Real Estate Financing is a mortgage loan financing transaction between Borrower or the Special Subsidiary and an unaffiliated third-party lender whereby such unaffiliated third-party lender provides real estate financing secured solely by a mortgage Lien on the Headquarters Location and related fixtures. However, given the present state of the economy, you need to have a strategic approach while dealing with real estate investment, in order to make the most in the residential as well as commercial real estate business sector. Let’s explore some of the best possibilities of real estate financing and loan for real estate investment.
Understanding real estate financing
Real estate financing describes several financial methods used by potential investors for securing their independent capital investment. Therefore, it encompasses long-term financial methods used to secure capital while buying and renovating property from outside sources. This process of borrowing and lending money is a liability for both parties — for those who lend the loan, as well as for those who get the loan as a means of financial support.
Investment options for real estate
Buying a property is not an easy task, and is definitely a costly affair. While buying real estate — bank loans, or investing through REITs is the best possible choice, There are several investment options for real estate. Following are some of the possibilities:
Primary sources such as Mutual Savings Banks, Commercial Banks, Savings and Loan Associations, Life Insurance Banks. You may also consider investment options through Financial Middlemen such as Mortgage Bankers, Mortgage Brokers; or through other sources such as Finance Companies, Pension Funds, Credit Unions, Real Estate Investment Trusts, Foreign Funds, Individual Investors and Farmers Home Administration. There is also the lucrative investment possibility of the Secondary Mortgage Market.
Bank Loans are one of the most favored options of potential #investors. Taking a #bankloan and paying back is common. One of the biggest advantages of buying a property on #loan is that the value keeps on decreasing while the value of the asset keeps increasing — thus creating a big advantage for the buyer. Furthermore, you can buy #realestate with just 20 percent down payment, and you repay the loan over a generous period of 20 years. Some of the other common benefits of home loans are low-interest rates, and low processing fees, interest on daily reducing balance, interest concession for women borrowers, no penalty on prepayment, and availability of home loans as an overdraft.
Borrowers however have to be well-versed with the several forms of investment in #realestate #financing. Choosing the wrong kind of loan may affect the success of the investment. Make sure to understand the requirements of each kind of loan and study thoroughly how the various alternatives work before approaching a lender. Three popular types of loans for investment property are — conventional bank loans, hard money loans, and home equity loans.
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Real Estate Investment Trusts (REITs)
These are #structured on similar lines of mutual funds and were officially introduced in India in 2014. These are securities linked to real estate that are traded on the stock exchange after their listing. REIT is considered a lucrative investment option and is a great potential investment with ongoing returns. One of the greatest advantages of REITs is that it allows investment in Grade A commercial realty, offering an addition to the investment portfolio. Furthermore, REITs provide liquidity to investors as an Alternate Funding Mechanism (AIF) and are thus considered as a stable investment option. With regular returns, REIT is a transparent investment option with the Securities and Exchange Board of India (SEBI).
Fractional Real Estate Investment
This option is slowly picking up pace in India, after being successful in Europe and the US. It is a new method of investment in commercial real estate and signifies combined ownership of a single asset by several investors together. Owing to high ticket sizes, a potential investor can sign up on the platform and invest in any of the current opportunities listed. This model opens up newer avenues of investment in fractions of premium commercial properties, thus increasing possibilities of earning monthly rental yield. Furthermore, Fractional Real Estate Investment offers great potential for retail investors who have limited access to CRE, considering the high ticket prices. It also provides investment opportunities across multiple properties and locations. The diversification thus also reduces portfolio risks.
Importance of real estate financing and why you should consider it
•Real estate financing is growing at a minimum of 30% CAGR. At this rate, the business is doubling and the profit is increasing every 2.5 years.
•Greater the development of a country, lesser are the interest rates (most developed economies have a sub 1% or even negative interest rates). The present time is therefore the best time to invest in real estate with loan offers of great profitability.
•The net NPA levels are lesser in home finance companies as compared to the banking sector.
•Due to the need and push for affordable housing — the housing finance domain anticipates the highest growth potential — followed by services, technology, and trading. It also guarantees fixed income, as investors are bound to get three times more of the sum than their 20-years loan from home finance.
- Commercial realty has also emerged as a resilient segment and substantial traction is witnessed towards the Grade A office space. Positive investment growth is also anticipated in the leasing of coworking spaces.
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