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

28 Pages Posted: 7 Feb 2005

See all articles by Winston T.H. Koh

Winston T.H. Koh

Singapore Management University - School of Social Sciences

Edward H. K. Ng

National University of Singapore - Department of Finance and Banking

Date Written: February 2005

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

JEL Classification: G11

Suggested Citation

Koh, Winston T.H. and Ng, Edward H. K., Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period (February 2005). Available at SSRN: https://ssrn.com/abstract=662102 or http://dx.doi.org/10.2139/ssrn.662102

Winston T.H. Koh (Contact Author)

Singapore Management University - School of Social Sciences ( email )

469 Bukit Timah Road
Federal Building #02-08
Singapore, 259756
Singapore
+65 6822 0853 (Phone)
+65 6822 0833 (Fax)

Edward H. K. Ng

National University of Singapore - Department of Finance and Banking ( email )

1 Business Link
Singapore, 117592
Singapore

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