INVESTMENT STRATEGY
OVERCOMING BARRIERS
Navigating Rigid Borrowing Conditions and Rising Construction Costs
REAL ESTATE INVESTING IS CONTINUALLY EVOLVING, AND INVESTORS MUST ADAPT TO THE CHANGING CONDITIONS TO ACHIEVE SUCCESS.
By Taylor Miller
n the aftermath of the pandemic, two significant
more substantial collateral to secure loans. This has created a barrier to entry for some investors, particularly those with limited capital or less established credit histories. Additionally, the stringent borrow- ing conditions have led to increased competition among investors for the limited financing options available. This has driven up interest rates, reducing the profitability of real estate investments. Investors must carefully evaluate the financial viability of their projects, factoring in higher borrowing costs and poten- tially lower returns on investment. Despite the challenges posed by stricter borrowing conditions, real estate investors can adapt their strategies to navigate these changes successfully. Investors should focus on improving their creditworthiness and building stronger financial profiles. This includes maintaining a healthy credit score, reducing existing debt, and increasing liquid- ity. By presenting a solid financial position, investors can enhance their chances of obtaining favorable financing terms. It is worth mentioning that traditional banks may not always be the sole source of financing for real estate projects. Investors can
consider alternative options such as private lenders, crowdfunding platforms, or partnerships with other investors. These alternatives can provide more flexibility and potentially more favorable lending terms. Investors can also explore creative deal structures to overcome borrowing challenges. For example, lease-to-own arrangements or seller financing can provide more acces - sible financing options, allowing investors to pursue deals that might not meet traditional lending criteria. RISING CONSTRUCTION COSTS In addition to borrowing condi- tions, real estate investors face the impact of rising construction costs. Factors such as increased material prices, labor shortages, and regulatory requirements have contributed to the upward trajectory of construction expenses. These increasing construction costs can significantly impact the profitability of real estate projects. Investors must account for these expenses when evaluating the finan - cial feasibility of their investments. Burdensome construction costs can lead to elongated project timelines, reduced profit margins, and the need
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trends with a profound impact on real estate investing have emerged: stringent borrowing conditions and the increasing cost of construction. These factors are reshaping the real estate landscape. They are also forcing investors to rethink the strategies they must employ to remain profitable.
STRINGENT BORROWING CONDITIONS
One of the primary trends affecting real estate investing today is strict borrowing conditions. Following the global financial crisis of 2008, regulators around the world imposed stricter lending requirements to mitigate risk and ensure financial stability. These conditions included higher down payments, more stringent credit checks, and stricter debt-to-income ratios. We are now seeing these same conditions befall the lending market. This borrowing environment has made it more challenging for investors to obtain financing for real estate projects. Investors now need to demonstrate stronger credit pro- files, higher levels of liquidity, and
18 | think realty magazine :: september – october 2023
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