A Quick Way To Boost Your Property Portfolio

Have you ever thought about getting a mortgage to kick-start your property portfolio?

There are many young, professional girls in town that are planning on building a property either to live in or to rent out but they're not sure about how to finance it.

Borrow the money. Get a mortgage.

First things first, what is a mortgage?

A mortgage is a type of loan. Due to inflation and high interest rates in Malawi it's normally just five to ten years whereas personal mortgages in the West are 25 years long on average. They can even be as long as 35 years.

If interest rates are too high for you to get a mortgage then consider getting a short-term loan.

How does a mortgage work?

You go to the bank and borrow a given amount of money for a given number of years. Every month, you make a payment to your bank to pay down the loan. Part of the payment pays down the loan and part of it is interest.

In the first few years, most of the payment is interest and only a small portion pays down the borrowed amount, however, with every payment the interest portion falls and the repayment portion increases.

Getting a mortgage can help to speed up a building project. Instead of funding a project with your salary you can use your salary to pay off the mortgage and the lump-sum mortgage to accelerate work.

If interest rates are too high for you to get a mortgage then consider getting a short-term loan.

In fact, I myself have used short-term loans to increase the rate at which my house was built. Each time we were running low on cash we obtained a 3-month or 6-month loan to ensure that the project didn't come to a halt.

 What will you need to get a mortgage?

Generally, the bank will want collateral: you need to have an asset that is worth more than the amount you are borrowing to secure against the mortgage. That way, if you can't pay the loan back, the bank sells your asset and recoups its money. Banks are not in the business of taking risk. They do not want to make loans that they won't get back.

Collateral is what makes a mortgage different to a regular loan. Regular loans don't have a specific asset as security.

 What if you don't have any collateral?

If a parent or other relative is willing to guarantee your loan using their property then try to get a mortgage that way.

If you already have the plot of land to build on then that will have a value. Get the land valued and get a loan that is worth less than the value of the land. Use all the money to start your housing project and pay the loan back from your salary. When that loan is fully paid off your land will be worth more because you've built something on it so you can get a second, higher value loan and so on.

 How about if you don't have a single parent or relative that can act as a guarantor for a mortgage?

Use your business's credit worthiness. If you have a business that is producing consistent revenue or even has assets then you can use your business's track record to obtain a loan. This is how my father obtained a mortgage as a young man in the 1980s.

Don’t have a business? Start one! It’s never too late.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” Robert G. Allen

 

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