Finance
About Financing a Property:
Finance for property is about obtaining money which is secured against a property itself, either the property being purchased, or another property already owned. When money is borrowed against a property asset you are looking to preserve and enhance the value of the property as well as maintain a cash-flow which is capable of servicing the debt payments. The property asset will be available to the bank in the event of default.
Key Points
- Obtaining money secured on the property asset - the asset may revert to the bank on default.
- You need to preserve and enhance the value of the property asset over the lifetime of the loan.
- You need to maintain adequate cash-flow to service the loan payments.
- You need to decide on your "gearing ratio" - borrowed funds to equity
- The higher the gearing the more it costs to service the debt and the higher your risk of default, but the higher your return on equity.
The financing of property investments is very similar to the financing of any business venture - there is a basic choice initially between equity (risk capital) and debt.
Equity funding means risking your own capital (your hard earned savings) or getting some other investor to risk his or her capital along with yours, and of course, share the rewards.
Debt funding means borrowing the funds in the form of a commercial loan or a mortgage. In this case, unlike equity funding, the debt has to be serviced, i.e., you need to pay interest.
We cover the ins and outs and the pros and cons of investing in property in the separate section on Investing in Property in Good Times and Bad!
Naxos, Porta Gialou, 84300, NaxosTel: +30 22850 25392 Fax: +30 22850 25392 Email:post@nautica-re.com
Tel: +30 22850 25392 Fax: +30 22850 25392 Email:post@nautica-re.com