As an experienced commercial investor, I receive a lot of questions about making good real-estate purchases. Probably the question I get asked the most is about funding. Sellers are quick to say “show me the money.” Investors and novice real estate entrepreneurs alike want to know where to get the money or more importantly how to secure low risk funding options.
At Creative Choice Group we have invested in a variety of commercial properties. From low-income housing to smart cities, our investment strategy is diverse and evolving. It is fair to say that the diversity of our business both in Florida and abroad requires a diverse approach to financing. There are many factors that influence funding decisions. From available cash flow to interest rates, to legal concerns and estimated return on investment, the talented team at Creative Choice Group has made strategic decisions to maximize return and minimize risk for the firm and our investment partners.
Probably the most important rule when considering financing options is to leverage your own assets. For many, cash might be the first thing that comes to mind. But don’t forget one of your best assets is the equity you have earned in other investment properties.
Michael Yardley on Yahoo Finance recently covered this investment approach. He explains that one can use the equity in existing properties to secure collateral from the banks to give you a Line of Credit. Of course, you must first have sufficient equity in your existing properties to set up this strategy. This can include untapped equity in your home or your existing investment properties.
The benefits of leveraging your own assets include:
- Untapped equity in existing properties gives you the opportunity to invest without you needing to contribute any cash.
- Allows strategic investors to take a more prudent approach by building an emergency buffer to buy themselves time to ride through the storms or cover their negative cash flow shortfall.
- This loan structure provides you with choices to move money as needed. Having a rainy day buffer will protect you if interest rates rise, prolonged vacancies occur or unexpected costs or situation creep up.
To make this approach work, one must choose the right property or properties to leverage. Selecting “investment grade” properties will help maximize your chances of enjoying strong capital growth. Bottom line, learning how to make your assets work for you is one of the best and most effective investment strategies for both the short and long term.