Arranging financing for a new and start up business is one of the difficult tasks as lenders, mostly do not wish to bet on relatively new and inexperienced businessmen. However, if a well prepared business plan is presented then the lenders may be willing to provide the necessary financing to the newly established business. One of the chief sources to fund the business is to inject your own equity in the form of shareholders funds. These funds are not only permanent in nature but also are much higher in quantum in comparision to other sources of funds.
However, there are also other sources of funds available too suiting the different needs of the companies working in each of the different industries and under different business dynamics. Some of the financing options available to the company are discussed below: Acquisitions and development loans Since our company is a real estate business therefore the funding requirements for this type of business are unique too in the sense that the inventory produced by a real estate company maybe slow moving in nature besides the other peculiar characteristics render this type of business.
Acquisitions and development loans are the loans which are used to buy the property. The proceeds obtained from the loan are utilized in purchasing the property for the business. The total cost of the project to be developed through the acquisitions and development loans would include cost of land, the development cost for horizontal development of the land as well as some other soft costs such as commissions and interest reserves etc.
The borrower under this type of financing is usually required to pay 25% of the total cost of the project. However, there are also risks involved in this type of financing to be availed especially borrower may not be able to find an exit strategy when borrower is faced with difficult situation. (Blackburne, 2008) Asset Based Loans An asset based loan is mainly provided to fulfill the cash flow needs of the organizations. Assets are mostly offered as collateral in this type of financing.
However, for a real estate company, this sort of loan may not be feasible because most of its tangible assets are in the form of property which is subsequently held for sale therefore the legal complications and expenditure of transferring the property first to the lending institution and then to the buyer of the firm not only takes much of legal issues but also cause significant expenditure to be incurred apart from the regular interest to be paid on the loan. Therefore, considering the peculiar nature of the business it is feasible that an acquisition and development loan may be acquired from the lenders.
It is also important to note that before deciding upon to obtain a loan, firm must also decide as to from which lender it is willing to obtain loan. Wholesale lenders, a lender which provides through mortgage brokers or correspondents, may be one of the preferred sources of loans because of their traditional competitive advantage in terms of offering competitive lending rates at relatively easier terms. (Guttentag, 2004). Types of Properties to invest In order to successful start a business; it is very critical that the firm must know in what kind of goods and service it is going to deal with.
One of the most important elements has been the fact that whether the goods and services which are being sold are marketable in nature or not. For a real estate company, there are various options available to trade in. vacant land is one such example of the kind of property which can be a profitable option for the firm. However, residential properties are considered as one of the most famous types of real estate properties in which most of the firms tend to deal with as they are not only profitable in nature but also easy to manage.
Residential properties can include apartments, villas, pent houses and other kind of luxury housing products. (James Kimmons, 2008) Similarly, commercial properties are also one of the most lucrative options available as they can provide not only good rental but also a high capital appreciation. Commercial properties can include factories, shopping malls, golf courses, cinemas, resorts etc. It is also however, important to note that investment into different types of properties depend upon the availability of the overall funds with the firm.
If the firm has enough access to the large amount of funds than investing into shopping plazas, constructing of office blocks as well as obtaining a large tract of lands for the development of golf courses can be a suitable option however, if access to the funds is restricted then it may be feasible to invest into properties such as residential apartments etc. Locations Before making any investment decisions in real estate properties, it is very important that the firm must understand the dynamics behind making the proposed investment.
Choice of location is one such area where a real estate firm must give a due consideration to the location where the proposed investment is to be made. Decision of location is also important because of the fact that firm has to follow the relevant laws and building regulations of that particular area therefore before making an investment decision, firm must understand the rules and regulations for the same. Further, choice of location also depends upon the purpose for which real estate property is being developed.
If the purpose is to set up a manufacturing or industrial set up then the firm must take into consideration the future expansion requirements of its customers like future expansion in terms of number of employees, accessibility, availability of the utilities etc. Further, if the firm is willing to invest into the residential properties, therefore to select a best location for such a kind of project would involve consideration of such factors as demographics, distance to the work location, economic status of the residents in that area as well as number of households.
These figures will provide an estimate of how the location of the proposed projects may be decided and what kind of investment would be optimal for that area. Conclusion Starting up a new real estate company require a lot of resources as well as an effort as the new firm need to put significant planning behind deciding what legal entity it is going to form, how finances would be arranged and how the proposed investments would be made to generate maximum returns.
Bennett, S. (2008). Sole Proprietorship. Retrieved August 17, 2008, from Lawyers. com: http://business-law. lawyers. com/business-enterprises/Sole-Proprietorship.
html Blackburne, G. (2008). Acquisition and Development Loans. Retrieved August 17, 2008, from Loans. com: http://www. c-loans. com/acquisition_and_development_loans. html Guttentag, J. (2004). The Mortgage Encyclopedia. New York: McGraw-Hill Professional. James Kimmons. (2008). Top 3 Major Types of Real Estate Property. Retrieved August 17, 2008, from About. com: http://realestate. about. com/od/realestatebasics/tp/topproptypes. htm Kennedy, F. (2008). What are the benefits of a limited liability company? Retrieved August 17, 2008, from Fletcher Kennedy Limited : http://www. fletcherkennedy. com/benefits_of_a_limited_company. html