How to Borrow Money to Generate an Income

The best situation to be in financially is to have no debts at all, and plenty of surplus money and assets producing an income for you so that you don’t need to work to earn a living. Having said that, even people who do not need to borrow money sometimes still do so, because there are times when borrowing money can help generate a reasonable profit. It all depends on how they use the money they have borrowed.

If you borrow a sum of money and then use it to generate enough income to cover the loan repayments and interest and have a comfortable surplus left, you will have an extra source of income and could end up better off.

This strategy works even better if someone else is paying off the loan for you while you still receive an income from it. For example, if you take out a mortgage to buy a property and let it out to a tenant, then as long as the rent you are receiving covers the cost of your monthly mortgage repayments and the upkeep of the property – and gives you a comfortable surplus on top – the borrowing could worthwhile. You will be receiving an extra source of income each month, and someone else (your tenant) will be paying off your loan for you. In addition, the property’s value may rise, giving you a valuable increase in capital. You could sell the property at a later date and make a profit on the property’s rise in value, or you could remortgage to release the profit (as long as the rent still covers the mortgage repayments by a comfortable margin) and still keep the property.

Many people make money by borrowing to invest in property in this way, but as with any lucrative investment, it is important to rememĀ­ber that there are risks involved. For example, if interest rates soar, your mortgage repayments will also soar (unless you’ve fixed them) and you could find that the rent you receive no longer covers the repayments -in this case you would have to pay any shortfall yourself. You may encounter void periods (when the property is empty), during which you will have to make the mortgage repayments yourself; your tenant may fall into arrears with the rent; or you may lose rent through some other unexpected hitch. The value of the property may also fall. These are just some of the potential pitfalls with this type of investment. However, there are ways of minimising these risks, and if you get it right and do your homework thoroughly, borrowing money for property investment can be worthwhile.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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