Raising money for your first investment is sometimes one of the hardest thing as an investor. It involves evaluation of available funds and accessing cost of loan if you are to use in purchasing of the new property.
As a real estate investor, success comes when you manage to raise funds using the least cost and manage to bid the property successfully.
According to CEO for Username Investment limited, one of the leadingreal estate company in Nairobi Kenya, Savings is the most reliable way to raise funds for purchasing of your property as it doesn’t have any cost.
Savings is any money that you set aside for investment purposes. Often set aside from income that your make in your active career or business. Many people, prefer saving their money in SACCOs as members of the SACCOs have attractive and flexible terms of borrowing loan as compared to other financial institutions.
Savings act as your primary equity and it should have higher ratio to loan that you use to finance the property. This will ensure that you aren’t fix to paying loan for long.
- Donations from Friends and Chama
Another way to raise fund to purchase property is donations or loan from friends and Chama’s. Chama’s is an organized with a common goal, often an investment forum. Where members are involved in savings money in a common group so as to be used by members when they need.
It is informal way of raising funds and cheap as compared to banks or SACCOs as it attract no interest. This kind of raising money is common if the property is cheap and affordable. For high end commercial properties, this type doesn’t work.
- Bank/Sacco loan
Banks and SACCOs are tailored to act as custodian of savings and provide loan to members. It is more suitable for real estate investors who are purchasing properties that have ready cash inflow as financial institutions consider this as low risk.
For properties where the land is vacant, banks doesn’t easily give loan for purchase of such properties as the risk is high.
- Customized Flexible payment plan
Flexible payment plan is upcoming financing options that real estate companies are offering to land or property buyers. What these property sellers do is, after you have agreed on the property to purchase, you make your first down payment, often certain percentage and then your pay the rest within agreed period. They will be holding title deed of the property till you finish making the payment.
This kind of arrangement is good as it doesn’t require a lot of documents to be consider for your eligibility to enter the agreement. Even if you have below average credit worthiness, this plan allows you to own a property.
Downside of this arrangement is that, in case you fail to raise the money, you will be refunded your money and loose the property.
In conclusion, raising funds for real estate investment needs complete understanding of the cost associated with the funds, and risk associated with whole investment. Based on risk, savings is the most preferred and safe way to finance real estate properties