Financial Engineering

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
    • creditworthiness
    • personal liability of the lender
    • continuity
  • 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
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