Two ways to put money into a multiplex
If you have capital and want to fund a multiplex project, there are two main roles you can take. You can lend the money, or you can invest it as equity. They are very different, and one may suit you far better than the other.
This article explains the difference so you can see which fits you. It is not financial or investment advice, and it does not promise any return.
Lending: the debt role
When you lend, you act like the bank for the project. You give money and the borrower agrees to pay you back with interest. Interest is a set charge for the use of your money.
The main appeal is order of payment and lower risk. A lender is usually paid back before the equity investors get anything. Your return is the interest, which is agreed in advance, so it does not rise if the project does very well.
- You earn interest, agreed ahead of time.
- You are usually paid back before equity investors.
- Lower risk than equity, and usually lower potential reward.
- Your return does not grow if the project performs above plan.
Equity: the ownership role
When you invest as equity, you own a share of the project. You do not get a fixed payment. Instead you share in the profit if there is any.
The appeal is higher potential reward. If the project does well, an equity investor can earn more than a lender. The catch is that equity is paid last. Lenders are paid first, and only what is left flows to equity. If the project struggles, equity can lose value or be lost.
- You own a share and take part in the profit.
- You are paid last, after lenders are repaid.
- Higher risk, and higher potential reward.
- You can lose some or all of your money if the project fails.
Comparing the two side by side
The clearest way to choose is to line up the three points that matter most: risk, return, and when you get paid.
- Risk: debt is lower, equity is higher.
- Return: debt is a fixed interest amount, equity shares in profit and can be higher or lower.
- Order of payment: debt is paid first, equity is paid last.
- Control: equity often carries more say in the project than debt.
Which one suits you?
If you want steadier, more predictable income and you value being paid back first, the lender role tends to fit. You trade away the upside for more safety.
If you can accept more risk and you want a share of the project's success, the equity role may fit. You accept being paid last in exchange for a larger possible reward. Many people mix both across different projects. Speak with a qualified advisor about your own situation before you commit any money.