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Important considerations before you invest a loan or personal savings in rental properties


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Are you thinking of investing in rental properties? If yes, congratulations, carefully planned and managed rental properties investment can be quite profitable in the long term while also allowing the investor to build wealth on the journey to financial freedom. Generally speaking, investments can be done with personal savings or loan.
A loan can facilitate the ability to invest in real estate and make good profits; however, an investor has to be extremely careful before taking out loans to finance an investment in rental properties. This is because an inability to meet up with loan payments can quickly wipe out investments and leave an investor with debts and financial troubles.
Here are some critical things to consider before investing personal savings or loan on a rental property:
1. Negotiate good deals on land/property purchases (buy at a price below current “fair market value”), this way, you already made a profit on the day you close-out the real estate purchase.
2. Consider how easy it will be for you to sell the rental property before you buy it. Do not invest in a property that can prove difficult to sell as you should be able to pull out your capital (money) without difficulties if need be. 
3. Avoid investing in a house or building located in disaster prone areas or localities/states. Man-made or natural disasters can quickly crash-down the value of real estate while also resulting in mass exodus or fleeing of tenants and residents from the area.
a. Man-made disasters: uprisings, political unrest, insurgency, terrorism,wars e.t.c.
b. Natural disasters: investigate possibilities / recorded history of floods, wildfires, volcanoes, tsunamis, hurricanes, earthquakes  in the area e.t.c.
4. If taking a loan or mortgage:
a. The interest rate on the loan (the lower the better)
b. Term of loan (how many years to pay off the loan). A loan with a very long payback period can be risky when investing in real estate.
c. Loan scheduled repayments plan (how much per month/quarterly/yearly). Can you easily be on time for scheduled payments after considering your net rental income?
NET RENTAL INCOME = RENT RECEIVED – OPERATING COSTS
OPERATING COSTS = AGENT FEES + INSURANCE + REPAIR/MAINTENANCE
                                      + RENT VOID +GOVERNMENT FEES/TAXES
Rent void costs are the loss of rental income due to vacancy in your rental property, it is always important to account for this.
5. Other considerations identified /highlighted by your financial planner/adviser after thorough considerations of the specifics of your business or investment scenario.

Every investment decision should be well balanced in order for the investor to make good profit, the importance of due diligence and a disciplined approach cannot be over-emphasized.



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Comments

  1. UnknownJuly 16, 2019 at 7:57 AM

    Thanks for the information and facts.

    ReplyDelete
  2. ROCKYFebruary 14, 2021 at 3:21 AM

    mortgage for foreigners, Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I'll be subscribing to your feed and I hope you post again soon. Big thanks for the useful info.

    ReplyDelete

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