- 1. Renting can be stressful and time-consuming
- 2. Setting up a limited liability company can cut costs
- 3. To get a mortgage, you need a large deposit
- 4. First-time buyers may not meet the requirements
- 5. Not all real estate is profitable
- How to calculate rental yield:
- 6. Mortgage fees can be high
- 7. Know the neighborhood
Many of us dream of the world of renting apartments, Houses, office and retail premises for rent. We imagine buying a property, renting it out and monitoring the monthly receipt of cash or its arrival in a bank account.
But being a homeowner can be time-consuming and costly. In addition, you run the risk of falling into a trap due to Changes at government and taxation rules, As Politicians Try to Squeeze More Taxes Out of Homeowners. Break 7 Useful tips, who know better and think about it, before buying a house or apartment for rent as a daily, and monthly – Long-term.
1. Renting can be stressful and time-consuming
In recent years, the luster of purchase and sale transactions has faded significantly, although there are many good sites like FLOORS – sale of real estate throughout the Russian Federation, even in Pyt-Yakha here https://pyt-yah.etagi.com/realty/, there are offers in all other regions and cities of Russia. Convenient sorting and nice design of the site with many lots, Services, mortgage programs and knowledge base. Telephone consultations are available almost 18 hours a day – with 6:30 to 24:00!
A variety of government measures are trying to make the purchase of real estate with a mortgage more attractive for investment, than before.
There are also such homeowners, who decided to quit this business and sell their property for rent, As new fees and the loss of tax breaks have led to a narrowing of profit margins (Unless you're working in gray).
Buying for rent means, What do you need?, probably, Have:
- Get a mortgage to buy real estate and service monthly mortgage payments.
- Answer calls about a flooded bathroom, Noise, Dirt, breakdowns, etc.
- Dealing with a random nightmare tenant.
- When looking for tenants, pay the agency for this.
Investing in rental properties involves significant risks and is only suitable for people, who have a financial cushion to cover unforeseen expenses. Property management can also be time-consuming, and it should not be considered as a short-term investment.
For some people, it's just the wrong investment. With stock market funds, possibly, It's much easier to deal with, than with residential property, Especially taken on a mortgage.
On the other hand, There is always money in the market, which can be earned by renting.
2. Setting up a limited liability company can cut costs
If you don't want to pay extra tax on rental income, You may want to consider buying a property to rent out through a limited liability company.
Amounts don't add up for everyone, Therefore, you need to consult an expert, Before making such a jump.
If the property is owned by a company, All expenses, including mortgage interest payments, can be deducted as business expenses.
The company pays corporate income tax. The tax rate is currently 20%.
Capital gains are also an important factor, As the company will be responsible for paying corporate income tax, If the property is sold at a profit. You will then pay income tax, If you need to withdraw money.
One of the advantages of the company is that, that you only need to withdraw money at a time that is convenient for you. This could be a tax year, when other incomes are low, because, let us say, You're taking a sabbatical.
3. To get a mortgage, you need a large deposit
While a standard mortgage can be secured by a pledge of everything in 5% of the value of the property, Minimum deposit for a mortgage to purchase for the purpose of renting, Usually is: 25%.
4. First-time buyers may not meet the requirements
Theoretically, Buyers, First-time buyers of real estate, can get a mortgage to rent out. But in fact, it is extremely difficult, Since lenders often consider this group too risky.
There are creditor companies, who will review your application, Even if you've never owned a property.
Although, this often requires a minimum deposit of 30%, The applicant only needs a minimum income of 12 000 dollars per year.
The lender carefully examines the applicant's circumstances and reasons, according to which he wants to purchase real estate for rent, not owning his own house at that time.
Mortgage brokers can also help you find a lender, which welcomes new buyers.
5. Not all real estate is profitable
You must demonstrate the profitability of renting out the property, To get a mortgage to rent out.
How to calculate rental yield:
- Take the annual rental income of the property.
- Divide the amount received by the amount, that you paid for the property.
- Multiply the number by 100, To get a percentage.
Don't forget the costs of maintenance and insurance, any commissions of the managing agent, mortgage interest, as well as periods, during which the property can remain empty. All these expenses will eat up the rent.
You will also need to show, that you can still pay your mortgage, If interest rates rise.
6. Mortgage fees can be high
Some fees and interest rates on foreclosure mortgages may be higher, than on a standard mortgage.
Also keep in mind, that most foreclosure mortgages are not regulated.
Such a mortgage is usually offered only at interest. It means, What is the monthly amount, that you pay to your lender, will be lower, than when repaying a mortgage loan.
It can be appealing, but, of course, Means, that you're not reducing the mortgage itself.
On the positive side, These mortgages often give you the opportunity to repay a portion of the loan each year. That's it, What you could do, if your rentals become more profitable in the future.
If you do choose this route, Check for penalties first, Especially if you have a flat rate.
Another way to deal with interest-only loans – re-mortgage after a few years or at the end of the term of the fixed rate.
But if you like this option, Take into account, that you will have to increase the commission, You'll get older, and there is no guarantee, that the numbers will continue to rise, Especially if interest rates rise.
Eventually, you can sell the property to pay off your mortgage. But if real estate prices fall, And the proceeds will not cover the outstanding debt, You will have negative equity, and, possibly, You will have to compensate for the difference yourself.
So it's worth creating a financial cushion, To make sure, that your property empire will not collapse.
7. Know the neighborhood
It may be tempting to buy a profitable one-bedroom apartment “in the northeast” cities. But be careful: Ignorance of the terrain can lead to serious losses.
Rental demand in the area may be weak or falling, And banning most rental fees for tenants could mean, that real estate agents have left the scene, Therefore, it may be difficult for you to rent out the property.
If you decide to sell the property, You may get hurt.
So do your research, and then do some more research. Skydiving in an unfamiliar place, to try to make money on real estate investments, may not be the best solution.
Also consider the type of tenants in the area: Will there be a demand from young professionals?, young families or students?
This will also determine the type of real estate purchase, which you purchase.
Before you quickly buy a property for rent, Sit down and think carefully about everything, using our recommendations, including:, Calculate everything on paper, Weigh the pros and cons. Consider all the places and apartment options that suit you, Take your time, Sometimes you need to wait for your “Goldfish” in the real estate market.