Financing Real Estate | Equity, Debt Financing | Fund advisory | JLL (2024)

FAQs

What is debt financing in real estate? ›

Leverage: Debt financing allows borrowers to purchase an investment property with less money down, which can give them a higher return on their investment if the property appreciates in value.

Because equity financing is a greater risk to the investor than debt financing is to the lender, debt financing is often less costly than equity financing. The main disadvantage of debt financing is that interest must be paid to lenders, which means that the amount paid will exceed the amount borrowed.

We specialize in providing strategic and transactional advice to public and private real estate companies. Our investment bankers have over 75 years of corporate finance and investment banking experience. Expertise in navigating complex transaction dynamics for sell-side and buy-side M&A.

Debt financing often moves much quicker. Once you're approved for a loan, you may be able to get your money faster than with equity financing.

Debt financing is the act of raising capital by borrowing money from a lender or a bank, to be repaid at a future date. In return for a loan, creditors are then owed interest on the money borrowed. Lenders typically require monthly payments, on both short- and long-term schedules.

Unlike lease financing, where the lessee does not own the equipment, debt financing allows a business to acquire asset ownership immediately to acquire asset ownership immediately. This ownership factor can be a significant advantage for companies planning long-term use of the equipment, as it builds equity over time.

Disadvantages of Debt Financing

Many lending institutions also require assets of the business to be posted as collateral for the loan, which can be seized if the business is unable to make certain payments.

Since Debt is almost always cheaper than Equity, Debt is almost always the answer. Debt is cheaper than Equity because interest paid on Debt is tax-deductible, and lenders' expected returns are lower than those of equity investors (shareholders). The risk and potential returns of Debt are both lower.

Many fast-growing companies would prefer to use debt to support their growth, rather than equity, because it is, arguably, a less expensive form of financing (i.e., the rate of growth of the business's equity value is greater than the debt's borrowing cost).

JLL was recognized for exceptional innovation and long-term investment value within the real estate industry. “I'm delighted that JLL is once again being recognized as one of Fortune's Most Admired Companies,” said Christian Ulbrich, JLL CEO.

How is JLL doing financially? ›

Revenue increased 9% compared with the prior-year quarter. Businesses with Resilient revenues continued to deliver strong revenue growth, collectively up 12%, highlighted by Workplace Management, within Work Dynamics, up 15%, and Property Management, within Markets Advisory, up 8%.

As a direct Agency lender, JLL originates and closes acquisition, refinance and moderate rehab loans using the programs of Fannie Mae, Freddie Mac and FHA/HUD.

Drawbacks of debt financing

Having high interest rates – Interest rates vary based on various factors including your credit history and the type of loan you're trying to obtain.

Debt financing is generally considered to be less risky than equity financing because lenders have a legal right to be repaid. However, equity investors have the potential to earn higher returns if the company is successful. The level of risk and return associated with debt and equity financing varies.

Consider, too, that equity financing is a greater risk to the investor than debt financing is to the lender, because payment of the debt is required by law, regardless of the company's profits.

Debt-financed property includes rental real estate, tangible personal property, and corporate stock held to produce income such as interest, dividends, royalties, rents, capital gains, etc.

Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Debt financing is the process of borrowing money from a lender that must be paid back, with interest, at a later date. In our personal lives, a mortgage or a car loan are both examples of raising finance via debt.

At the outset, there is no major difference between the two as loans are a part of debt and the amount of money borrowed needs to be repaid in both cases. However, there could be differences in terms of the nature of the loan or debt availed, repayment terms, etc.