Close the Funding "Gap" with an Equity Partner

In a previous post we discussed the need for gap funding for larger real estate projects. One way to bridge that gap is with an Equity Partner.

Equity Partnerships

Equity partnerships involve bringing in investors who provide capital in exchange for a share of the profits. This can be an attractive option for larger commercial projects or residential developments that require significant funding.

Like Private money lenders, this is almost certainly going to be someone you already know, who has confidence in you and in the project. In our more complete discussion of Equity Partners, we propose a 50/50 profit split as a general rule. The partner puts up 100% of the money for 50% of the profit, or a 2 to 1 ratio.

For gap funding, we recommend something closer to a 1 to 1 ratio, meaning their percentage of the profit is connected to the percentage of the total investment they provide. This additional consideration is due to the partner's increased risk by not being in first position.

Advantages:

• No debt repayment pressure.

• Shared risk and expertise.

Disadvantages:

• Shared profits.

• Potential for conflicts with partners.

An Equity Partnership can be a fine source for closing your funding gap. Remember - your credibility is at stake. Perform well!