Deaton Investment Real Estate & The Wake County Apartment Association

Wednesday, November 14, 2007

New lending standards affect small property investors

The mortgage industry fallout and subprime meltdown finally hit home. After accepting what appeared to be solid offers on two quadraplexes, the buyer call to withdraw them. Her grounds? She expected to put down 10% but discovered she needed 25% for each of them. Obviously, she was pretty surprised. But there it was, as obvious as an eviction notice, the lending industry troubles have hit home.

The days of buying investment properties with little or no money down are over, at least temporarily. The good news here is that the market is stabilizing itself. Investors with cash are making their way to the front of the line. In the long run this is healthy for the market. It will prevent price inflation based on excess demand (the supply of buyers and "easy money" has contracted). Furthermore, it forces investors to be smarter with leveraging decisions, take less risk and focus on the fundamentals of the market.

For those currently hunting properties, be prepared to alter your leverage strategy for the time being. And, check with your lender for the absolute latest information on loan terms and qualification requirements. The loan market remains volatile and things can change quickly. What you were told last week may not apply today.