Debt vs. Equity
The investment landscape offers a variety of avenues to place capital, but in the simplest of terms, two primary categories exist: debt, or credit investments, and equity. Choosing the right investment approach depends on the investor’s risk tolerance and their desired returns.
Debt: The Secured Seat at the Table
Our debt investments, or credit investments, function like a loan. The investment is secured by a lien (or a deed of trust), offering a level of safety in case of a default. Additionally, the credit investor receives regular monthly interest payments, allowing for faster compounding through reinvestment. The investment timeline is also predictable, with a set loan term. At the end of the loan term, the credit investor either receives their initial investment back, or they retain the asset that collateralized the loan.
The Downside of Debt
The security comes at a cost: debt investments typically offer lower returns compared to equity investments. The debt investor is by definition taking on less risk compared to the equity investor, as a result of the lien on the asset. Therefore, potential for higher profits goes to the borrower who enjoys the tax benefits of ownership and potential market appreciation.
When to Choose Debt Investments ?
Debt investments are ideal for those seeking a steady, predictable income stream with lower risk. Although the returns are capped, generally speaking the credit investor can expect to see returns of 10%-12% on their invested capital, with minimal downside exposure.
When to Choose Equity?
Equity investments are ideal for those seeking to take on additional risk to achieve additional returns. Investors at earlier stages in their careers choose to invest in equities and accept the volatility to achieve outsized results. At Granite Street Private Lenders, we choose to work with equity investors to supply them with the capital they need for their projects. In exchange, they make monthly interest payments, and use their equity as collateral to retain all of the upside of the project.
Summary
Granite Street is a credit investor. We are seeking steady, predictable returns with a capped upside, while our clients are investing in equities, seeking higher returns by using our capital to fund their projects. While they retain all of the upside of a project, they also bear the risk of default, while Granite Street investors are protected by a lien.
If you are an investor or broker who would like to begin a discussion about a new private lending relationship, we welcome your call.
702-344-6235
grant@granitestreetinc.com
