Alternative Financing
Despite the FHFA’s latest efforts to improve circumstances for first time homebuyers, the housing market has maintained stagnant levels. With millennials eclipsing the baby boomer population, their choice of housing widely affects the housing market. However, a significant amount of millennials are grappling with overwhelming student loan debt. Over 40 million Americans are reported to have student loan debt with an average balance of $30,000 upon graduation. Thus, rental properties are becoming an increasingly popular living option as opposed to purchasing a home. Rentals allow millennials to bypass unattainable mortgages in an uncertain market in addition to letting them focus on paying off their debts to avoid default. But, rental properties are not just ideal for millennials. Rentals can be a safe haven and sometimes, the only option for Americans struggling with poor credit that disqualifies them from obtaining a mortgage. With the popularity of rentals on the rise, small- and mid-sized investors are receiving greater access to capital through private equity firms. After the financial crisis, the economic conditions made it necessary for private equity firms to utilize different strategies for survival. The burst of the housing bubble offered renewed chances of financial stability.
According to a client note from investment banking firm Keefe, Bruyette & Woods, private equity firms in conjunction with hedge funds and real estate investment trusts have spent a minimum of $25 billion on over 150,000 houses since 2012. Suffice it to say, firms have accumulated an impressive portfolio of single-family homes. Typically, these single-family homes are purchased for the sole reason of converting them into sought-after rental properties. With the current market, small- and mid-sized investors have been eyeing rental properties more and more. But, small investors do not always have the means to se-
“Rental properties are becoming an increasingly popular living option as opposed to purchasing a home.� cure loans. Interest rates and credit history are just some of the variables preventing investors from tackling the rental market on their own. This is where private equity firms come into the picture. They offer more flexible financing with interest rates as low as 5 percent. Investors that do not qualify for loans from the government-sponsored enterprises can likely receive them from loan origination groups within private NAWRB MAGAZINE |
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