I’ve been getting a lot of questions from friends, colleagues and other investors regarding the current real estate scenario, auctions and what would be a good investment strategy and the likes. But all this I have learned to take in my stride. As for my new neighbor across the street, he’s a whole different story and its thanks to his persistent pestering and ability to shout LOUD! that I decided on compiling a set of quick crisp answers for all those trying to unravel the situation. Thanks Marley I owe you one.
What’s up with the hedge funds taking a liking to real estate?
Hedge funds is a load of money in the hands of well disciplined soldiers. You can’ t stop them and nor do you have the firepower. What they see is a profitable conquest in property and they will slowly but surely establish base. These hedge funds are mainly looking to make some clean returns on their investments and move out. They buy prime properties with upfront cash and wait for the markets to balance themselves. Once this happens they can easily gain financing, form a REIT’s and sell the property of once they meet their profit expectations.
Hedge Funds are crowding us out, what to do?
Hedge funds are property hungry and with deep pockets they have, they can and will buyout pretty much everything of what they want even when they have to pay a bit more. But think of this as an opportunity, for there are many ways you can use the presence of hedge funds to earn a hefty sum.
- One tactic is to become neighbors. Investing in properties neighboring hedge fund investments is a smart move for gaining some solid money. Hedge funds are willing to pay a little extra for the right property and because property valuations depend a lot on the prices of surrounding and similar properties your investments are also bound to benefit.
- Being one step ahead of hedge funds might be a little tricky, but with careful preparation can be managed. Hedge funds have a small type of properties on the radar, based on the risk they are able to take. Hence finding out these properties and selling to hedge funds themselves or staying long term are good options.
Interest rates, why are they important?
Interest rate levels determine the amount of money at investor disposal and hence affect the demand for assets such as real estate. High interest rates mean less funds and lower the number of buyers. Currently we have been seeing low interest rates for quite some time, this is a confidence booster for any investor as it means that with the high amount of borrowing there will be more buyers hence you can expect property rates on the up.
I also want to take low interest rates loans and invest in real estate, but which loan to take?
There are a number of loans available and it depends on the individual which suits the most. I have given a short summary of the various types of loans available
- Conventional Mortgage Loans: fixed interest rate loans requiring roughly 10% -20% down payment. In my opinion a good option considering the low interest rates in the market.
- Adjustable Rate Mortgages (ARM): as the name suggests the interest varies with the market for ex 0.5% this year compared to 0.75% in the next.
- Fixed & Floating Mortgages: combines aspects of both where the initial few years could be fixed while later on you get floating. It can also be structured as some fixed interest amount topped by variable interest.
- Transferable Mortgage Loans: these loans can be transferred from the owner to the buyer. You will have to pay some amount to the owner depending on the initial down payment and interest cycles paid.
My take on the current scenario
Well real estate being what it is, will always be in the spotlight and will always have a number of suitors chasing after it. Being in the thick of things, even the smallest changes in a far of scenario can have cascading effects. Currently with a number of significant and highly real estate influencing events occurring the property market is hot and definitely spelling P R O F I T.
