Investment

Investment property loans

Again and again, there are legal problems in practice when a young family in the home of parents or parents-in-law to build an apartment or in the course of a life savings in the property of the partner to be invested.

It is urgently recommended in this regard to obtain detailed legal information prior to the start of such a project and to conclude an agreement among the parties concerned, which on the one hand defines the extent of the contribution to monetary and / or labor services and on the other hand governs how the living benefit usually received in return is to be taken into account. The contract should also cover other issues such as operating costs, maintenance costs and ongoing usage issues (snow removal, garden use, etc.).

Without such an agreement, on the one hand, there is no concrete legal ground for use, so that the latter can face an eviction claim in the event of a dispute, and on the other hand there is the risk for the property owner of a property enrichment claim or, in the case of a cohabitation, of a claim for the dissolution of a civil law be subject to legal acquisition and thus high payment claims. For further advice, please make an appointment for a meeting.

Mortgage loans

There are many banks that have good mortgage programs with reasonable rates, taking into account the current inflation. Mortgage is a contract in which real estate remains in the ownership of a bank until the loan is paid in full, while the rate on such loans is significantly lower than the rates on standard loans. This is due to the fact that the bank has liquid collateral (collateral) – your housing. Many young families are ready to take a mortgage on an apartment in order to immediately enter a new home. In today’s reality, to accumulate the necessary amount is not an easy task, therefore a favorable loan for housing is an excellent way out.

Programs

There are several groups of lending programs:

  • to buy an apartment in the new building
  • for housing from the secondary housing stock
  • for the repair / restructuring of real estate.

Borrower requirements

Some banks impose age restrictions, and require confirmation of a certain work experience from both employees and entrepreneurs.

Which mortgage loan is better to take?

How to start choosing the optimal program? First, you need to decide on a bank. Learn about the offers of different credit institutions, consider the size of the fee, the type of rate. Comparing mortgage rates should not be limited to two or three large institutions. Examine as many offers as possible, because even a small difference will save you money. Some state banks

Requirements for the borrower

Some banks impose age restrictions, and require confirmation of a certain work experience from both employees and entrepreneurs.

Which mortgage loan is better to take?

Some US state banks participate in state mortgage lending programs for young families. Lending rates for such programs are lower than market ones, as part of the payments is reimbursed by the state. But be prepared for the realities of the market: the lower the rate, the more documents and references you will have to collect.

Mortgage rates of banks

You can choose a mortgage correctly, based on the data on the amount of the first installment and the type of the rate. It can be fixed or floating. Floating varies depending on the economic situation in the state and is usually lower than the standard. In the second case, there is a risk to significantly increase your expenses as a result of a change in the UIRD index (average level of interest rates on loans over a certain period). Compare the size of the rates of various financial institutions. For employees, specify the effective interest rate, which includes all additional payments. The average rates of banks on mortgages in Ukraine will be around 10-20%, while the contribution may be 30-50% of the full price of housing.

First installment

In some institutions there is no initial payment and a monthly fee. In this case, try to carefully examine other conditions, especially service fees, insurance amounts, penalties.

Additional expenses

The lowest percentage does not mean that you have found the most profitable option. If the lending institution offers a small percentage, you may have to pay more additional fees. You will need to pay for the work of appraisers, insurance agents, a broker. Usually, the mortgagor’s life and real estate (collateral) are insured. Funds are charged for servicing the current account, consideration of the application, drawing up a contract.

Payment terms

The term ranges from one to twenty years. The pledger can fulfill its obligations ahead of schedule, contributing more than the designated amount. In the US, fines for the early fulfillment of obligations by the borrower on any type of loan are prohibited by law.

How to repay the loan?

There are two options for paying the debt: differentiated or annuity. In the first case, the percentage depends on the debt balance, that is, first the payments will be higher than at the end of the term. The alternative is to pay in equal installments, so-called annuity payments.

Comparison site services

If you are not sure that you can figure out where to apply for a loan on the most favorable terms, we recommend that you turn to credit comparison sites and sites that offer to use a free mortgage calculator. You can compare all the conditions from banks on our website.

Continuing the topic of self-calculations related to real estate, let’s consider another situation. At this time, we will try to evaluate the prospects for buying property as an investment. We wrote about the purchase of real estate for living in a previous publication: Consider: Mortgage or Rent?

As before, one of the main questions is – is it worth using a mortgage, at what rates and ratios with your own funds? In an investment situation, another interesting aspect is added – the possibility of renting an apartment or house. After all, now the living space will not be used for living.

Such a scenario is not exotic. Many are interested in the question – how to buy an apartment, while not having 100% of the funds and not remaining at a loss. Today we will try to answer it.

In addition, we compare this investment option with the traditional investment portfolio of securities and see what is more profitable and under what conditions.

Case A

Imagine that a family has money that makes up a certain part of the cost of an apartment (house). The property is purchased using a mortgage. Monthly payment is made on the loan to the bank (annuity payments). After buying the property is rented. The size of the rent is indexed annually on the size of inflation.

In this case, it is believed that over the term of the mortgage the cost of an apartment increases by the amount of inflation.

Note: The assumption that the price of real estate is changed to the size of inflation is made to simplify the calculation. At the same time, using the example of Moscow real estate, it can be noted that this model is not so far from the real increase in prices:

  1. For 10 years, real estate brought an average of 10.38% per year
  2. Inflation over the same period – 9.49%. Although, I must admit, such accuracy was not always and everywhere.

Case B

A similar amount of money is invested in a diversified portfolio of securities. Portfolio revenue is completely reinvested. The valuation of the portfolio is made for the term of the investment equal to the mortgage.

For comparison scenarios, we calculate the indicator IRR (Internal Rate of Return, GNI) for cash flow. IRR in a simplified version can be considered the profitability of “business”.

The rate of 12% on the loan corresponds to the current situation with the state program on mortgage subsidies.

The advantage of buying an apartment on credit is a possible increase in its value over time. In our calculations, this growth is equal to the cumulative inflation during the term of the mortgage (10 years). Inflation is calculated according to the formula of compound interest and for 10 years its growth will amount to 159% (at 10% per annum).

The second part of the income – renting an apartment. We conditionally took this value as 5% per annum of the apartment price, although nominally the rental price may be either higher or lower. In particular, its size depends on the cost of maintaining the apartment and the constancy of delivery (it is difficult to find a client for the entire 10-year period). Rental income, as a rule, is a noticeable “increase”, but not the most important source of profit.

As calculations show, the attractiveness of investing in real estate is highly dependent on the ratio of own and borrowed funds. Below is a graph characterizing the dependence of IRR on the percentage of own funds.