Financing Options for a Property Investment
While you have the plan to venture into property investment, you may not have the financial capacity for the project. If you have sufficient savings at the bank, you might as well finance the project all by yourself. On the other hand, you may want to ask help from other people, such as your family and friends or just put up a legal entity for property development purposes.
Here are some of the most viable options you can try.
1. FORM A FAMILY BUSINESS. This option is workable, especially when most members of the family are business-oriented. In a family business, you'll only need to ask every member to put up a certain amount for the property investment capital. Thereafter, agree among yourselves who will be managing the business. For smooth operation purposes, it is recommended that you all agree to employ the services of a property manager.
2. ENTER INTO A PARTNERSHIP. You may enter into a simple partnership or limited partnership. Either way, there must be at least two parties involved, which can be two or more persons, two or more legal entities, or a combination of persons and legal entities. The partners contribute certain amount of money until the required amount of capital is met.
One of the advantages of partnership is that the partners themselves can avoid personal liability in case there are suits against the partnership. This is especially true in a limited liability partnership.
3. FORM A CORPORATION. In a corporate set up, there must be at least five incorporators. In property management, it is very common for people to form a corporation and gather their resources together. The incorporators can either be individual persons or legal entities. Often, the incorporators contribute huge amount of money into the corporation as they also expect to generate big profits. On the other hand, it can happen that corporate stocks are being sold to the public in order to generate capital.
Needless to state, remember that in case of suits against the corporation, the board of directors, officers, and stockholders may be held liable if there is corporate negligence or board mismanagement. This is called "piercing the veil of the corporate entity" doctrine.
4. BORROW FROM A BANK. Most property managers are well versed about property financing by a bank. The common arrangement is in the form of loan agreement wherein the bank offers to finance the property development project, while the property itself serves as collateral to the loan. What is crucial in this option is to establish and maintain an outstanding credit record before you apply for a loan. Of course, you also need to deal with a reputable banking institution that gives out competitive interest rate.
In forming a legal entity for property investment business, it is recommended that you consult a lawyer who specializes in mercantile and commercial laws, particularly on corporation and partnerships laws; this will ensure stability on the legal aspect of the real estate venture.
About the Author
The author writes about property investments and property management at http://www.scribd.com/tysonsummerville
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