Sub Prime Mortgage Loans and their impact on real estate investment

The recent turmoil in the sub prime loan market has caused many lenders to become more jittery about lending money to people for the purpose of purchasing real estate.

One reason for this is that the US unlike many common law jurisdiction has non-recourse loans. What are non-recourse loans? As the name suggests, these are loans that limit the bank’s claim against you only to the value of the property and not your goods nor your personal assets in your property. Sub prime mortgage loans are therefore property loans made to people with low or bad credit ratings with the major credit rating agencies in the USA.

Amidst this downturn in the lending market, a lightbulb in the mind of the intrepid investor may start going off and he might start thinking that contrarian investing has found its golden age and there is opportunity yet in this downturn in the property sector.

The withdrawal by large corporations and institutions of their investments in sub prime mortgage loans, would mean that the amount of money that such lenders can lend to new loans is now limited.

This would therefore translate into more foreclosure sales and this may actually be a good buying opportunity if you find a property in a good area. Spend some time thinking about this and also spend some time analyzing cash flow of the property and how much your local lender is willing to finance you. Foreclosure real estate investing therefore in this period may be a good way to make money from the fallout from sub prime mortgage loans.

So the Sub Prime mortgage loan caused lending crisis may be actually good for you to hunt for jewels. But as always caveat emptor (buyer beware) and some commercial sense should prevail in every deal that you consider entering into.