Residential loans and the Financial Crisis

On the off chance that you have been living in another universe lately, you may have managed to miss the recent credit crisis and it’s after effects – i.e. pressure on the credit market resulting in loans being difficult to come by. Especially in the speculative area of investment property loans because real estate values are continuing to decline, meaning constraints on loans for investment property purposes as well as personal use.

While there are considerable constraints on the amount of lending available, plus onerous terms for those wishing to borrow, for those with a real drive for investing in property, there are still opportunities around, at least for those with cash. No more will the banks lend substantial amounts without first doing their due diligence as has happened over the last 10 years or so. Even the luxury real estate area of the market is under pressure since the so-called “mega loans,” disappeared.

Does one wish to get involved in industrial or residential property investment is the first question the first time investor needs to ask before taking on a loan. There are substantially different requirements, repayment schedules and laws involved. It is possible to do both at the same time, but sensibly, this is not an option for any but the most experienced investor.

Loans against residential property 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 commercial real estate, sometimes even as long as twenty five years.

The industrial property segment 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 credit crisis has made it all but impossible to arrange financing in this area of the market and the banks are only lending to their preferred clientele. Consider approaching non-traditional sources for funding instead.

 

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