A special checkpoint for those looking to buy real estate and housing for rent! - Trustpilot

 A special checkpoint for those looking to buy real estate and housing for rent!

Have you ever thought about living on rent? Many doubt this. No one likes to answer this question: it depends on the circumstances.

Personal Finance Expert Blog

And to live on rent .. Who has not dreamed of it? A safe investment, isn't it? Hmmm...would it be? Today I dispel the doubts of a follower about buying a particular property to generate rental income. Is it worth it? check it out:

“One of my friends offered me his house as an investment opportunity so that I could increase income by receiving rent. Do you think it is possible to buy this property by paying half the amount in cash and financing the rest?”

No one likes to answer this question: it depends on the circumstances. It depends on your overall investment portfolio, the moment in your life, your investor profile, the risks you are willing to take and of course the conditions and location of the property. Here are some points to pay attention to before signing the contract:

observation points

Suppose the total amount spent on real estate is R$500,000. If the net rent is R$5,000 per month, that means the monthly income is 1%. After a year, the return will be 12% (in this case, no interest is charged, just multiply the monthly return by 12). Compare the rental income you get from this property with the fixed income. Always remember to look at the return minus income tax and fees.

Calculate the opportunity cost, which we call the advantage you will lose because of your given choice. In this case, this is a calculation of how much you will not earn by withdrawing your investment and giving it ownership.

Model the number of months of rent received that your initial investment (incoming financing) will take to “pay off”, i.e. after the time when you actually start receiving a portion of the rent as a dividend (consider the amount of the “profit” from the rent received being deducted from the amount paid).

Remember IR. The income tax rate charged on a monthly basis on rent may be higher than the tax rate on income from financial investments. If the maximum rate in the first case reaches 27.5%, then the maximum that can be paid to Leo in the second case is 22.5% of profitability.

Since buying a rental property is a long-term investment, you need to calculate the probability that the property's value will rise or fall in value over time. You can find this information at your state's CRECI, Secovis (Housing Associations), or even at the real estate agencies themselves.

Be aware of notary fees, acceptance certificates, deeds, translations and commissions of mediators involved in negotiations.

Find out the monthly costs if the property becomes vacant and create a financial reserve to cover any vacant periods.

Check the structural quality of the property (electrical wiring and hydraulic system, to say the least) and common areas of the condominium, if any. Potential renovations can put your pocketbook at risk, even if the neighbors share the costs.

No investment without risk

Tenant default is always a risk, even in the case of long-term contracts, and you should be prepared for potential vacancy periods when, in addition to not being able to count on rental income, your landlord will have to pay many expenses, such as fees. And property tax and property maintenance in the end. One way not to be surprised by any market movements driving vacancies is to keep an eye on the number of start-ups in the area: if many buildings of many units are rented soon to the same type of tenants you intend to reach, an increase in supply can lead to lower rents and an increase vacancies.

Another risk to consider is market liquidity if you need to dispose of property quickly and the market is not a "buyer" (remember the famous phrase "don't put all your eggs in one basket" here). You also need to consider the risks of minor inconveniences and inconveniences that may be part of this investment format.

sorry about that...

I suppose you've noticed throughout this text that talking too much about feeling safe when buying a rental property can be wrong, right? Sorry about that. I know how the idea of ​​"living on rent" has been ingrained in our minds for generations, but I can't help but tell you about these different points. Basically, it's about math and understanding risk.

If you prefer, click here to email me and understand how Financial Guidance works to help you with these tough questions and make decisions easier.