Everybody makes an investment hoping that it will bring fruitful returns one day. Investing in property I both fruitful and risky at the same time, since it is very difficult to predict market and property conditions. Even real estate pros stick to a couple of golden rules to be followed to avoid any investment pitfalls.
Here are a few things you should know before investing in real estate and allied properties.
Buying any property sound simple enough, you have money with you, you go and invest it in real estate. But there are many other factors that have to be taken into account before you go ahead with the investment. Factors like cost of owning and maintain the said property, annual taxes and charges that you might incur, overheads which will be incurred for the said property. The most important thing being, how much rent can be recovered on a monthly basis if the property was let out or giving on a long-term lease.
These factors will again depend on the type of property, whether it is residential, commercial or industrial for that matter. The location of the said property, its use and additional resources that might be needed for the said property are all major factors which should be considered even before making an offer.
Where there are handsome rewards involved, the risk also goes up. Even if you have managed to buy a property and have made all the necessary arrangements from the ground up to make it lease worthy, there are chances that you might not get a tenant immediately. When the property does not generate any revenue in the initial months or maybe in the months between when tenants change, the overhead incurred have to be paid out of pocket without the prospect of recovering them immediately. This affects the cash flow and you should have a backup plan to tackle otherwise you just might experience your first loss.
There are many legal expenses involved along with the fixed and variable expenses, which will again depend on the type of property. And who can forget the major expense which is incurred, whether you make money or not, Taxes! Taxes are a major component when it comes to any type of investing or selling or renting for that matter. They are mandatory payments which have to be made to the government. The cost of hiring tax attorneys has to be factored in as well, in fact all the costs which you may or may not incur have to be factored in to calculate and make an informed decision of whether the property is even worth the required investment.
A reverse mortgage is a type of loan that allows homeowners to receive payments on their house as opposed to them making payments to the lender. At first glance, this option seems too good to be true. But, before committing to it, there are some nitty-gritty details that people must consider when opting for this type of financing. So, here is some information regarding the pros and cons to consider when getting a reverse mortgage.
Advantages
Disadvantages
A reverse mortgage is a loan that allows individuals older than 62 to improve their financial well-being. They can convert part of their home equity into lump sum cash, fixed monthly payments, or line of credit, according to their preference. The money can be used to pay for medical bills, in emergencies, or to pay off a mortgage. Here’s what you should know about reverse mortgages in case you’re looking for one.
How much can you borrow?
For reverse mortgages, the loan amount can’t exceed the value of the property against which it is borrowed. Federal regulations require lenders to ensure that the loan amount doesn’t exceed the value of the house by structuring the transactions accordingly. Additionally, these regulations state that the owner/borrower is not liable to pay off the balance amount in case it exceeds the property value.
How are reverse mortgages paid for?
A reverse mortgage is payable when the borrower sells the house, relocates permanently, or dies. Unlike forward mortgages, reverse mortgages don’t need the borrower to make any monthly payments. They are only liable to pay interest on the money received, which is rolled back into the loan balance. While the owner gets to keep the title to the home, their home equity reduces over the loan tenure.
Who can take a reverse mortgage?
This type of loan is ideal for seniors and retirees whose net worth comes mostly from the value of their home. Seniors who don’t qualify for a home equity loan or can’t refinance due to limited cash flow or poor credit can opt for reverse mortgages. Home Equity Conversion Mortgage (HECM) for purchase is a reverse mortgage that allows seniors to buy another property. That said, it is complex, and you should study the risk factors before getting one.
What are the risks associated with reverse mortgages?
Reverse mortgage scams are not unheard of. Unreputable vendors could offer to help seniors secure reverse mortgages by undertaking house repairs. They don’t provide quality results and get away with the homeowner’s money instead. For spouses living together in a home with only one spouse named as a borrower on a reverse mortgage, the other spouse can lose the home if the borrowing spouse dies first. Besides, reverse mortgage lenders charge fees and closing costs and may also charge mortgage insurance premiums for federally-insured HECMs.