02/16/2018
Should you use “Debt” or “Equity” when purchasing real estate investment properties? This is a common question investors ask when deciding on how to raise capital.
In short, "Debt" involves borrowing money which must be repaid, plus interest. “Equity" involves raising money by offering a percentage of ownership in a property.
Neither strategy is necessarily better than the other, however each has its pros and cons.
The main advantages of debt are: You retain full ownership, the interest payments are tax deductible, and payments end once the debt has been satisfied. With equity, your investors get some ownership, you must consult with your investors on most decisions, and you must share profits with your investors as long as they have equity in the property.
On the other hand the advantages of equity include: risk is shared by all partners, there is no need for collateral, and there are less cashflow issues. With debt, unlike equity, you must repay the loan whether or not your project is successful.
It is fairly common for experienced investors to use a combination of both strategies for maximum leverage.
If you are interested in investing with our firm, or if you have any questions about real estate investing, contact us today.
Disclaimer:
This post is for educational purposes only and is not intended to be investment or legal advice. Be sure to consult with your attorney and CPA to decide which route is best for you.
