate projects, initial renovations, capital leases, and manufacturing processes. In simple words, it is the money raised by the company to achieve business goals and objectives. There are two types of investment capital i.e equity investment and debt investment. Let’s discuss them in detail:
Equity investment is the type of investment in which the investors buy the shares of the company in the stock market. It can be made by exchanging part ownership of the recipient company. Your family, friends, venture capitalists, and public listing can invest through equity investment.
Debt investment is more like borrowing money. It is a kind of loan investors offer that has to be returned by regular repayment at agreed interest rates. Banks, invoice discounters, and asset-based lenders can invest in the company by debt investments.
There can be several ways by which you can generate real estate investment capital other than saving. However, the procurement of property can be possible through other people’s money(OPM). OPM maximize returns and lessen responsibilities.
Here are some ways to generate real estate investment capital:
Traditional investment bank financing
In investment bank financing loans for real estate investment capital are provided for all kinds of corporations, which helps to aid mergers, and guides issuers about the placement of stocks. In order to raise capital for real estate bank financing is one of the most well-known methods. The banks usually approve mortgage or loans if the company has a stable income, no debt, and a good credit score. Investment bank checks the applicant’s credit histories and assets are thoroughly evaluated before approving the money. Investment bank financing requires different documents like payslip and bank statements. Let’s assume you need investment capital in Pakistan, many banks cater to the needs by allotting the loans such as HBL home loan, Meezan house financing, MUSKUN home financing, and MCB home loans.
Naya Pakistan Housing Program Mortgage Financing
Naya Pakistan Housing Program Mortgage loan is a loan with low requirements. This administration focuses on Low and moderate-income borrowers. The program offers congenial terms and conditions like minimum down payment and economical downpayment. Moreover, agreements with the leading commercial banks have been signed by FGE housing authority all over Pakistan to provide affordable markup rates and to ease the members in the payment of installations. There are certain terms and criteria of selection like:
- The house on hire purchase is offered for sale on the Cash/Cash-cum Loan basis. The allottees by virtue of the sale and lease to be executed in his favour shall own the building structure of his unit.
- In case the number of applications for a particular category of the house under the scheme exceeds the number of houses available in that category, the order of seniority inter see of the applicants shall be determined on priorities.
Family, Friends peer to peer loan
Peer to peer known as P2P in this method investors loan money to one another. In foreign countries, the crowdfunding market takes place via online services. Potential investors and individuals are matched, requirements are fulfilled and the loan is approved. It is an affordable procedure with low overhead costs than conventional mortgages. There are a few aspects that need to be checked while using the peer to power platform such as:
- Research and find the right platform
- Select the equitable investor.
- Check data security features
- Study the privacy policies regarding personal data
- Assess the requirements of investors and lenders
- Inquire origination fees and payback periods
Crowdfunding is becoming popular. According to Allied market research, the global peer to peer market is likely to hit over $460,312 million by the end of 2022. It is a better option when buying a house as you can still get a loan despite having a perfect credit score.
Private Investors/ Hard money lenders
People who have an excess of money to lend are known as hard or private investors. In addition, As their name implies they are not associated with any financial institutions and investment banks. They are the most popular and easiest source of capital investment you can go for. However, Private money owners are licensed to loan money to the people in need of real estate development. You can use the finances obtained from private investors for two purposes:
- Buying a new property
- Refinancing a property
These investors comfort the lender by granting them full access to money or a loan, without the perfect credit score. The private investors usually see if the property is worthy of investment but they have some drawbacks like they mostly ask for 12 to 15 % interest that is much higher than the traditional banks and other investors. The banks on the other hand take around two to three months to provide funds to the applicant. Therefore the private money investors are much easier to deal with so it has made this process trouble-free.
You can opt for hard or expert money lenders if you need money for:
- Startup real estate business
- The major restoration of the existing property
- Quick flip or wholesaling real estate
- Low credit score
Wholesaling Real Estate Strategy
Wholesaling is another strategy to raise real estate investment capital that has helped a lot of witty investors. It is not considered a conventional method for source funding but it has its own benefits. Although, If you implement this scheme suitably you can earn within hours and without breaking a bank. spending your own savings.
To make this approach fruitful, you must have proper knowledge of the industry, a marvelous property, and an honourable buyer’s list. Unlike wholesaling where risks are limited, flipping comes with risks. Flipping includes cost insurance, property taxes, and mortgage. The money required for wholesaling is not as much as for flipping the property.
For wholesale, the real estate investor contacts a property seller to find potential buyers. The property is sold to the buyer before the contract with the owner of the house expires. The wholesaler sells the property at a higher price than the price demanded by the original seller. Profit is earned and used as the capital for real estate.
It is not that hard to raise capital investment as much as it seems. If you have a proper plan and know what lenders want. You can secure the chances of investment by satisfying their demands.