Someone I know recently applied for a loan so he could buy property. He intends to buy an apartment house, find tenants and use the rent he collects to repay the loan. There's no guarantee though that he'll get tenants fast but it's a risk he's willing to take. Do you think it's a good idea to take a loan to buy rental property when you have no other investments that would get you some cash to help you repay the loan [in case you don't earn much money from your property initially]?
A loan is almost always necessary when investing in real estate. Especially in todays low interest environment. But I'm a bit concerned about the last sentence, since one should definitely not rely on the rent as the sole means to pay back the loan. He has to be sure that he can afford to pay the loan even if he doesn't manage to rent the house full time, if he can't then it's a huge risk to take.
I think that it is a good idea because an apartment appreciates overtime. When it is fully occupied he will laugh all the way to the bank. Rental properties are very lucrative where I come from. The worst that can happen is if the loaning company repossesses his rental property if he is not able to pay back the loan as agreed. Getting out of bed is a risk we make every day. Good luck to your friend.
I'm a bit wary about loans and am thankful the bank never granted me one when i really needed it, on the other hand, he can go all out, do all he has to do and crosses his fingers he'll get tenants very soon, banks are never friendly when it comes to such, repossessing the said property happens in a heartbeat
If you're going to take out a huge loan, it would be infinitely better if you have contingency plans from B to Z in case the Plan A of getting tenants doesn't work out. Especially since it's tenants, which can be the cause of so much problems. While it's true that a loan is almost always needed for real estate purchase, before he goes through with it, he should create other avenues of income so that he could make the payments in time. It seems the person is hinging everything on the tenants alone which I think is really bad practice.
With interest rates so low for such loans, it's not a bad idea if your friend knows exactly what they're doing and has enough money to handle any shortfalls. It's still a risky proposition, and it doesn't sound like he or she thought things through all the way. Even a slight issue could result in him/her not having the money to pay the loan for that month, and that leads to tons of other problems. If everything works out by sheer luck, though, then they'll seem pretty smart!
Regarding the interest rates. While they are super low at the moment (and it looks like to me that they will stay low for quite some time) an average mortgage is very long, even for investment real-estate. A lot can happen during that time and someone who takes out a loan now should definitely make sure they can keep paying it back even if the interest rate doubles during the loan. For a small loan a 1% rise in interest is not bad. But if you are loaning A LOT then a 1% rise might be something that you simply can't cover with your regular income... especially since it seems this person doesn't have much of a regular income.
Taking a loan is a very risky business. One should be sure that they can take the responsibility of paying back the loan when the time comes. It is better if the people understand the factors included in taking the loan and then take the required loan.
Virtually anyone who buys property has to take a loan of some type for it, so this in itself shouldn't be a concern. Other posters are right when they say you need a plan B though. After all, you need to make the monthly payments on top of paying for your own housing so you really do need a back up plan if you can't get a tenant straight away. You also need to take into account how much it will cost to get the property in a rentable condition.
I do not think it is the quite right idea. Always buy property when you have enough money for it. I do not think I would like it and other way.