Funding Real Estate Deals: What You Need To Know In 2020
What do you need to know about financing real estate deals in 2020?
It’s shaping up to be another exciting year for real estate investors. Financing is expected to continue to grow in use this year, and it will be a big part of every real estate investor’s business. Here’s what you need to know.
Interest Rates
The great news is that interest rates ought to remain low through 2020. They will need to remain low to prop up the economy and keep things going through the presidential election. Of course, that didn’t stop the fed from sabotaging the market back in the run up to 2008. Though rising rates shouldn’t be an urgent concern, yet.
Available Capital
There still appears to be more capital than deals. Big funds, banks and international investors are still looking to deploy billions of dollars in US debt. Lenders are still wary of lending to owner occupant home buyers, and that will probably increase with current market trends and more states demanding lenders go through judicial foreclosures. Investors will benefit from this.
Declining Markets
Watch out for the snowball effect from declining house values. Some homeowners are already experiencing deep declines in their equity and potential resale prices. When lenders deem certain areas as ‘declining markets’ it can be very difficult to finance houses there. They can get blacklisted. Or at least expect lower LTV loans, repeat appraisals to keep up with declining values, and tougher underwriting. Credit lines may also be cut off.
More Competition For The Money
Investors have plowed an enormous amount of cash into the US real estate market over the past decade. Some have severely depleted their liquidity already. With the threat of a recession and downturn on the horizon, it is smarter to keep more cash. Instead of just 3 to 6 months of living expenses and operating costs as an emergency fund, upping that to 24 months of capital reserves may be a crucial move. That means more investors competing for loans. Even many who have only used cash up until now.
More Mortgage Defaults
Expect to see even more homeowners in negative equity positions and defaulting on mortgages this year. It’s worth noting that Zillow stopped up dating their data on mortgage defaults and underwater properties back in 2018. That could be a sign that there is a lot more happening under the surface than most are aware of.
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