Making a foray into investment properties is not quite as easy as it once was. The best way to make a million dollars has always been to “borrow a million and let other people pay it off for you,” but the credit crunch is still affecting the loan markets and finding property investment loans is still difficult.
Until such times as the credit markets loosen up – which does not seem to be happening just yet – there will be stringent requirements applied meaning anyone wishing to borrow that million dollars will have to come up with at least $300,000 of their own money and around 1.5 million in collateral. There is still a lot of ill health in the system and an undisclosed amount of bad loans that will need writing off over the next 18-24 months. The markets are not going to loosen up until such times as all of the bad loans are out of the system. Although, even then, we will need a recovery period that may be years.
Perhaps the best option if one is considering Investment community in property, would be to look for non-traditional sources of funding, outside the banking system. Even the luxury homes segment of the market is suffering, with the so-called “jumbo loans,” a thing of the past and the inventory of luxury homes for sale still rising. It is unlikely we will return to the heady days of 125%, loans of any size, regardless of your income. So – thinking outside the box is required. Borrowing from family members, joining a collective investment club, or even starting one of your own, may be viable alternatives.
The other consideration is the interest rate. There is no possibility that interest rates will stay as low as they are today and any one taking a variable interest rate loan is going to be under severe pressure when interest rates go back up. Like property values, interest rates tend to over shoot on the way up and down. They have overshot quite drastically this time and will most likely over shoot t a similar level when “normality,” is restored. Expect rates in the 15-18% range within the next 2 years.