Investment loans are the best way to make your mark in the lucrative real estate industry. The facilities enable you to build an office block, retail space and residential or industrial complexes. If you wish to take out an investment loan, the article below offers some valuable insights on how you can manage the loan.
Understand The Upfront And Extra Costs Of Taking The Loan
You probably have a quantity surveyor's or engineer's estimate as you seek financing for your project. However, consider the extra costs of building and managing the property before it brings in any income. For example, you may have to pay building insurance, water and electricity connection fees, land tax and building surveyor fees. If you do not have extra funds to pay these expenses, ensure you include them in the loan.
You should also understand the costs of taking a loan. For example, you may need a deposit. Remember, the higher your deposit, the lower the monthly repayments. Other expenses include loan application fees, mortgage insurance, legal costs, property inspection and government charges such as stamp duty.
Ask For A Holiday Period
Once the bank approves your loan, you will start repayments soon after. Given that your property will not generate any income until it is complete, you could negotiate with the bank to give you a holiday period. Simply put, you will make interest-only payments until your building is occupied. This arrangement will prevent you from being cash-strapped or using the loan disbursements to pay instalments.
Ensure The Loan Is Disbursed In Stages
The best way to manage the investment loan is to ensure that it is tied to the contractor's construction plans. Essentially, you do not handle the money. Instead, the bank pays the contractor once they complete each construction phase. This arrangement prevents you from misusing the money. Besides, it ensures the contractor manages the disbursed funds well.
Refinance The Loan Regularly
Over time the interest rates could reduce. Besides, with your project complete, you may wish to pay off the loan in a shorter period. Refinancing is your best bet when you need to change the terms of the loan. Ideally, you can restructure the loan to increase or reduce the repayment period. Besides, if you feel that the interest rates are at a low-time low, you could change the loan from variable-rate to fixed-rate. Finally, you can cash out some of the property's equity if you need urgent cash.
Manage your investment loan by assessing the extra costs, asking for a holiday period, ensuring that the loan is disbursed in stages and refinancing the loan to match your current financial position.