Leasing as an alternative for the financing real estate investments

In the developed market economies, the alternatives for investments on the capital market are real estate investments, especially direct investments. They are also often related to the current needs of enterprises, because the entrepreneur's goals are realized within them, e.g. manufacturing. The purchase or the construction of real estate both require high expenditures, the engagement of entrepreneur's own capital and the use of external capital. Due to the capital intensity of the investment, own funds most frequently comprise the profits from previous years and not the current incomes. The latter are the basis of  the credit rating for the financing of the purchase with external funds. Financing with external funds typically relates to the additional cost of raising capital, this is the case in bank loans or in leasing rates. What are the benefits of real estate investments financed with bank loans and with the real estate leasing then?

The discussed direct investments are characterized by different premises of investing and investors’ willingness to take related risks.  The highest willingness to take risks is connected with the short-term investments, tending towards fast, speculative increases in value. The high real estate investment risk essentially is a result of this market segment environment. This market risk includes exchange rate, interest rate and real estate pricing change risks resulting from unfavorable market environment changes. The interest rate risk means the correlation of expected incomes and rates of return on the other alternative markets with investors’ expectations on the real estate market.  Investors exposed to loan risk are those who used bank loans for this purpose, the most frequently secured by the subject-matter of the investment. Such a risk is typical for any investor, but especially crucial for the investors who serve their real estate needs (e.g. real estate in which production is performed) and for this purpose take long-term loans. The discussed risk is a result of the possibilities of breach of contract and the loss of credit rating. In the first example, the debtor ceases to settle the growing financial obligations (e.g. as a result of the interest rates, exchange rate changes), while in the second primarily does not meet the criteria established by a bank (e.g. current income level, collateral value), notwithstanding the obligations settled on an ongoing basis.