A Guide To Real Estate Investors

Property investors have been urged by real estate experts to get in early to avoid the rush as cash-rich baby boomers move their money from the stock market to the real estate market. This may seem to be a plausible argument, given that many Australians, especially those approaching retirement age, believe they have a good understanding of real estate as an investment. It’s something they can see and touch, while the stock market operates in enigmatic ways that they don’t completely comprehend. The global downturn in share prices over the last 18 months has solidified this position, and investors are looking to preserve what is left of their retirement assets rather than risk being burned by further stock market declines. Why not check here Cash Home Buyers Atlanta-We Buy Houses

However, the expected rise in property investments has yet to materialise, according to the most recent lending results. Instead of real estate developers, first-time owners are rushing into the market, aided in part by government stimulus spending. So, why aren’t real estate investors following suit? There are a variety of reasons why buyers may be hesitant to join the real estate business.

Tougher lending standards

Banks have increased the requirements for borrowers (and owner occupiers) to apply for a mortgage as a result of the Global Financial Crisis (GFC). No-deposit loans, which are blamed in part for the subprime crisis, are becoming increasingly rare, with many lenders requiring a minimum 20% deposit and a track record of lending before offering mortgage financing. With financing being more difficult to come by, there will be buyers who want to buy property but can’t. It has been proposed that tighter lending standards would help prevent the Australian real estate market from experiencing the same kind of declines as the US and UK property markets. In fact, the banks that provide mortgage financing, not the real estate investors, would be covered by the stricter lending requirements. If a lender or owner occupier finds themselves unable to meet mortgage loan repayments due to unemployment or increasing interest rates, a gearing amount of 80 percent or lower is unlikely to help. Because of the stricter lending requirements, if the bank has to sell the property to recoup the money it borrowed in mortgage financing, it would be able to do so even if it has to sell at a significant discount to the original purchase price, either because the real estate value has dropped or because they need to get their money back quickly.

Equity dilution

The size and pace of the stock market crash has wiped out trillions of dollars in shareholder wealth (The ASX All Ords index fell more than 40 percent in 12 months). Before the start of the Global Recession, stock markets around the world had seen huge year-on-year returns dating back to the early 2000s tech crash. Previously, investors might invest in the stock market and use the proceeds to finance real estate purchases. In a financial double whammy, these investors are now without a source of investment income as well as having to provide cash to pay margin calls on loans backed by their stock portfolio. Many investors will be hesitant to sell their shares at rock-bottom fire sale rates, so they could look to sell their investment property to raise funds, increasing the risk of a real estate market crash.