Most people will get a real estate investment loan when they start investing in real estate.In addition to your own funds, you can start with a small amount of funds by obtaining loans from banks and financial institutions.It is common for beginners to study property selection and yield earnestly, but there are times when they do not pay much attention to loans because they think that they are just borrowing money.Depending on the bank or financial institution, criteria such as the presence or absence of a guarantor, interest rate, repayment period, amount of self-financing, annual income, etc. are different depending on the bank or financial institution, so the amount you can borrow is also different. It is a case like deciding a bank or a financial institution.However, before choosing a property, it is necessary to develop a loan strategy and consider interest rates and repayment years so that profits can be secured efficiently.
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You cannot buy an investment property with a mortgage
In general, the amount borrowed for a housing loan is equivalent to 5 to 6 times the annual income because the source of repayment of the housing loan is salary income, and the real estate investment loan is 10 to 20 times the annual income because the rental income is included in addition to the annual income. You can borrow large amounts.However, housing loans are treated more favorably than investment loans in terms of "down payment", "interest rate" and "repayment period".It is easy to get a loan even if the down payment is small or zero, and the interest rate is about 1%, which is cheaper than real estate investment loans.Moreover, the lower the interest rate, the more money you will have left over, and the repayment period is as long as 35 years.Even if the real estate investment loan is long, there is a considerable difference because it is the period of subtracting the age of the building from the statutory useful life.
However, the purpose of the loan is different in the first place.Since the principal is basically obligated to live in the property, there are cases where a lump-sum repayment is forced as a breach of contract if it is discovered.
As an exception, you may be able to use the rental income to pay your monthly mortgage payment by renting a house together.However, there is a condition that the space you live in must be at least 50% of the size of the building.If you can successfully find a property that fills 50% of your living space, you can even benefit from a mortgage.
The first thing to do to start investing is to examine lending institutions
In many cases, when you start real estate investment, you will start with a dedicated real estate investment loan.Financial institutions include mega banks, regional banks, credit unions, credit cooperatives, and non-banks, and the conditions differ.In the case of megabanks and some non-banks, it is easy to get loans if they meet the criteria for loans regardless of where you live, work, or property location.On the other hand, local banks and credit unions tend to be easier to get loans if their residence, work, or property is located near their branches.
Before choosing a property on a real estate site, you have to understand the conditions under which you can buy it in the first place.People who are easy to get loans are those who have a lot of assets such as stocks and securities, and cash such as deposits.Even if you don't, if you work for a listed company, have a high annual income, or have a stable job such as a civil servant, the bank will think you are credible and will likely lend you a loan.The same is true if you are self-employed.
In addition, if you have filed a tax return, have prepared financial statements, and have a close relationship with a local branch, it is easier to obtain a loan.
If you do not know whether you can invest with your own income and assets, it is a good idea to consult with a real estate company individually.Consultations are often free of charge, and experienced staff can give advice on loans and find properties that are likely to be purchased.
Related article:Before you start investing in real estate, what you should know about loan screening criteria and how long is the screening period?
As a rule of thumb, the loan amount is 10 times your annual income.For an office worker with an annual income of 500 million yen, 5,000 million yen is a guideline.
In addition, the down payment and various expenses (real estate brokerage fees, judicial scrivener fees such as registration, guarantee fees and administrative fees) are not covered by the loan.
If the property is worth 5,000 million yen, prepare at least 500 million yen as your own funds.
In addition, banks and financial institutions examine whether the property is risk-free, stable, and profitable.
If you can create and submit a business plan, it will be a material to convince you that it will work as a business, so the possibility of getting a loan to create it will increase.
Related article:What is an advantageous business plan to make a loan in real estate investment?From creation method to agency request
Flow from loan screening to purchase
Submit personal information and property information, and if a positive response is obtained, enter into this contract
As a general flow, we will submit personal information and information on investment properties to financial institutions such as banks, and we will examine whether it is possible to obtain continuous profits as a business and whether it is appropriate.It will be easier if you create a business plan at this time.If a positive response is obtained at this time, the purchase and sale agreement can be concluded between the buyer and the seller.
Specifically, a certified copy of the register, property outline, cash flow trial balance, property acquisition related cost estimate, property tax assessment certificate, official map, residential map, sales drawing, building drawing, property photo, transaction example, Withholding slips and tax returns will be completed in about 2 to 4 weeks by banks and financial institutions.
After that, you can finally purchase the property after completing the procedures such as mortgage setting contract / revolving mortgage setting contract, money loan contract, group credit life insurance, etc.
About real estate loan interest rates
Choose carefully as the interest rate will affect your monthly repayments.There are two main types of interest rates: variable interest rate and fixed interest rate.
1. Floating interest rate
The interest rate fluctuates during the borrowing period and is reviewed twice a year.
However, even if the interest rate rises or falls, it will not be reflected in the repayment amount immediately, and the repayment amount will be reviewed once every five years. 5% is the upper limit, so if you repay 1 yen a month, it will be 125 yen.However, if the interest rate rises, the interest rate will also increase, so the principal portion of the repayment amount will be compressed, and as a result, the loan amount will not be reduced easily.
2. Fixed interest rate
As the name suggests, the interest rate is fixed for the duration of the loan.The repayment amount is fixed, so it is easy to make a repayment plan.
Interest rates are determined based on market long-term interest rates.
You can choose a fixed interest rate period such as 3 years, 5 years, or 10 years, and when the fixed period ends, you can choose a variable type or a fixed period type with the interest rate at that time.As a point to note, even if the interest rate rises at the end of the fixed period, the repayment amount will also increase, not the 125% upper limit like the variable type.
Early repayment is the most effective way to deal with the risk of rising interest rates.Save the money you have left over after paying off the loan each month and pay it off when interest rates begin to rise.In addition, the interest can be recorded as an expense, which is effective for tax saving measures.
Benefits and risks of real estate loans
The advantage of a real estate loan is that it is easy to start with a small amount of money.By the way, it is an investment term that means that you can get a high yield with a small amount of capital, and it is expressed as leverage.Another big advantage is that you can reduce the time to prepare funds. If you have a good property, you can start immediately because you can borrow the funds that you have to prepare over 10 years.
The biggest risk of real estate loans is that the occupancy rate will drop due to vacancies and the repayment will become difficult if you take out a loan.Until the loan is repaid, the tenant's rent will be the loan payment, so if you know that there will be a vacancy, you have to start recruiting as soon as possible.It is important to create a proper business plan in advance and make a simulation of how much vacancies can be tolerated.Also, by choosing a reliable management company, you can smoothly apply for new recruitment, so it is one thing to leave it to the management company until you get used to it.Also, if there is a situation where you have to sell the property in a hurry, there is a possibility that the remaining debt will remain.If the sale price is less than the balance of the loan, it will be useless.
Related article:The most scary vacancy risk in real estate investment.What are the measures and characteristics of properties that tend to be vacant?
Related article:How to choose a management company that is important for real estate investment?Points to identify a reliable contractor
Summary
- The advantage of real estate loans is that it is easy to start with a small amount of funds
- The risk of real estate loans is that repayment will be difficult if there are vacancies
- Create a proper business plan and make a simulation to see if you can withstand the vacancies.
- How many properties can I buy?to understand that
- In general, it is said that the borrowing amount should be 10 times the annual income, and in the case of an office worker with an annual income of 500 million yen, 5,000 million yen is the standard.
- Personal information and property information are submitted for the loan examination and the flow up to the purchase, and it is examined whether income can be obtained continuously.
- Interest rates for real estate loans can be broadly divided into two types (floating interest rate type and fixed interest rate type).
- Early repayment is the most effective way to deal with the risk of rising interest rates
At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.
