Real Estate loans and the Financial Crisis
It might be that you have been living in a cave in the backwoods somewhere for the last few years, in which case, you may have missed the sub prime loans crisis and the lingering effects of the credit crunch, but that is unlikely – either way the ongoing issue continue to make it difficult to obtain investment property loans.
With even the luxury home segment feeling the pinch since the so-called “jumbo loans,” disappeared, 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 first thing to decide, when considering investing in real estate is to go either the residential or industrial route. While it is, of course, possible to become involved in both it can often be best to start out with just one as the needs and requirements are different. Certainly the newbie investor needs to pay special attention to the differences in loan structures and time frames.
Residential loans are obviously available only against houses that are built for residential purposes. Generally, leases usually run for shorter periods than industrial real estate leases – less than 12 months is normal and they are renewed yearly. industrial leases tend to be longer – with perhaps as long as twenty five years and almost never less than 5 – a recession notwithstanding.
The commercial property sector tends to attract longer leases than residential property 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 sub prime loans crisis has made it all but impossible to arrange financing in this market and the banks are only lending to their preferred clientele. Consider approaching non-traditional sources for funding instead.
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