Real Estate loans and the Sub Prime Crisis
Perhaps you may have missed it, but the recent sub prime loans crisis is still having an effect on a large part of the financial system, making obtaining loans for investment real estate rather difficult to come by. No matter the spin being pumped out by the media, there are still problems to overcome before it will be possible to easily obtain investment property loans.
With even the luxury home segment feeling the pinch since the so-called “jumbo loans,” evaporated, any investment in property is tempered by the need for substantial deposits and strict borrowing requirements. A minimum of twenty five% is required before any bank would consider making a loan for investment purposes and the only investors taking the plunge are already well funded.
The question arises as to whether to get involved in residential real estate or industrial property investment. The two segments are very different and require radically different approaches to be successful. Most investors prefer to stick with one or the other, and this is good advice for the newbie investor. It is possible to get involved in both at the same time, but legal advice is necessary to avoid the many pitfalls.
Loans against residential real estate tend to be shorted than loans against industrial real estate, to allow foe free movement of the work force. No one would wish to be tied into a 20 year lease on a home, whereas this is the norm in industrial real estate, sometimes even as long as 25 years.
The industrial property area of the market tends to attract longer leases than residential real estate because of the increased complexity and legal costs involved. An agreement between 2 business entities is necessarily more complex than between private individuals. Regardless – the ongoing financial crisis has made it all but impossible to arrange financing in this sector and the banks are only lending to their preferred clientele. Consider approaching non-traditional sources for funding instead.
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