In this article we will show you how you can make money investing in real estate with recourse to housing credit. If you do a search, the rent search has been growing significantly, which translates into the increase in rental value. Real estate is again a popular investment, especially if we consider that the best term deposits have very low rates.
Choose the House
The first step is to find a house with good rental potential. In this context, it should take into account some important factors such as:
- Location – In the city center? Close to public transport? Close to schools? Choosing the location is key to meeting customer demand. It is worthless to buy a house, however cheap it may be, in areas where people do not want to live;
- Characteristics of the house – What typology, the state of conservation, the need for works;
- Value of the house and other costs – Essential to realize your investment needs;
- Potential income – Last but not least, realize what the value of the income is in the immediate vicinity.
Simulate Your Home Mortgage Loan
Once you have identified the house you want to acquire it is time to choose the mode of financing. You can buy it using equity, using housing credit or a mix of the two (most likely and perhaps most advantageous). In either case you will have to understand the monthly charge and the cost of the money (interest rate and other associated costs).
Currently it is possible to have credit for buying real estate with rates close to 1.5%. So, if we are talking about a loan of € 75,000 to 30 years we will have monthly installments of around € 280 (approximately half of which is a return of capital).
Evaluate the Attractiveness of Your Investment
The third step before moving forward to purchase is to make the assessment of your investment. You should consider all costs and consider your return taking into account two different methods:
- Compare the amount of the income (after expenses and taxes) with the value of the banking service (simulate your installation here). You can easily get a tenant to bear the value of your income which in practice means you will be paying him a home that in a few years will be 100% yours.
- Compare the amount of income (after expenses and taxes) to the value of your initial investment. Here you will have an income rate that is easily calculated by dividing the annual value of the rent (after expenses and taxes) by the value of the investment. For example, if your net annual income is € 5,000 and the investment amount is € 75,000 we are talking about an annual return of 6.7% (compare this figure with savings tax rates, for example).
All Investments Have Risk
Of course, these two scenarios carry risks. They imply the possibility of the home devaluing (although its concern is the monthly income this risk is less), of not receiving rent (due to non-compliance of the tenants), an increase of the interest rates (possible to eliminate with the choice of a flat rate) or maintenance costs that are higher than expected.
Nobody says that making money on investments is something that has no risk. If you say it, you’re lying. However, the maxim of “who does not risk does not snack” should always be considered. If we want to make money we have to invest and take risks. If we keep the same path … we will not be able to change our destiny. Does not agree?