I want to start a real estate renovation, redesign and buy-to-let company. I need 200k start up investment. I'm wondering whether or not I can simply offer each investor a 100% return on their respective investments, as opposed to giving them a percentage of the company?
I appreciate this is a little unorthodox and as such, I am willing to secure all investments against future property assets, in the hope that this will give investors a little confidence. Being a real estate company, this would be a possibility.
This would enable me to accept investments from an unlimited number of sources, reducing the risk for each individual investor. Is this possible and if so, would they go for it? I just don't like the sound of giving away a chunk of my business and am looking for alternatives, if possible.
You're talking about a loan then. Of course you can, but its an entirely different kind of investment. While investing for equity means that the investors share your failure, loans would likely to require collateral (mortgage on the real estate in question, most likely). You can then offer even lower rates of return, 100% is quite a lot.
The thing is that investors don't do loans, usually. Banks do loans. Investors want equity because they expect your business to grow far beyond your current ability to repay (which is what is important when asking for a loan). Those who invested in Facebook 5 years ago, or Google 10 years ago, got back much much more than 100%.
You may find investors that like these terms, but perhaps you shouldn't like them yourself.
Say you get five investors, they give you one million which you put in the bank as a nice asset. You immediately have two million liability, plus you need to spend some of the original million on buying properties, incurring costs.
I don't see how you'll ever make money for yourself, as the investors would obviously want preference when it came to distributing profits. Also, most (all?) the property bubbles around the world are burst, so 100% returns are no longer possible in sensible timescales. Ten years ago in London, you could have done 100% over three years quite easily, but now, the whole market is going sideways.
Maybe I'm missing something, but I don't see how you'll fill the massive black hole of liabilities, e.g. one million plus in my example.
In the end, issuing shares (equity) is a way to protect you, as it shares the risk, and the reward (if any). Business ventures have been conducted in this way for hundreds (thousands?) of years, so there must be a reason why people do that.