Investors who venture into property must invariably establish a financing strategy with periodic reviews.
This includes the following aspects:
- Financing ratio (ratio of equity capital to ratio of borrowed capital)
- Increasing the ratio of borrowed capital = increased profit volatility = disproportionate increase in risk
- Leverage effect approach?
- Alternative to exhaustion of financing options: smaller investment volume with higher equity ratio
- Consideration of the interests of the lender in terms of
- personal liability of the lender
- Tax motivated high level of external financing (leverage effect, to the detriment of the profit/loss statement, in favour of an [anticipated] increase in value)
- = Risk of such an increase in value failing to materialise
- = risk of impossibility of disinvestment in the event of falling demand
- = general massively increased risk
- Risk of introduction of a capital gains tax on speculative transactions that are designed to siphon off profits