How To Finance A Real Estate Investment
Purchasing a house or a rental property is a significant investment. Real estate investment is a substantial endeavor in your life that may be funded through both personal contribution and credit. In this guide, we will look at how to achieve that.
Determine your Acquisition capacity first
You must examine your acquisition capability to determine the money you can dedicate to your real estate project. The main idea is to figure out "how much I can put into my real estate project" depending on the factors mentioned below
- the degree of personal contribution
- the monthly payment that a household's budget can afford to pay off a mortgage(The income must be at least three times more than the monthly loan payment)
- additional expenses incurred as a result of your future acquisition: property tax, new housing tax, construction costs, and so on.
Buying on credit
The credit granted by the banker is based on your borrowing capacity, which varies depending on your income, personal and professional circumstances, etc. A personal commitment of roughly 10% helps your operation, even if it's just to pay the cash due during the promise to sell. The amount of monthly payments to be repaid must not exceed 35 percent of your monthly disposable income for your household's debt ratio to stay appropriate.
It is advisable to guarantee that the estimated rental revenue is more extensive than or equal to the monthly loan payments to ensure adequate financing of this sort of project.
Buy to Rent with Credit in Fine
Aside from the traditional monthly amortizable credit, another sort of credit is ideal for rental investment: the " credit in fine. " Its basic premise is that you only repay the interest throughout the loan's duration.
To return the capital after the loan, you must, in principle, have a set amount of money invested in a savings product that will earn interest, such as a life insurance policy. The installments on a Credit in Fine loan only comprise interest, and these repayments remain constant throughout the loan's term. You deduct a fixed amount of interest from your taxable rental income each year, but the interest on a traditional loan, which is also deductible, gradually diminishes over time.