REAL ESTATE INVESTMENT - AN ANALYSIS OF THE FINANCING DECISION

Abstract

The financial services industry has undergone major transformations in the 1980s. Firms are becoming larger, and lenders on mortgages are becoming more diverse. The movements which have occurred make it appear likely that the mortgage market of the future will differ considerably from that of the past. One of the major forces that produce change in the mortgage market, is the huge fluctuations in interest rates. Higher inflation, changes in the operation of monetary policies and growth in international markets, all led to much sharper and wider swings in interest rates than had been previously experienced. The globalization of the capital market and the interaction between exchange rates, trade and capital flows, and foreign interest rates also began to influence activity, interest rates, and the availability of capital. For these reasons, the methods of financing a real estate investment are vastly different from that of the past. Because of the importance of financing in real estate investment, it is felt that investors should not obtain financing just for the sake of covering the total cost of investment. The changes in the mortgage market do not permit the investor to stick to only one method of financing. The variety of loan arrangements available as a result of those changes increase not only the potential ways of financing real property, but also the difficulty of analyzing those arrangements.