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Which type of funding should you seek, based on your capital needs?

What funding should you seek for a property portfolio?

You’ve decided to invest in property. Fantastic. But which type of funding should you seek? Do you just need capital or would a bit of hand-holding and business advice help you to reach your property portfolio goals faster? There are merits to both approaches, so let’s take a look at them in detail to see which suits your needs.

The case for capital

Are you 100% confident in the property investment that you’ve got lined up? If so, and all you need is cash, then you’re in a strong position to ask family and friends to lend you what you need. Or to go down the route of using a bank or other lender.

Either way, if you’re confident you can return the capital – along with interest, of course – and you can convince those you’re borrowing from to share your confidence, then this can be a neat and straight-forward solution to finding the funding you need.

The benefits of business advice

It’s important to understand whether you might need more than just cash for your property investment. After all, there’s a lot to be said for learning from the mistakes of others rather than making them yourself, particularly when large sums of money are involved.

If you feel you’re going to need experience as well as capital, then it’s worth seeking a partner who can help guide you through the acquisition side of the investment. In that case, it’s worth considering the person who you’re borrowing from just as carefully as the return on the capital.

Finding the perfect partner means looking for someone who brings a wide range of knowledge to the table. Their experience can be invaluable, as can their contacts. Look out for someone who knows how to deal with tough situations and who has plenty of experience of different types and sizes of property investment transaction.

It’s also important to find someone who is a good listener. The emotional side of investing in property is often overlooked, but the process can go from being exciting to worrying to infuriating and back to exciting very rapidly. Having a partner who understands this and who you can talk things through with can help you to keep calm and make sensible, well-planned decisions rather than rash, reactive ones.

Finding a lender who can provide all this – as well as funding – can really pay dividends, so don’t feel rushed to borrow from someone that you don’t have the right feeling about. There’s a lot to be said for trusting your entrepreneurial side when it comes to deciding who you’re going to work with.

Think about what you’re giving away

Whichever kind of funding you opt for – whether with business advice or without – think carefully about the return that you’re going to give on the capital you borrow. Your long-term plans will come into play here.

For example, are you planning to build up a property empire that you will keep for the next 20/30/40 years before eventually handing down to your children? If so, it makes sense to do all you can to avoid giving away equity. Of course, that’s easy to say, but in reality it will likely involve doing some hard miles to start with.

As such, keep your eyes on the prize while you’re putting in the hard work for very little initial return. Start small, with low overheads and build up your property portfolio slowly. After all, if you’re looking at a decades-long plan for your property investment, you’ve got time to spend building up a solid base for that on your own terms.

If, on the other hand, you’re looking to invest in multiple properties, with a view to selling after a few years in order to make a relatively fast profit, then it might be worth giving way equity in exchange for professional advice and support from someone with the experience, contacts and time to accelerate the speed to sale. If that person can walk you through the legalities of founding a tax-efficient property investment company and help package the business for sale when the time comes, then there’s a compelling case to make it worth their while with equity as well as (or even instead of) cash returns.

Shorter business lifespans such as this are better suited to partner-funders, as they can get you to your goal faster.

Ultimately, which type of funding you should seek will depend on your personal circumstances, goals and long-term strategy. There’s not really a right or wrong approach here but it is essential to recognise that the decisions you make early on in your investment process will likely still be with you years later, so they warrant plenty of thought and careful judgement.

Steve Jacob

Steve Jacob is Group CEO of Fabrik Property Group, as well as a director of its subsidiary, Fabrik Invest. Steve has been part of over 1,000 property transactions and has a wealth of industry knowledge to share. He has been involved in construction and business from a young age, moving from working on site to working in the city as a broker, before founding Fabrik Property Group in 2014.