High-End Investors – Why Immune to the Real Estate Crunch?

The sub-prime mortgage industry has hit a snag that has sent a ripple effect throughout the entire real estate market. As so many parts of the American economy slow down – automotive, manufacturing, and so on – the resulting woes of those who signed with high-risk mortgagors has hit virtually everyone when it comes to banking and finance.

But is this true of all real estate markets and investors? What about those who have invested in so-called high-end real estate, meaning homes and other projects that are priced in the millions of dollars? Obviously their businesses must feel some effect from the mortgage industry, so has their investments as well?

Surprisingly, this doesn’t seem to be the case, at least not in the numbers and percentages one might expect. Those with big dollars and numerous investments have seen a downturn in certain areas, and of course there have been some markets that have taken an unexpected plunge, but by and large analysts believe that the high-end market hasn’t felt the same woes as the other areas.

Why is this? Is it simply because certain markets are immune to industry trends?

The answer may not have as much to do with the market as with those who are actually involved in the market themselves.

Note what was reported by CNBC in June of 2007. Tyler Mathisen of CNBC's "High Net Worth" sat down with Roger Erickson, senior managing director of Sotheby's International Realty, to get some insight into the high-end real estate buyer, in a CNBC.com web exclusive

Erickson, who deals with numerous celebrities and business leaders, says there's no shortage of demand among his upscale clientele. "The only shortage we have is the properties themselves," he says.

Why is that? Why would high-end real estate seem to be immune to the woes of the sub-prime mortgage industry and banking problems facing other buyers?

"The high-end buyer seems to be a very successful individual who does well in their business and it seems to carry over to their real estate purchases," Erickson says. "They really know how to do it."

One of the major factors that seem to play a part in the sub-prime mortgage arena is that borrowers are often confused and overwhelmed by complicated mortgages, especially those with adjustable rates. Someone who is not familiar with how interest rates fluctuate and doesn’t understand the “prime rate” – and specifically, how it affects their own borrowing and payments – can be easily taken in by those under-inflated, enticing introductory rates offered by predatory lenders.

But high-end real estate developers and consumers are somewhat different in what they bring to the table, so to speak. Many who are financially successful are so because of years in the business or legal arena, and who make it their business to understand investment options – or who have the resources to hire someone to explain it to them. Any part of the investment process that they themselves don’t fully comprehend will be explained to them by an army of lawyers and advisors.

It’s much less likely that someone who can afford to purchase and develop real estate that is valued into the millions is going to do so without a complete understanding of all the different aspects of their risk. They are going to be more up-to-date with industry trends, and perhaps more experienced in the areas of buying, investing, speculating, and so on.

This isn’t to say that anyone caught up in the sub-prime mortgage downfall, or who is facing serious financial setbacks that are going to affect even the home they live in, is in some way less intelligent than anyone else. Many people who have been financially successful for years can find their entire savings wiped out due to one accident or illness; many people who fully believed their own job or profession was completely safe has been taken woefully off-guard by the changing economic landscape of today.

But by and large, those who are investing in high-end real estate are doing so because they do understand the market, the terminology, and the rules of the game. As reported by Erickson to CNBC, they know how to invest so as to take the shortest risk and to get the greatest gain.

And the fact that these ones are purposely investing in real estate for just that – investment – is another testament to how they are no doubt more familiar with the ins and outs of this field. Someone signing a mortgage for the first time is of course more likely to be taken advantage of by shady lenders, or is going to be less familiar with interest rates and the fluctuations in the market. To many, they simply want to purchase a house and think only of the monthly payment, nothing more.

High-end investors are also those that are not tied to any one market or investment area the way private purchasers are. If you buy a home in an area that has been hard hit by factory closings and other business losses, it’s very difficult to pick up and move on to another area altogether. A high-end investor, however, is not tied to any geographic location or area of the country. He or she has their pick of the litter when it comes to neighborhoods and even the real estate itself; whether it is condos in Florida or mansions in Connecticut, their investments are much more fluid and able to fluctuate, following as the market goes.

So this is good news for high-end investors who are wondering if and when the ripple effect will be felt for their investments. The sub-prime mortgage woes will of course somehow and in some way affect virtually everyone, but it doesn’t necessarily mean that your particular investments – or your investment strategies – are flawed. As long as you remember to apply the business sense and experience you’ve no doubt gotten over the years to your real estate investments, you’re sure to be protected even in today’s volatile mortgage market.

Contents

• How Much Mortgage Can You Afford?
• Buying a Good Vacation Home
• Buying a Home for Resale Purposes
• Claremont is the Top Earner – and Most Expensive
• Commercial Real Estate Still a Safe Bet
• Determining Your Offer Price
• Empty Homes for Sale
• Exercise Caution When Flipping
• Expensive and Alternative Homes
• Figuring Property Taxes for the High-End Real Estate
• Florida’s High-End Real Estate Goes Limp
• Foreign Investors and the Hamptons
• German Investment in U.S. Real Estate Creates a Bidding War
• Getting Wealthy From Real Estate Investing
• Going Green
• High-End Goes High-Tech
• High-End Investors – Why Immune to the Real Estate Crunch?
• High-End Real Estate Feels the Crunch?

• High End Property Site Map