What is Investment Capital?
2 min read
Investing in commercial real estate has various benefits when done correctly. One of many new investors' most significant challenges is raising the capital necessary to invest—otherwise known as investment capital.
Investment capital can be used for various things, including acquiring the property, paying for initial renovation fees or any upfront cost you may face. Commercial real estate typically has two types of investment capital—debt and equity—depending on the investor's ultimate goal.
Debt is investment capital that you can obtain from credited institutions such as banks. Although there are often interest payments associated with this type of investment capital, it is beneficial as these institutions will not have a say in the company and the decision-making process. Equity, on the other hand, refers to capital secured by selling the ownership of a property or business. Private lenders will often only invest if they see it as profitable, so it is essential to outline the benefit the investment will have for them. To assess whether a company is efficient at allocating the raised capital, one must calculate the return on invested capital (ROIC). This shows how well a company uses the money to generate a return on investment.
The key to raising investment capital is to assure those, whether a credited institution or a private lender, that the investment is just as beneficial for them as it is for you.
Reference
Esajian, P. (2022, December 8). Raising Capital for real estate the right way. FortuneBuilders. Retrieved January 30, 2023, from https://www.fortunebuilders.com/raising-capital-money-partners/
Hayes, A. (2022, December 20). Invested capital: Definition and how to calculate returns (ROIC). Investopedia. Retrieved January 30, 2023, from https://www.investopedia.com/terms/i/invested-capital.asp
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