Financing Structure

There are various financing options for the type of business I want to open and operate which is a Real Estate Investment company. Structuring these financing instruments accordingly is important and relevant to the overall success of the potential income-producing real estate investments. Moreover, selecting the right financing option depends upon the factors involved on each deal or transaction such as the time horizon, the volume of transactions and the type of property being purchased. All of these factors play a big role in selecting the right financial instrument. (Berges, 2004)

There are three financing instruments I could probably use depending on what I think would be the right choice for the company’s unique objectives and goals. Debt, equity and partnerships are some of the financing options available for this type of business, and each carries benefits as well as drawbacks. Furthermore, when using any type of financing options, the company must keep in mind a very important factor called leverage; being highly leverage can cause an investor to go under quickly. A quick example would be as follows: if the interest rate on a loan is 5.0 % and the expect return on asset is 10% than the leverage is positive. (Berges, 2004)

Debt financing happens when a company or an individual acquires a loan, using other people’s money, which can come in the form of debt or equity. This type of financial option is available through obtaining a loan from a mortgages company, a bank, or family members. “Financing with debt typically requires that you repay a loan with predetermined terms and conditions such as the repayment term (number of years to repay the loan)”. (Berges, 2004, p. 66) When using debt to acquire a house as an invest...

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...roperties. However, I think that based on my research and the overall strategic plan of the business, we would only consider the methods mention here. Furthermore, financial statements are a very important part of a business. These statements help with the every day operations of a business and are great tools to get confidence from investors as well as banks.

Reference

Berges, S. (2004). The Complete Guide to Real Estate Finance for Investment Properties : How

to Analyze Any Single-family, Multifamily, or Commercial Property (pp. 61-79). Hoboken,, NJ: John Wiley & Sons, Inc. Retrieved February 4, 2011, from NetLibrary.

Kaplan, J. M., & Warren, A. C. (2010). Patterns of Entrepreneurship Management (Third ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Solomon, M. R., Poatsy, M. A., & Martin, K. (2010). Better Business. Upper Saddle River, NJ: Prentice Hall.