Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period

Winston Koh and Edward H.K. Ng (edwardng@nus.edu.sg)
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Edward H.K. Ng: National University of Singapore

No 03-2005, Working Papers from Singapore Management University, School of Economics

Abstract: Real estate investments are typically characterized by high degrees of leverage and long loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provide a simple rule to calculate the optimal holding period is to compare the required rate of return with the leveraged rate of return on equity.

Keywords: mortgage financing; real estate; financial leverage; optimal holding period (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-02
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-sea and nep-ure
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Published in SMU Economics and Statistics Working Paper Series

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Working Paper: Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period (2005)
Journal Article: Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period (2004)
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