Tips before buying a rented residential property

Tips before buying a rented residential property

Real estate has produced many of the world's wealthiest people, so there are plenty of reasons to think that property is a sound investment. However, experts agree, as with any investment, its better to gather enough knowledge and courage before diving in with lakhs and cores of hard earned funds.

Pay Down Personal Debt Before You Purchase

Investors might carry debt as part of their investment portfolio, but the average person should avoid it. If you have pending loans, medical bills, or children who will soon attend college, purchasing a rental property on loan may not be the right move. ALTHOUGH the above suggestion is not applicable if your return from your real estate is greater than the cost of debt. That is the calculation you need to make." 

Beware of High-Interest Rates

The cost of borrowing money might be relatively cheap in the form of housing loan  as of 2020, but the interest rate on an investment property will be higher than traditional mortgage interest rates even if its a LAP. Remember, you need a low mortgage payment that won't eat into your monthly profits too significantly.

Calculate Your Margins 

if one buy a distressed property, aim for return shall be 5% to 7% because they have to pay the Estimate maintenance costs at 1% of the property value annually. Other costs include house tax, possible homeowners' association fees/maintenance charges, property taxes and major expense is at the time when the current tenant vacates your property after general wear and tear and  renovation of the estate is required . And then there's a period when the property remain vacant and no their is no return.

Determine Your Return

For every paisa that you invest, what is your return on that paisa? fixed deposit may offer a 6% return and saving accounts offer around 3%, investment in NSE can give you a better return but the risk involved is non-negotiable  while bonds may pay 4.5%, keeping cash in lockers after DEMONITISATION gives sleepless nights .A 3.5% to 4.25% return in your first year as a landlord is considered healthy, especially given that number should rise over

Risk vs. Reward

Every financial decision is about weighing the rewards, determining payoff against potential risks. 

Does investing in real estate make sense for you?

Rewards:

• Your income is passive. Aside from the initial investment and upkeep costs, you can earn money while putting most of your time and energy into your regular job.
• Your income should grow. You don't just earn rental income; as real estate values increase, your investment rises in value, and you get capital appreciation.
• You can put real estate to martgage to get further loan for a fresh venture.
• The interest you pay on an investment property loan is tax-deductible.
• Short of another crisis, real estate values are more stable than the stock market and even gold investments.
• Real estate is a physical asset. Investing in stocks, mutual funds or other NSE based  products isn’t anything you can see or touch.

Risks:

• Although rental income is passive, tenants can be a pain to deal with UNLESS YOU HIRE A PROFESSIONAL REAL EASTAE AGENTS with adequate experience and required LEGAL KNOWLEDGE.
• Its mandatory for the tenant to deduct TDS before releasing the rents. So rental income is completely taxable.
• Rental income may not cover the total mortgage payment.
• Unlike stocks, you can't instantly sell real estate if the markets go sour.
• Entry and exit costs can be high.
• If you don’t have a tenant, you have to pay for all the expenses

The Bottom Line

Keep your expectations realistic. As with any investment, rental property isn't going to produce a large monthly pay cheque for a while and picking the wrong property could be a catastrophic mistake. 

Consider working with an EXPERIANCED PARTNERS on your first property or rent out your own home to test your abilities as a LANDLORD.