How to rent a mortgage apartment is profitable
A mortgage is not only an opportunity to get your own housing or invest in real estate, but also the financial obligations of borrowers. Some take real estate as a mortgage for themselves, but over time circumstances develop so that the living space is empty, others immediately plan to receive income from a mortgage apartment. Therefore, the question of how profitable it is to rent a mortgage apartment can become relevant at any time.
Do I need the bank’s consent for an outstanding mortgage
The pledgor, who can act as both a borrower and a third party, has the right to alienate property through sale, donation, exchange, contribution or share contribution, provided that the pledgee, who is also the lender, will not mind. The pledgor also has the right to bequeath the property belonging to him, which is the subject of the pledge. There are no restrictions regarding the possibility of transferring property for temporary use by third parties. Moreover, the pledgor retains the right to own and use the property.
From the position of banks, the right to lease mortgage housing in the presence of unfulfilled obligations does not contradict the current legislation, but jeopardizes the possibility of debt repayment at the expense of property in case of damage or complete loss. In this regard, credit organizations insist on preliminary approval of the possibility of renting mortgage real estate. Thus, before renting out an apartment, you should obtain the consent of the lender. By the way, some of them prescribe this as an obligation in the text of the contract.
How to rent an apartment profitably and from what income is generated
Net income of the borrower, consisting of the amount of lease payments. They should be calculated taking into account the costs, which, in this case, are a lot.
The opportunity to rent an apartment profitably and, as a result, the potential profitability is influenced by many factors, including the liquidity of the apartment (type and location), as well as the demand and prices for housing. Ideally, if the owner manages to earn an amount on rent that exceeds the total amount of expenses, this can be regarded as a profitable investment.
According to experts in the field of real estate, if the landlord purchased an economy-class apartment, the object will pay off no earlier than in 18 years, and the yield will vary in the range of 4-7% per annum. But this is if the apartment was purchased independently. It is more difficult with a mortgage, since the owner not only returns the loan received, but also pays interest to the bank.
Accordingly, the sooner the borrower begins to receive income, the faster the costs will be recouped. And this is possible if the object is ready. If a new building is chosen as an investment, then in most cases it will be necessary to prepare housing, in particular, finishing, and sometimes wait for the developer to put the object into operation.
Additional costs to consider
In addition to the fact that you need to make a mortgage payment monthly, and before that transfer the amount of the down payment to the bank, it is important to consider the following lines of expenses:
- payment of insurance during the entire crediting period or from the moment of commissioning of the facility;
- payment of taxes if the lease agreement is registered;
- payment of utility bills, the amount of which can be included in the rent or charged separately;
- payment for the services of an intermediary, for example, the agency through which the apartment is rented;
- unforeseen expenses related to the elimination of the consequences of property damage, for example, in case of flooding or intentional actions of tenants. A very important nuance, because the pledger is responsible for the safety of the pledged property, and the pledgee has the right to check its safety.
The same list can include repair costs if the apartment is from the secondary market or if the developer has handed over the object with rough finishing. Of course, some of these expenses are of a one-time nature, but their volume can be very impressive.
Daily rent as a way to increase profits
Renting an apartment for a long term to a verified tenant is a good way to get additional income, which at best will cover the main expenses of the borrower. That is why many people choose a riskier option – daily rent of an apartment. The daily fee is always higher, and there is a reasonable explanation for this: as a rule, no one enters into a contract with tenants, and few people ask for copies of passports, but anything can happen.
In addition to high risks, the high cost of daily rent is caused by the costs of regular cleaning of the premises and expenses that compensate for downtime. Such apartments are usually more comfortable, have furniture and household appliances, which also increases rental rates.
Is it really possible to pay off the mortgage at the expense of rent
This is quite possible, but you will most likely have to forget about the excess income at the time of financial obligations to the bank. It is unlikely that with all the mandatory expenses, including the amount of the initial payment, the borrower will recoup the cost of the mortgage apartment with interest. Nevertheless, with a constant load of housing and a stable rental income, you can pay off the debt without any problems. This method of mortgage repayment is especially relevant under favorable credit conditions, when the rate is low and the loan period is short. In such cases, the overpayment and the final cost of the object are lower.
At the same time, there are insurmountable obstacles, in the presence of which all the efforts of the landlord are reduced to zero:
- The apartment was purchased using state support. In this case, the bank may not give consent to the lease.
- The monthly payment is too large, and the rental rates are low. The situation in the real estate market is constantly changing and it is possible that over time the lease will cease to pay off the cost of the mortgage.
- The financial situation of the borrower has changed dramatically, and therefore he uses part of the rental income for personal purposes, and not for debt repayment.
- An apartment as an investment is illiquid. This factor should be taken into account at the stage of purchase. It’s no secret that housing in a convenient area with good transport accessibility can be rented more expensive than on the outskirts in an area with poorly developed infrastructure.
- A potential landlord has purchased an apartment in the excavation stage. In such a situation, until the commissioning of the facility, the mortgage will have to be paid at the expense of the main source of income. But there is also a plus: it will not be possible to repel investments at the expense of rent, you can sell the apartment and make money on the difference in cost.
It is possible to rent a mortgage apartment, but in order to avoid unpleasant situations with the bank, it is better to enlist its consent. In order to get profitability from an existing mortgage apartment and fulfill financial obligations at the expense of it, it is worth considering a strategy for its use. If the mortgage is only in the plans, the investor should weigh all the risks and assess the situation in the real estate market. In this case, one cannot hope only for income from a future purchase, there must be a financial cushion due to which the borrower will not become a debtor.
Published: 23 April, 2022
