Property loans and the Credit 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 credit 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 market feeling the pinch since the so-called “super loans,” vanished, any investment in real estate 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 property 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 virgin investor needs to pay special attention to the differences in loan structures and time frames.

Loans against residential real estate tend to be shorted than loans against commercial 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 25 years.

The non-residential property area of the market 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 segment and the banks are only lending to their preferred clientele. Consider approaching non-traditional sources for funding instead.