Why you want to take up a loan for your real estate investment?Property investment is about how you manage your finances. Even for people who are wealthy, in terms of cash, investing in a particular property with 100% cash would be termed in most quarters as an unwise decision. Conversely, we hear the advice that we should try to be debt-free as soon as possible, so why should we take up a loan for our investment in real estate? Well, one reason would be that the current Housing Loan in Singapore is one of the cheaper loans one can get. The interest rate for it is currently 3%. As compared to the 5% for car loans and 24% for credit cards, it is so much cheaper. Think of the opportunity cost that arises when cash is used to pay for investing in your property instead of taking up a loan. For example, if the interest rate happens to experience an increase, it usually slows down the market in general. This would be the ideal situation when you want to invest in other properties, as property pricing would decrease due to lesser demand. But if you didn't leverage, you wouldn't be able to take advantage of the current opportunities available! Taking up a loan doesn't necessary mean you're in debt. There are such things as bad and good debts. Bad debts are usually debts taken up upon consumption. Such examples include credit card debts, car loans and personal loans. Such debts should be cleared as soon as possible or just simply just avoid them. |
Good debts, on the other hand, such as student loans or real-estate loans, are investment debts that create value, giving you higher returns. For example, let's assume you own a property which cost you $2,000,000, and rent it out at $4800 per month, and you took up an 80% Housing Loan, repayable over 30 years, for it. Your monthly Housing Loan instalments adds up to $4600 per month, you are still able to profit from your investment and retain a positive cash flow! Taking up a loan doesn't mean that you have accepted a long term burden upon yourself. It actually depends on how you manage your finances. A good way of estimating if you are able to afford paying the monthly instalments would be that the value should not exceed 40% of your overall house hold income. By doing proper homework beforehand, you'll be able to enjoy the benefits despite having some debts on hand. |
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Photo Credits: http://thesmarterwallet.com/2008/good-debt-vs-bad-debt-loans/ |
Kelly is a highly experience |
