Heavy losses due to high interest loans to rent rooms

30/06/2017   Viewed: 966
Borrowing 1.1 billion dong with interest rate of 15% and own capital to build a room, but Mr Kha must sell off to repay debt.
Seeing many of the big room businessmen easily win, Kha Kha living in Binh Tan district, Ho Chi Minh City, also boldly enter the game. In early 2012, he bought land, built 12 rooms for rent. The capital of this investor is 300 million dong, the remaining 1.1 billion dong of bank loans, the interest rate of 10% in the first six months, then the interest rate of 15% a year, the lease period of 15 years.
nha cho thue
Many people have suffered heavy losses due to excess financial leverage when trading rooms. Internet photos

Mr. Kha shared the acceptance of high interest payments for a period of time, debt grace or installment payments, the accumulated profits on land value will increase over time. However, due to not being able to do business during the construction phase, the investor has suffered a loss of loan interest throughout 2012 for hundreds of millions of VND because the sales are now zero.

In the first year of operation (2013), Kha rented 9 rooms, 25% vacancy. With the average price in the area is 1.1 million per room per month, the first year revenue of this investor reached 118.8 million. The loan interest rate of 1.1 billion VND in the year is 165 million VND, entitled to grace period. The second year's deficit is 50 million VND, Kha continues to try to balance losses to offset losses.

In 2014, although interest rates have been adjusted downward, Mr Kha continues to run a tight budget deficit. Due to lack of management experience, the area has the obnoxious tenants (slow to pay the rent, disorderly invited to go early), Kha room occupancy rate reached 35%. Third-year loss increased to more than 60 million, interest payments began to become a burden due to revenue down.

From the end of 2014 to the first half of 2015, Kha Kha will owe the bank several times. The gloomy offer suggested that a solid measure be taken, forcing him to sell his property to repay the debt at all costs. Mr. Kha had to sell the apartment block hundreds of million loss to the bank debt.

"The equity is the cash of 300 million hats left, not to mention the 3 years of unpaid work just to pay interest on the bank.I must take more money to pay off the debt. "Kha confided.

There are 7 years of real estate business with nearly 200 rooms in the segment of 1-3 million VND per month in Binh Tan and Tan Phu District, real estate expert Nguyen Hong Hai said: "Kha failed because This goes against the 3 fundamentals of this business model. "

First, Mr. Kha prepared the capital in the wrong way. Unreasonable loans, accounting for nearly 70% of total investment. Room rental business should be noted that this is the only form of money to collect money, based on the accumulation of land funds, depreciation gradually, idle capital as long as possible, the borrowing must be limited, The lower the loan ratio, the safer.

Secondly, interest rates at 15% per annum further exacerbate financial cost pressures. Normally the monthly net profit of a motel business must be 1% per month, equivalent to 12% per year, but this investment rate is sustainable. Thus, the total amount payable on interest payments should be adjusted lower than total profit. Kha's case lost money because the revenue was not enough to cover financial expenses.

Thirdly, this investor lacked the experience of managing rental rooms, so that the vacancy rate was high and continuously increasing. The situation is not enough experience and no real estate management leases, the possibility of huge losses.

According to Hai, motel business is not a light investment channel, easy to win as people mistaken. To succeed, requires investors to carefully calculate the financial problems and spend much of their supervision and management from within the motel to the outskirts. Therefore, before making the decision to pour money into this model, investors should consult many tips and programmable budget tables to minimize risk.

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