
22 December 2008
Finance
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.
Finance
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.
Quote: "A bank is a confidence trick. If you put up the right signs, the wizards of finance themselves will come in and ask you to take their money." Christina Stead (1902?1983), Australian novelist.
This section is about Property Finance
and Investment and includes pages on:
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!
Warning: Investments in property
can go down as well as up in value and property can
sometimes take a long time to dispose of. Never invest
money in property which you may need in the short-term -
invest with a long-term perspective.
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