Using Loans to Build Wealth: How Real Estate Investments Can Make You Rich

Using Loans to Build Wealth
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people must be thinking that how can one become rich with a loan? The same practice continues in India even today, one should stay away from loans as much as possible. It remains in everyone’s thinking that if you take a loan, you will have to pay a hefty monthly EMI and the loan does not go away from your head for years, your retirement stage comes, then somewhere after so many years the loan ends.  It happens, mostly we see this case at the time of home loan, that the loan continues for 20, 25 years.

Understanding the Power of Loans: Assets vs. Liabilities

See people take two types of loans

 1st loan = Through this loan you buy liability.

 For example: Suppose you bought a phone worth 1-2 lakhs.  You tell me, what benefit will that 1.2 lakh phone give you later?

  • Nowadays people take big things on loan for showoff, but they don’t even have the capacity to pay them.
  • In such a situation, it is only increasing your liability,
  • for one the phone will depreciate day by day and you will keep paying its EMI.
  • Same is the case with bike and car, if you take a car or bike on loan, and you are getting income by applying it for some work, then it is an asset for you, but if you do not do any work like this  If you are taking the car then it will be your liability only.
  • The cost of maintenance of the car, the cost of EMI, then it will not be of any benefit to you, on the contrary, money will keep going out of your own pocket.

2nd Loan= With this loan you buy assets.

 First of all understand what is an asset?

 Asset is such a source of income which gives us money even without doing any work by us.

 What is  liability?

  • In liability, we have to pay money from our own pocket, we do not get any kind of income for that.
  • We should always take loan only for buying assets, because assets can give you life time earning.

 Examples of assets:

 Business and real estate etc.

 Business is an asset, which gives us money by earning.

 Real estate also gives us income

Leveraging Loans for Real Estate Investments

 Let’s know how real estate makes you rich?

  • You must have experienced that in the olden days those people who had land, factories, etc., used to be rich, and in today’s time also those who have land, factories and companies, etc. are rich. the rich are like Ambani, Adani etc., and it may be the same in future as well.
  • See, if loan is taken to buy assets, then that loan is not bad, on the contrary, you will get so much income from the same assets that you will finish your loan In less time and you will also get profit.

 First of all, we know that which people can get loan easily?

  • Salaried people get loans for real estate easily.

 You tell me why salaried people get loan easily?

  • See, the salary comes in your account every month, which the bank believes that this person can pay the EMI on time.
  • Along with this, the bank also looks at your credit score, if your credit score is above 600 grade then it is considered as a good credit score.  In this way, if your track record is good, then you will get the loan easily.

 These people do not know what is credit score?

 I clear them, what is credit score?

  • Your transactions are seen in the credit score, how much money is coming into your account.  And if you use a credit card, do you pay its bill from time to time or not?

 Let us now understand what are the things we should keep in mind before buying real estate:

The Key Role of Location in Real Estate Investments

  • While buying any flat or land, it is very important to see the location of that place.
  • Suppose you have taken a flat in a good and main area, then the price of your flat will go on increasing.  If the same person buys a flat, land in a far flung area, then he does not get the value of his property.
  • That’s why many people make a mistake here, and get caught in the wrong deal.
  • That’s why whenever you want to buy flat, house or anything, first of all you have to see the location, whether it is good or not.

Differentiating Commercial and Non-Commercial Properties

See, first you understand what is commercial and non commercial property?

In commercial property, we buy a shop or a factory, where goods are sold and bought.

In the same non commercial property, we buy flats for ourselves where nothing is bought or sold.

We get more rent from shops or factories as compared to flats.

If the shop is in the main market, then 6 to 10% rent is easily available.

Maximizing Returns: Calculating Rental Income

Let’s say the price of your shop is 20 lakh rs.

  20,00,000*6%=1,20,000

 1,20,000/12(months)=10,000 rs you can get monthly rent.

  • If this % is increased then you can get even more rent, so I told you in the first point that before taking any property it is necessary to see the location, it increases the price and rent of your property.
  • Suppose you have taken a loan of 20,00000, the interest on which is 8.6%, then you will have to pay monthly EMI up to 18,000.
  • Right now you must be thinking that at Rs 18,000 we are getting only Rs 10,000 as rent and you will have to pay Rs 8,000 in your pocket.  You are thinking absolutely right, you will have to pay 8,000 from your pocket but only for 1, 2 years.
  • Because see, if the valuation of your shop will also increase, then the percentage of its rent will also increase along with it.
  • Suppose from 1st year 6% you gave a rate of 10,000 to your shop.
  • Next year rent was increased by 8% then you can get rent around 13,000.
  • If the rent is increased by 12% in the same 3rd year, then you can get rent up to 20,000 thousand.
  • Now your EMI will remain only 18000 and you are getting this rent of 20,000 means 2,000 extra
  • You must be thinking that this is a small amount of profit, but it is only a matter of a few years, after 4-5 years, when your location is more developed, the price of your property increases and then the rent also increases.
  • And the profit you will get from the rent after paying the EMI, you will keep a little of it with you.
  • Today you can invest this money somewhere.
  • As you know, there are many platforms online in which you can invest and earn a lot of money.

Investing Smartly: Exploring Online Investment Platforms

Calculation of SIP:

 If you invest in sip  for 10 years then,

 Monthly Investment = 2000

 Interest rate=12%

 Maturity period = 10 years

 Total Investment = 2,40,000

 Returns = Rs 2,24,678

 Total amount = Rs 4,64,678

  • I have taken very less monthly investment amount.
  • But how much do you buy the property, how much loan do you get on it, what is your EMI and who knows the rent at which you are giving your shop.
  • It is not that you can invest only 2,000, you can invest any amount according to your choice and can get returns of more than 12%.
  • I will provide you the link of some online investment platform below, you can choose whatever platform you want to suck, there is no pressure on you.
  • You can invest or not as per your wish.
  • This blog has been brought only for the purpose of giving you knowledge.

Spotting Desperate Deals: Making the Most of Opportunities

  • There are many such people in the market, who sell their property at a low price, this is called desperate deal.  Many people have their own reasons, due to which they sell their property worth a lot at a low rate.
  • So you should also take care of all these things, if you are getting a property at a good location, and it is also commercial and you are getting it at a low price, then you should not leave such an opportunity, but after taking complete information  .
  • It Is not that you have to buy property according to the points I have mentioned, it is just a brief knowledge. Before buying any property, it is necessary to have all the information related to that property. If you are fully satisfied, then only think of buying the property.

also read: Tata Motors DVR Shares After Cancellation: What Holders Need to Know

Conclusion

loans can indeed be a pathway to wealth, but it depends on how they are utilized. Taking loans for assets like real estate can yield significant returns through rental income and property appreciation. Smartly chosen properties in prime locations can create a stream of income that not only covers the loan but also generates profits. However, thorough research, diversification, and cautious decision-making are vital to mitigating risks and achieving long-term financial success. With careful planning and strategic investments, real estate can pave the way to a prosperous future.

FAQs on Using Loans to Build Wealth Through Real Estate

Can taking a loan for real estate actually make me rich?

Yes, taking a loan for real estate can potentially make you rich. When you invest in real estate, especially in high-demand areas, the property’s value can appreciate over time, providing significant returns. Additionally, if you buy commercial properties or rental properties, the rental income generated can help you pay off the loan and even provide you with extra profits.

What is the difference between an asset and a liability in real estate?

In real estate, an asset is a property that generates income for you, such as rental properties or commercial properties that produce rental income or profits. On the other hand, a liability is a property that costs you money, such as a personal residence or a luxury item bought on loan, as it doesn’t generate any income and only adds to your expenses.

How do banks determine if I’m eligible for a loan for real estate?

Banks usually evaluate your eligibility for a loan based on several factors. They consider your credit score, employment status, income, debt-to-income ratio, and the property’s value. Having a stable income, a good credit history, and a reasonable debt-to-income ratio can increase your chances of getting a loan for real estate.

What role does location play in real estate investments?

Location is a crucial factor in real estate investments. Properties located in high-demand areas, close to essential amenities like schools, hospitals, shopping centers, and transportation hubs, tend to have higher appreciation potential and rental income. Investing in properties with strategic locations can significantly contribute to building wealth through real estate.

Is it better to invest in residential or commercial properties?

Both residential and commercial properties have their pros and cons. Residential properties are more common and may offer more stable rental income, while commercial properties can yield higher rental returns. The choice depends on your investment goals, risk tolerance, and market conditions. Diversifying your real estate portfolio with both types of properties can also be a viable strategy.

How can I ensure a profitable real estate investment using a loan?

To ensure a profitable real estate investment, conduct thorough research on the property and the market. Look for properties with high appreciation potential and steady rental demand. Calculate the potential rental income and compare it to the loan’s monthly EMI to ensure positive cash flow. Additionally, consider the property’s maintenance costs and factor them into your calculations.

Can I invest in real estate with a small budget?

Yes, you can invest in real estate with a small budget. Consider starting with a smaller property or exploring options like real estate crowdfunding or Real Estate Investment Trusts (REITs) that allow you to invest with smaller amounts. Over time, as your investment grows, you can leverage it to acquire more significant properties.

What are some online investment platforms for real estate?

There are various online investment platforms that offer real estate investment opportunities. Some popular ones include Fundrise, RealtyMogul, Roofstock, and PeerStreet. These platforms allow you to invest in real estate projects or properties with different investment amounts and risk profiles.

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