Construction financing: financing with shares


Construction financing: financing with shares


If the construction financing runs over a certain share fund, then the risk is not to be underestimated at all. Since share prices are subject to fluctuations, there is no certainty as to what the financial situation will be in two or five years' time. In the event of a strong price quake, even the entire funding could be brought down. But if the development goes as desired, so the market knows only one direction, and that is steeply upwards, you manage the early repayment of the loan.

Private developers such as real estate buyers should not only be concerned with the potential benefits, but should be especially mindful when choosing this form of financing. Because the shade sides are not to be ignored under any circumstances.

Forecasts should never be seen as a guarantee of profit

If one wants to repay the financing faster than planned, i.e. not only after the 30 years agreed upon in advance, but perhaps already after 15 years, then one must plan accordingly and subsequently turn certain levers.

You can put your money in the crypto market, for example, and hope that the forecasts of the experts come true. At the current time (mid-June 2020), bitcoin is around 9.500 U.S. dollars – some experts believe bitcoin could reach 100 in the foreseeable future.Jumping over US $000 hurdle. Therefore, whoever enters today, can book an extraordinarily high profit. But only if the predictions come true. And anyone who has ever invested with Bitcoin and Co. knows that forecasts are no guarantee of profits.

Even if you speculate with shares. No matter how promising one or the other stock corporation may be – it can always go in the other direction. This has been clearly shown especially by the coronavirus. Because within a few days there was a crash – and crashes, especially in a short-term speculation, are always extremely painful.

If you invest for a long term, you can avoid such price fluctuations or. Sit out price quakes and wait for better times. This is also exactly one point why financing the construction project with shares should also not be rejected from the start.

Equity funds instead of credit – where lurk the dangers?

If one decides to finance with shares, one does not pay a loan installment month after month, but pays a certain amount into a share fund. If everything goes according to plan, the loan must be repaid after the agreed period of time. If there was a favorable development, the redemption can take place a few years earlier – if things do not go according to plan, the term is extended, or. the outstanding balance must be repaid from the equity pot.

Anyone who takes a look at the German share index – the DAX – knows that there have always been fluctuations in recent years, but that things have gone steadily upwards. That is, in the end, it did not matter much that it went down every now and then. Above all, if one invests in stock corporations that have an appropriate size and also belong to the market leaders, one does not have to be afraid of strong price fluctuations or losses. However, only if one does not dump them at the wrong time. Because if it is a question of repaying the loan at a time when there has previously been a strong price quake, it may sometimes be the case that the deposit value is not sufficient.

Don't just focus on shares

For this reason, you should never work only with an equity fund when it comes to financing the construction project or the property. A so-called mixed strategy is particularly advisable – this reduces the risk right from the start. One third of the construction financing should be secured through the shares, the rest with a classic loan.

It is important to make comparisons in advance. That is, which equity funds are promising and which bank offers an attractive loan. About online comparison platforms, you get relatively quickly an overview of which banks you should then look at more closely.

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