The Progressive Property A.B.C.D.E.F of Finance Model
In the new age investing climate, the B. in the Progressive finance model; B.anks, are just one of 6 main ways property investors are financing properties. In fact, the B. anks are becoming less relevant and other, more personal sources are filling the void left by the banks after the crash of 07/08.
A. ngels – Professional, individual investors who provide injection of seed money for start- ups & investors & often give more favourable terms than other lenders. They usually invest in the ‘person’ rather than just the viability of the business/model/investment. Think Dragon’s Den in real life. They do it for a living. They have a high risk threshold. They want to be hands off. They can mentor you and give you great contacts.
B. anks – A financial institution who provide a ‘long term’ loan [five to twenty five years] usually to fund property purchasers, secured on a property and worked out on a automated ‘computer say’s ‘Yes’/’No’ system. In recent years they’ve tightened criteria and reduced lending. Keep your credit clean but don’t over rely on banks. If you can ‘go upstairs’ with the banks to the commercial facilities, you have more liquidity and flexibility; but this can be a long burn.
C. rowdfunding – Is all about cutting out the middle man and allowing small businesses to get the funding they need without banks taking a slice of their margins in fees. It’s a funding method where common people like you and me, henceforth the crowd, fund personal or business project with their own money for potential greater returns. Zopa is a well tested resource, and there are even property specific Crowdfunding groups now: the Entrepreneur is becoming the new bank.
D. ragons – Crème de la crème of investors who venture their capital on your idea. Think V.C. Sometimes known as ‘Vultures’! They’ll demand more returns and more control than an A.ngel investor. They’re often big conglomerates. You’ll get great contacts from them. But if and when it goes wrong, they’ll apply more pressure. You’ll feel like you’ve borrowed from a bank. They’ll have some nice tight security, and you won’t mess them about. But the money will flow.
E. ntrepreneurs – They’ll probably expect a little less return [bank beating 5-8% pa might be good enough] and you’ll make a bigger difference to their life when you make a bit of money together. You’ll get more flexible terms, they’ll be more forgiving to market changes, and if challenges/changes arise [which they always do], you can talk to a real person and you can come up with solutions.
F. riends & Family – These ‘investors’ are not professional lenders or partners. They may never have done it before. They need persuading on investing first, you need to take a step back. They need to feel comfortable and certain and may be more risk averse. They’ll be a little more worried about where their money goes, they’ll want more regular communication and they’ll feel the ride of the rollercoaster. But the relationship and trust should already be there.