People typically think about goals and not strategies. For a home purchase, your goal may be to repay your home loan. However, the strategy works much more perspectively, with less causal relationships and a linear structure. In this case, for example, your strategy may be a combination of the processes described in this article, the way to build a complete real estate property – you concentrate on replacing the loan…
Our negative stance is that credit is bad – we have to get rid of it immediately!
When you are already in the pre-borrowing, informative phase, how would you be able to repay your home loan as soon as possible (pushing everything else into the background) then you make a strategic mistake. You can say with this simple reason-cause
- you give up some of your potential property
- waive potential rentals
- You will cancel your exchange rate gains from potential property appreciation
In my opinion, the foundation of the negative stance can be traced back to decades ago, where the average people were placed in the shelter of the “modest but honest life” perspective. The real estate and the wealth itself were declared inaccessible to the average person, while the loan was a forced solution, the price of which was the banking of the bank.
At the end we can’t get ahead…
If we think logically, what happens after you have paid your home loan in 10-15-20 years (dedicated to everything)? Actually, nothing. You have lived and lived here so far, so there is no change in quality in your life by repaying your credit. This could have caused a generation trauma in the last two decades, because the general mindset has been identified and fully accepted this state!
And people were thinking about this state
What we brought home from ourselves is usually the hatred of banks and credit, and the goal is to “only have the first home – everything else and then” mentality. Of course, the newer generations started to get more and more incomes on the move.
What was their natural reaction? Of course, reducing the duration of loans. I remember that in 2008, everyone wanted to repay their home loan in 15 years, while everyone wants to get rid of it in 10 years. The duration of housing loan inflation was 5 years in the past period.
With this, there is only a huge problem, namely that we do not take into account our environment and do not ask ourselves when we take our first credit:
- the real estate market is up or down?
- do I buy an apartment dearly or cheaply?
- will interest on loans become more expensive or cheaper?
- will the value of my apartment grow, stagnate or fall?
Immediate repayment of home loans does not fit into the strategic mindset
Suppose you want to buy a home worth $ 30 million, which requires a loan amount of $ 24 million. You want to repay this loan in 10 years!
Basically, the two comparisons shown in the chart are of interest to people in target-oriented borrowing! How much will your monthly installment be and how much you need to pay back in full! When you see that you have to pay more than 10 million forints over 25 years, they will do their best to select the blue column.
But why are we never counting on the rate of return, and why not look at what we could do with alternative money? Why don’t we add to this chart, for example, the rate of return on housing savings on the difference between two monthly repayments? So why not look at how much we would win if we put the money in our pocket instead of the bank?
We can only win on the house floor
HUF 110,000 is the monthly difference between 10-year and 25-year loan repayments. This means that our starting point (you have $ 245,000 per month, otherwise how would you want to get rid of the loan in 10 years?) Is this framework.
While you are worried about target-oriented thinking that you want to save 10 million forints with a shorter term, you will not realize that by redirecting capital to a state-guaranteed product (provided you could make 6 home savings in your family based on the example)
- In 10 years, you will win $ 17,245,970 for “liquid” capital for housing purposes
- In 20 years, you will win 34,491,940 forints of liquid capital for housing purposes
I don’t know what the 17 million fortune will be in the real estate market in 10 years, but one thing is for sure…
In strategic thinking we always count three versions:
I can’t tell you what the 17 million HUF housing deposit will be enough for you, but we know exactly that the capital repayment of a $ 24 million home loan with a 10-year interest period of 25 years will be HUF 17,530,000 in 10 years. This means that, in the worst case scenario, you pay your loan out of your home savings and have closed it as if you had paid everything to the bank for 10 years.
The optimum option is that this amount of 17 million HUF accrued in housing savings is more than the necessary self-sufficient capacity to buy an apartment. You may also have 30%, -40% – 50% self-financing that you need to borrow. However, by renting an apartment for rent, you can extract your credit and the price of your apartment.
But it may also mean that you can buy an apartment free of charge as a 100% self-financing, which you then rent into an apartment (which is the best version).
The value of real estate is precisely the increase in wealth and monthly income
When we think about real estate and we need to move step by step (either by taking loans), we basically act in the hope of two sources of income:
a, wealth accumulation, because a property is basically (worth protecting) its value, but at the time of cyclical market rises, the price per square meter increases, which is your profit. Due to inflation, you can sell your apartment more expensive later than you buy today. It’s a chance to have more money in nominal terms – your greater wealth.
b, rent, which is a kind of fixed source of income. This money can be your absolute profit (with a return rate of 5-8%), or it can be covered by the monthly repayment of your loan. If we think about it, the rental market has two players: the one who takes out the loan and the one who pays the other’s credit.
Realistically, a sublease may be enough to repay your home loan within 10 years or to purchase additional real estate (strategy)
If I assume that you can buy 10-15 million forints from a $ 17 million home savings in 10 years’ time, you will almost certainly be able to sell a panel that you can put into a sublease, then the strategy will work. The repayment of the loan will not be more than HUF 100,000 per month, but the rent will certainly be around 150,000 at such prices.
It should not be forgotten that rental rates always go hand in hand with real estate prices. And it should not be forgotten that in the case of a rise in property prices, the unit interest rate of a loan is not necessarily higher (or even higher), but the amount of credit to be raised at the minimum own capital increases.
This means that if you are able to collect more than the minimum amount of self-financing (see strategy), you will not be affected by the monthly increase in price due to the price increase, as you have secured yourself in this case and in the worst version you don’t have to take much more credit!
What happens if you stay focused?
Then, in the example, you will have a real estate in 10 years, which is worth 30 million forints today. However, there is no self-support so you have to wait 5-10 years to start the next step. And this may be fatal, because today you are 35 years old, then you are 45 years old and you want to schedule the next apartment at the age of 55?
And what happens if you think about strategy?
After 10 years you have 17 million forints for your home, which is enough to cover another apartment (even from the loan) + the capital of your existing home is 17 million HUF, which you will still have to pay (HUF 135e). If you buy another apartment (even partially from a loan) and rent it into a sublease, in the worst case, your tenants will pay your loan in 10 years. In addition, you have the chance to increase the value of your property, so you can cut this profit by selling your apartment once.
And what about 20 years? Your first loan is still worth 7.2 million forints. But at the same time, you have another apartment next to your 30 million apartment, which is just about to expire (thank you to your tenant) + if you were smart at the age of 10, you re-tied your home savings and now again (if the state aid rate hasn’t changed) 17 million forint for housing purposes! – » this is called strategic asset accumulation.
In the headlines that we didn’t count on
Of course I didn’t want to end the article indefinitely, but you can even pour water into your mill (or you can just snatch it from your sail)
- change in borrowing rates – if the loan becomes more expensive later than today, then it is even more worthwhile to keep the current loan and to borrow less for the new apartment than to pay the old one and pay more for the new one more expensive.
- Changes in real estate market prices – You can suffer exchange rate gains and losses.
- demographic change
- depreciation / development of the building and street view
- a more dynamic investment strategy, that is, you are not exactly every 10 years, but adjusted to the market conditions, you sell the new apartment sooner (realizing the profit) and you buy it again at the bottom of the real estate market – while paying the house savings