Many people’s imagination has been fueled by the 10-year fixed-rate home loan available at low interest rates. A number of you have asked whether it would be worthwhile to buy real estate for rent on such a loan.
The basic idea is simple: the interest rate is fixed, if you can find a tenant, he would pay the greater part of the installment, adding my share to a quasi-savings account, so I have a flat in 10 years.
Since the interest rate is fixed and the currency is forint, it should come as no surprise to foreign currency borrowers that the monthly installment runs out.
If I were to raise $ 15 million for a $ 20 million home
My monthly repayment would be $ 159,098 for 10 years. (If your salary is high enough, you get a fixed loan of 4.99% for 10 years, read the article here.)
If I can sell the apartment for 110 thousand, then I will have 120 × 49 thousand, that is, 5.8 million forints plus the initial 5 million, I will have a flat worth 20 million, so my profit will be 9.2 million plus the real estate value increase.
If I still do the stunt with, say, 3 home savings, which I make for four years, then when I pay it off, I pay down my loan and my monthly debt, and so on. Then I make 3 home savings again, pay it back at the end of year 8 and I already got the credit. I won over another 1 million on this one.
If you can increase the rent by inflation every year
The difference between the rent and the installment payable to the bank will decrease.
Since you won’t leave me alone, I’ve made a calculator for you to play with when you have to pay or how much you will make.
If you are looking for a return on investment, you should also keep in mind the following factors:
- The rent is subject to tax, above HUF 110,000 per month not only personal income tax but also EHO. (The amount of EHO, or health care contribution, is capped on an annual basis.)
- Your equity (to which you would add the property tax, the cost of the initial refurbishment and equipment, as it is part of your investment, not just the purchase price of the home) would also interest the bank, so this is a loss. (Unless property prices rise more than bank rates, the calculator will count for that anyway.)
- If you need to spend an average of 2-3 million every 10 years on renovating your home, divide that by one month as an expense.
- If the cost of running your business (broken, broken, clogged, torn, needing a new bed or new fridge, etc.) is also a cost that will reduce your income.
- The price of real estate is rising (weekly), but your real estate is getting older, so it’s worth less than an average, say, 20 year old real estate. (Your 10-year-old property today will be just a 30-year-old apartment in 20 years, not a “newly built” one.) Therefore, consider the price increase of a property by the result of two: price increases and depreciation.
- Don’t believe you will always have a renter, there will never be a holey month. Not only do you have no income, but you also pay the overhead. If the agent brings the new occupant, it will also take you a month’s rent. Therefore, expect a maximum of 10-11 months of revenue per year.
All these are taken into account by the calculator
If you buy a 20 million apartment in downtown Budapest for $ 500, you will probably be worth it. If you buy a $ 20 million apartment for $ 100,000, if you can sell it, you may not be doing well. (The calculator doesn’t count on home savings, but you can write it down easily if you want.)
I also recommend a cell broken down by month, which shows you how much profit you make each month. You are bothering with the tenant for so much money, risking and hoping that you will never have a tenant who leaves half a million rents and utilities behind, or does not pay and you cannot put them out for a year and a half.