Types Of Funding & Investors
For funding and investors dealing with real estate projects, an entity called a ” Funding ” refers to the financial institution that provides a loan or line of credit to a real estate developer for the purpose of facilitating the development of the project. This can be done in one of two ways: by securing a loan from a bank or other lender, or by obtaining a loan from an investor such as a private individual. In most cases, investors provide the funding. However, banks and other lending institutions may also engage in transactions with developers whereby they act as the funding source.
Investors usually have either a financial stake in the project (typically through retained funds) or a direct ownership interest. To obtain a loan from a lender, investors need to provide a down payment and the balance required for closing. Once the property is sold, the lender then takes a lien on the title, while continuing to make payments to the investor through monthly payments. The investor is responsible for making payments to ensure that principal and interest are paid.
Similar to loans, there are various ways in which a funding plan may be developed. A ” Seller financing plan” is one such example where the seller of the property procures a loan from a third party. The third party will in turn use this money to fund the purchase of the property. With a Buyer financing plan, investors obtain a loan from either a bank or a private investor and use this money to buy the real estate. The investor then becomes the ” purchaser” of note.
There are many factors that determine the type of financing and the terms of such funding. One such factor is the size of the project. Larger projects will typically require more funds. Additionally, larger projects usually involve more risks. As such, larger financing plans are normally utilized for more risky projects.
Projects of lesser size and with less risk will generally require a lower capital amount. Investors who acquire financing through seller financing will only obtain a portion of the total cost of the project, while an investor who purchases funding in a Buyer financing plan will receive a lump sum of the total cost of the project. There are other factors that determine these amounts as well. For instance, in cases where financing has already been acquired, an investor who then wants to use the financing plan to pay off the debt would have to obtain separate financing for the project.
Investors who obtain funding through a Buyer financing plan can often reduce their risk by acquiring funding in this manner. However, some investors do use the Buyer financing option to obtain funding for projects that they do not necessarily see as being feasible at this time. To this end, there are many investment companies and private investors that specialize in funding. They provide the necessary funding for projects that meet their own investment criteria.
