What do you need to know about property investment? Renting out a property gives one monthly income. It is similar to investing in a REIT except that you own the property.
WORK OUT YOUR BUDGET AND SHOP FOR THE BEST LOAN
Property investment requires a huge budget. To purchase a rental property, you will need to be able to pay the initial downpayment, monthly mortgage loans and monthly maintenance expenses. Banks will only lend you money based on the amount you are earning. Thus, the mortgage loan that you get cannot exceed a certain percentage of your monthly income (or combined monthly income if you are married).
Different banks give different loan packages so do shop around though a mortgage consultancy firm first. These mortgage consultancy firms usually tie up with the various banks and thus have a clearer picture on the best rates available. Ask them to do a comparison for you. The rates that they offer are usually the same as those offered by the banks so there is no additional cost to you. It saves you a lot of time too so it is much better to get a mortgage consultant instead of doing the comparison yourself. Of course, if you already have an idea of what the best rate in town is, then you can skip the mortgage consultants.
The key to earning income from a rental property is to make sure that your RENTAL INCOME exceeds that of the MONTHLY EXPENSES (e.g. mortgage loans, property tax, etc)
RISKS INVOLVED
There are many risks involved when it comes to purchasing a property.
Firstly, there is the risk that you might not be able to get a tenant for periods of time especially when the rental market is down. You might need to lower you rent to an unprofitable rate just to attract tenants. Therefore, I believe that it is important that you always have spare monthly cash to afford paying the monthly mortgage installments should that happen.
Secondly, there are times when the property value drops. How will that affect you?? There is a little known clause involving bank loans that the bank is only willing to lend you a certain percentage (e.g. 80%) of the property's value. For example, a property could cost $1 million and the bank's maximum loan to you could be $800,000. Should the property value drop to $500,000 someday, the bank reserves the right to ask you to top up the difference between the maximum it can lend you and what you have already borrowed. In this case, it will be a whopping $400,000!! Of course, this scenario might or might not happen so it is something that you ought to consider when looking to buy a property.
Different banks give different loan packages so do shop around though a mortgage consultancy firm first. These mortgage consultancy firms usually tie up with the various banks and thus have a clearer picture on the best rates available. Ask them to do a comparison for you. The rates that they offer are usually the same as those offered by the banks so there is no additional cost to you. It saves you a lot of time too so it is much better to get a mortgage consultant instead of doing the comparison yourself. Of course, if you already have an idea of what the best rate in town is, then you can skip the mortgage consultants.
The key to earning income from a rental property is to make sure that your RENTAL INCOME exceeds that of the MONTHLY EXPENSES (e.g. mortgage loans, property tax, etc)
RISKS INVOLVED
There are many risks involved when it comes to purchasing a property.
Firstly, there is the risk that you might not be able to get a tenant for periods of time especially when the rental market is down. You might need to lower you rent to an unprofitable rate just to attract tenants. Therefore, I believe that it is important that you always have spare monthly cash to afford paying the monthly mortgage installments should that happen.
Secondly, there are times when the property value drops. How will that affect you?? There is a little known clause involving bank loans that the bank is only willing to lend you a certain percentage (e.g. 80%) of the property's value. For example, a property could cost $1 million and the bank's maximum loan to you could be $800,000. Should the property value drop to $500,000 someday, the bank reserves the right to ask you to top up the difference between the maximum it can lend you and what you have already borrowed. In this case, it will be a whopping $400,000!! Of course, this scenario might or might not happen so it is something that you ought to consider when looking to buy a property.
How To Purchase A Rental Property For Under $5k!
This is a great book explaining where to find rental properties all over the US that are selling online for under $5k, without paying a finders fee or commission, and what to look for before and after purchasing one of these "low cost rental properties".
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How to Buy and Manage Your First Rental Property.
Written for the beginner but has many useful ideas, forms and information for the experienced landlord. Ideal for Canada and U.s. but applies to any English speaking country. A step by step guide to increase your wealth through real estate.
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