How can you earn on investment apartments purchased with a mortgage?

The availability of mortgage loans attracts more and more people to invest in investment apartments, ie to buy apartments for further rent. In which cases is it possible to earn on investment properties?

The profitability of investment apartments must first be divided into two basic categories. The first category is the rental income itself, the second one is the final gain on the sale of the property at a higher price than the one you purchased the property for.


Purchase price and rent

Two key factors are crucial for successful earnings from renting of investment apartments. Perhaps the most important thing is the price we purchase the apartment for- we really have to look for best price, select a good location and calculate everything before we get the apartment. Another factor is the amount of rent we can achieve to negotiate and which we will collect from the tenants per month.


An example of buying an apartment for rent

Let's say you buy an apartment for a further lease for CZK 2,500,000. From your own sources you have CZK 250,000 and the remaining 90% will be financed by a mortgage at an interest rate of 1.69% pa. The repayment of your mortgage for 30 years will be CZK 7,972 per month. The apartment can be rented for CZK 10,000 without service charge. However, we must deduct from this amount the cost of repairs, management fees, real estate insurance and property tax. After deducting these fees, your earnings can be CZK 8,000 per month. In our example, rental income will  fully cover mortgage repayments, including other real estate related costs. You do not have a direct profit from the rent itself, but at the same time you get a share of real estate every year (for a simplification 1/30 with a mortgage of 30 years) because your mortgage loan is being reduced. If you can keep this model for the entire lenght of the mortgage, then you will realize the profit at the end of the sale of the apartment itself.


Real threats - debtors, overpriced real estate, bad location and additional costs Selection of tenants

Earning rental income may not be so rosy in all cases. Debtors are real nightmare of all landlords . They take you apartment, do not pay rent, and when they leave, they leave it demolished and in such a condition that the cost of fixing everything and putting back to normal does not even get covered by the deposit. In addition, if you do not collect rent money, you will have to repay your monthly mortgage payments, which can be a critical point for many small investors. Choosing the right tenants and checking them thouroughly really pays off.


Property price

Another threat, that not many landlords are now aware of, is the purchase of overpriced real estate. In this case, the mortgage payments may be higher than the rent earned, and you will have to pay monthly on your installments from your funds, which will greatly reduce the benefits of the entire investment.


Location

It is worth to pay attention to the choice of a suitable location, both with regards to the potential of renting the property and any future sale. The most suitable localities are large regional towns, on the contrary less suitable are northern Bohemia and northern Moravia.


One-off costs

And last but not least, do not forget about any additional one-off higher costs that your rented property may need. In this case, it is certainly worthwhile to have a financial reserve.


When you take care of everything you need and calculate all the costs in advance, regular property rental can bring a pleasant additional income to your job or business.