How to make money on real estate up to 50% per annum through a mortgage

How to make money on a mortgage is a question that concerns most young, enterprising people who want to receive passive income without much investment. In conditions of economic instability, constant inflation, and rising prices, investments in the purchase of real estate are an excellent alternative to traditional types of income.

Making a profit directly depends on a thorough analysis of the real estate market and the bank's conditions for mortgage lending. How to make money buying a home with a mortgage is a very relevant topic for modern society that requires special attention.

Way to earn money

The best option is to rent out credit housing at a price that will cover the owner’s monthly mortgage payments.

Important to remember:

The landlord cannot live in a mortgaged apartment, as it is for rent.
Before signing a mortgage agreement with a bank, you should think about the future monthly cost of the apartment. You can turn to the services of a real estate company, describe all the conditions of the location of the property, such as area, floor, walking distance of infrastructure, general condition of the house, etc. After the assessment, the realtor will be able to announce the real price at which it will be possible to find tenants.
Inquire about the cost of receipts for housing and communal services, except for electricity and water. The latest services will be paid for by tenants according to meter data.
Then calculate the exact amount of mortgage payments, bank interest in combination with housing and communal services expenses. Ideally, the amount of the tenant's obligatory payments should be less than the monthly cost of the rented apartment. By minimizing mortgage payments to the bank, the loan term increases. This is the surest step to making a profit from rental housing.

Method 3. Buy an apartment in order to convert it into commercial real estate

Buying out apartments on the first floors and converting them into non-residential stock for retail or offices - today experts see this investment option as the most profitable. The rental yield in this case is 12-13%, which generally corresponds to the proportion of rental rate/mortgage rate.

RRG estimates that income from an apartment converted to commercial can be 7 times higher than from rental housing. Thus, the maximum rental rate for housing can reach $360/sq m per year, while the rental rate for office space can be up to $700, and for retail real estate up to $2,500.

Although the profitability is higher, more investments are required - firstly, it makes sense to buy an apartment in areas with high traffic and developed infrastructure (such real estate is naturally more expensive). Secondly, the average cost of services for transferring an apartment to non-residential stock by specialized companies ranges from 250 to 350 dollars / sq. m. (i.e., for a premises of 40 sq. m. you will have to pay 350-490 thousand rubles). Thirdly, “unofficial” translation costs can reach up to 1-1.5 million rubles.

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Example No. 1 of earnings

An example of one family that was able to take out a mortgage on real estate and achieve good income from it:

After having their wedding, the newlyweds were able to save up an amount of one million rubles. This incident happened eight years ago. At that time, they did not own their own living space, and the price tag for a two-room apartment in a new building started from 2,300,0000 rubles. The young family was planning to have a child soon, so the one-room options did not suit them.

They could dispose of the accumulated million in two ways:

Keeping money in a deposit account at a maximum annual interest rate and receiving monthly income. At that time, the interest for the year was equal to a coefficient of 8. The monthly income would be 6.5 thousand rubles.
Bank mortgage program of preferential lending as assistance to young families. The percentage was 12.5. By purchasing housing under such a program, you can try to rent it out at a profit.

Method 1. Buying an apartment in a building under construction

The idea is that you buy an apartment at the initial stage of construction, which is much cheaper. Developers at this stage are most interested in attracting additional funds, so they offer housing at lower prices. Thus, from the “pit” stage to receipt of ownership documents, housing, as a rule, increases in price by 20-50%. The profitability can be much higher (exceed 100%) under favorable circumstances, for example, if a new metro station is planned to be built in a given location.

Of course, in order to receive income, the mortgage must be paid off as quickly as possible - within a year, maximum two, otherwise such investments will lose their meaning.

The disadvantages are the high risks of such investments, associated with the fact that the project may not be completed, as well as inflationary processes that can “eat up” a significant part of the profit. Therefore, it is optimal to invest in quickly constructed projects, for example, townhouses and low-rise buildings. It is unlikely that you will be able to make a profit on long-term construction projects.

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The young family used the second method. The apartment was purchased for 15 years for 2.3 million rubles with an initial investment of the accumulated amount. Calculating the monthly loan payment, it amounted to 14.4 thousand. Monthly housing and communal services, on average, ranged from 2000 to 3000, depending on the season. The apartment is located in a nice new building near the metro station. It turned out to be handed over for almost 20.5 thousand rubles. As a result, net profit averaged 6,000-6,500 thousand rubles.

After this, the couple took advantage of the federal program to subsidize purchased housing and were able to receive an amount of 300,000 rubles from the state. They spent the funds received on renovation work in the apartment.

IMPORTANT !!! There are many stories of real passive income from mortgage housing in legal practice. The main thing is to be aware of government programs that offer preferential rates, or to take advantage of the right to receive a deduction from income tax (in accordance with Article 220 of the Tax Code of the Russian Federation). Before purchasing a home, you should familiarize yourself with the lending conditions of different banking institutions. In difficult competitive times in the market, safe deposit boxes are becoming more flexible in providing services to consumers. This situation can be turned to your advantage.

Assessing your primary investments and your capabilities.

Before making a final decision, it is worth weighing the pros and cons and assessing your own capabilities. If at the moment there are barely enough funds to cover basic needs, then, obviously, it is too early to think about a mortgage. Otherwise, there is a risk of getting into large debts. Moreover, for failure to comply with the terms of the housing loan agreement, the bank may terminate the deal and sell the collateral, depriving the borrower of both the property and part of the invested money.

Any investment in real estate, including the mortgage option, should be treated as a long-term project. At the same time, it is better to have an idea of the dynamics of market development and your own financial situation in the future.

Among other things, you should take into account your financial capabilities at the time of start. Future expenses should include:

The amount of the down payment in the amount of 10% - 30% of the value of the purchased property;
Insurance of collateral, life and health of the borrower in the amount of 0.1%.
The services of an appraiser will cost an average of 5,000 rubles;
Notary services approximately 2,000 rubles;
Banking services can be free or paid. In the second case, it is better to include the amount of 10,000 - 15,000 rubles into the calculation.
Amount of monthly contributions;
Works and materials for repair and improvement;
Payment of state fees;
Other unforeseen expenses.

It is worth noting that the higher the down payment, the lower the final overpayment, the lower the monthly payments and the more profitable the deal.

Example No. 2 of earnings

ATTENTION !!! To take advantage of the right to receive income from a mortgage, a competent approach to the market is important. Analysts suggest taking advantage of the following 2021 income generation scheme. Housing is purchased with a mortgage at the initial stage of building a house from the moment the pit is laid.

After the house is put into operation, the apartment can be sold at market value. Part of the money received from the new owner goes to pay off the mortgage, the rest goes to the seller’s account. The profit will be the difference between the sale price and the original price. In this case, even the standard annual rate that banks can offer today is two times lower, in contrast to the compiled price difference.

Important points:

Real estate in a building under construction must have a high level of liquidity. So that in the future there will be no difficulties in finding a buyer. The most liquid at all times remain one-room apartments, which have an average area with walking distance to bus stops. The developed infrastructure will also bring only positive aspects.
Check the reputation of the developer. Little-known companies responsible for building a house create a high risk of the property being “frozen” during the construction phase.
Opt for apartments located in a residential building no higher than the third floor. This increases the chance of a quick sale.
It is better to start selling finished housing after a year and a half from the date of delivery of the property. This will only increase buyer confidence.

The earlier the construction stage, the lower the cost of housing. If the bank is involved in the construction stage at the excavation stage, it means it trusts the development company. Operating with the necessary information and carefully thinking through all the steps, you can not be afraid of a failed plan for additional income.

Benefits from making money on real estate with a mortgage

In most cases, a mortgage loan is taken out to improve living conditions. But some enterprising citizens know how to benefit even from a mortgage. Its essence is that real estate pays for itself after a certain time.

The obvious advantages of this type of income include:

Renting mortgaged housing takes away part of the invested funds (loan payments, insurance, housing and communal services). After some time, the apartment begins to work for the owner, providing him with a stable income;
return of part of the money from the cost of the apartment and interest on the mortgage in the form of a tax deduction;
upon sale, there is no need to pay a new amount of property tax;
the ability to repay the mortgage ahead of schedule using money received from renting out an apartment;
over time, the rent increases, but the loan payment remains fixed;
registration of ownership of premises purchased for 2/3 of its market value.

Real estate is profitable, but quite difficult. It is necessary to take into account many nuances, rationally calculate costs and expenses, and compare them with potential income.

If you are thinking about your financial well-being, you should carefully consider the question of how to make money on a mortgage.

After all, this is not just the most acceptable option for purchasing housing, but a profitable investment in the future.

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Author:

Mortgage specialist Maria Yurievna Sokhan

Publication dateJune 4, 2019June 18, 2019

How to choose a property to buy

We have figured out how profitable mortgage investing is. It's time to move on to the main issue - choosing a property! Looking ahead a little, we immediately note that it is better to entrust this matter to professionals who will calculate the economic benefits in detail and select the most optimal option for you.

When choosing an apartment to buy with a mortgage for investment, you need to consider the following:

Payback period for all your investments;
Investment format - resale or rental;
Demand for real estate and its prospects;
Location of the property.

If you are new to the real estate market, then there is always a risk of purchasing an outright illiquid apartment - an apartment that will be difficult to rent out and resell at a high price. This is another good reason to seek help from professionals in their field - specialists!

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We carefully prepare the lease agreement

When deciding to invest in a mortgage for profit, practical businessmen try to get the most favorable lending conditions:

minimum down payment;
long payment period;
no hidden fees;
minimum percentage.

Keep an eye on the real estate market and the mortgage programs adopted by the state - minimal fluctuations and reductions in rates will save the borrower hundreds of thousands of rubles.

The purchase process is over, all issues with the bank have been resolved, the keys to the apartment are in your pocket - it’s time to start renting out your new home. The owner decides how much money he is willing to invest.

Someone is doing major renovations, importing expensive furniture and the latest equipment. Others are limited to cosmetic adjustments.

Focus on the contingent that you plan to move into the apartment. For example, comfort and household amenities are important to married couples. And students will appreciate the proximity to their place of study, low cost and availability of the Internet.

Long-time realtors know which clauses of a rental agreement must be included in the document. It is not possible to invite a specialist - use the tips from lawyers outlined below.

The data of both parties is entered into the contract: full name, series, number, passport series, registration. Members of the tenant's family who plan to live with him are included.

Provide information about the property - address, square footage, number of rooms.

The features of the apartment are listed: presence/absence of repairs, bars, glazing of balconies.

The attached inventory records the property left in the home - equipment with model names, furniture, decorative items.

The rent amounts are entered in numbers and in words, indicating: “payment for the 1st and last month”, “deposit” - if provided.

The terms of the lease, the conditions for moving in and moving out, the consequences of violations of the contract, and options for early termination are prescribed.

The document is signed in two copies by the parties. One copy remains with the landlord, the other is given to the tenant.

SPOUSE DEDUCTION

All expenses of the spouses are considered common. By default, the amount is distributed in equal shares. Spouses have the right to annually change the proportions in which the funds returned to them are transferred. Before January 1, 2014, the mortgage interest deduction was distributed in the same proportion as the main one. After this date, interest compensation is paid separately, so spouses have the right to divide it differently, which should also be noted in the application to the tax office.

If the home belongs to one of the spouses, then the owner has the right to receive the entire deduction (an application in this case is not required). Another option is also possible. Thus, money can be divided between spouses by recording the agreement in the application for the distribution of deductions. When the spouse who owns the property has already begun to return the funds, the second spouse has the right to contact the tax service to redistribute the lost deduction.

Please note: if one of the spouses did not immediately take advantage of the deduction, he will be able to receive it later. For example, this is relevant if the apartment was purchased during marriage and one of the spouses is on maternity leave to care for a child.

Investment mortgage: how profitable is it?

The past 2021 has greatly affected the real estate market. The demand for housing located outside the Russian Federation has increased, but mortgage lending rates have dropped significantly, which has provided many with the opportunity to realize long-standing goals related to the acquisition of living space.

The key reasons for the increased interest of buyers in domestic real estate are unstable exchange rates and closed borders with foreign countries. The increase in purchasing activity was especially noticeable in Sochi. All this has led to the fact that prices for apartments and houses have increased significantly and there are no prerequisites for them to freeze or begin to decline in the near future.

All this suggests that now is the best time to take out a mortgage. Loan rates are minimal, and rising prices will allow you to sell your apartment for much more than its original cost. In addition, a mortgage can be considered as a kind of price freezing tool. For example, you can buy an apartment for a conditional 5 million rubles and take out a loan for 10 years. At the same time, no one will demand more from you. But the cost of an apartment can double in a year. The benefit in this case is obvious.

By the way, in Sochi, even without the events of 2021, real estate prices have always grown at the fastest pace. Interest in the city is growing, but the number of objects is rapidly decreasing. Currently, there is talk of banning development in the central part, which will also lead to an increase in the cost of apartments.

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SUBMISSION AND CHECKING

The collected documents must be submitted to the inspection in person or sent by mail. In the first case, a tax specialist will check them in the presence of the applicant and immediately point out those points that need to be improved. However, this option has a disadvantage - the tax inspector may require additional certificates, which the homeowner is not required to submit when applying for a deduction. In this case, the process of processing the application will be delayed, since they will not officially refuse to accept the documents (this decision is not difficult to appeal, since the package required by law has been provided), but the tax deduction will not begin to be processed.

Before sending documents by mail, you should make an inventory of them. The disadvantage of this method is that without personally contacting the tax office, you can lose more effort and money in the future. After all, only after checking with the tax service will it be possible to find out whether everything is in order with the documents. If any inaccuracies or errors are identified in them, then after receiving a written refusal (indicating the reasons), you will have to resubmit the entire package.

Review of documents takes about 2–3 months. During their verification, the applicant has the right to be called to the tax office to clarify controversial issues or request additional information. After completing the audit, tax authorities are required to send a written notification of its results and the decision made (payment or refusal to deduct) within ten working days. If the application is approved, then within a month from the date of submission of the application, the tax office must transfer the amount of the deduction to the account whose details were specified when applying. By the way, to save time, tax inspectorates do not always send a notification about the results of the audit, but often immediately transfer the amount to the account. A refusal to provide a deduction can be appealed in court.

Photo: Legion-Media

PACKAGE OF DOCUMENTS

In order to contact the tax office or employer for a refund, you must collect a package of documents confirming the purchase of an apartment with the help of borrowed capital and making monthly payments to cover the loan.

Please keep in mind that copies of all certificates must be certified in advance. At the same time, the most difficult stage of document preparation is considered to be filling out the 3-NDFL declaration, as well as related applications for tax refunds and distribution of deductions. The more complete the package for the tax office, the faster the deduction will be issued.

Method #1. Buy and rent out - passive income

It’s hard to believe, but pensioners can be called the most enterprising in the area of renting apartments in Russia. Some of them simply rent out one of the rooms and receive an addition to their pension. But there are also those who turn a regular mortgage into a business.

For example, the way one of the very enterprising old ladies makes money:

After retiring, the woman wanted to give herself an interesting life with travel. The pension was not enough. She moved in with a neighbor on the landing, and rented out her two-room apartment to 6 students. Payment was 7 thousand rubles each. from everyone.

What happened next - see the table. Her life story is not as important as the way that helped the pensioner travel 3 times a year and live a fun life.

Number of tenants	6 people
Payment per month per person	6 x 7 thousand rubles. = 42,000 rub.
Annual income minus utility costs (6 thousand per month)	432,000 rub.
Pension amount	8000 rub.
Total monthly income (excluding expenses)	50 thousand rubles.
Cost of a two-room apartment	2200000 rub.
Mortgage loan, conditions	interest rate 11.9% per annum; co-borrower is an adult son (without this, the pensioner’s mortgage would not be approved; down payment – 15% = 400,000 rubles; amount of approved loan - term - 10 years with the possibility of early repayment; monthly payment – 18376 rub.
The balance of personal money was transferred to a bank deposit at 7% per annum	32 thousand rubles.
Monthly income distribution	50,000 rub. – 6 thousand rubles. (utilities) – 18,376 rubles. (payment) – 12 thousand rubles (food, housekeeping) = 13624 rubles.
Every month the deposit was replenished by the amount	13 thousand rubles.

The woman paid off the bank after 5 years. She became the owner of 2 two-room apartments, which she constantly occupied with tenants.

I sold my old two-room apartment, paid this amount as a down payment and bought a three-room apartment with a consumer loan secured by real estate.

But the years go by, and the pensioner’s needs become more and more modest, and the physical ability to find and settle in tenants becomes less and less. Therefore, she sold the two-room apartment (she gave the money to the children for business), and she herself lived in a three-room apartment with two tenants. According to the will, after her death, the apartment became the property of her granddaughter.

Attention! Not all calculations are shown in the table. So that you can practice and count:

How much will the deposit accrue in a year if the grandmother deposited 13 thousand rubles monthly? on a deposit at 7% per annum? How about 8%?
Is it possible to spend not 12 thousand rubles a month on food, but, for example, 8? What's the benefit of this? How quickly could you pay off the loan this way?
Insert your own data into the table and see if you could do this? And better? More profitable? More economical?
Grandma ate modestly for 1 year and saved on everything, including her pension. How long would it take you to create such a structure?

The next 2 methods are very interesting in terms of the scale of implementation. You can create an empire selling and renting real estate. There are 2 conditions:

You can quickly get promoted if you have initial capital, knowledge, experience in a successful business and acquaintances. In all other cases, until the moment when you say: “I have a profitable business,” two years will pass for sure. Or maybe three, if everything is really bad.
“If you don’t know the ford, don’t stick your nose into the water” - at least take the necessary courses so as not to fly by like “plywood over Paris.” Money isn't everything. There is a learning curve in every area. Allocate an amount and invest it in your education.
Courses you need:

in accounting - learn not only to count, but to keep records;
for the sale of real estate - this area has its own specifics, so it needs to be studied;
on product promotion (working with people, psychology, how to talk so that they want to listen to you, and buy from you).

These are all fashionable trends, it’s easy to find such coaching. The main thing is to look for professionals who provide knowledge and do not pour water on the brains of listeners.