Real estate credit and leverage?
In France, increasing your heritage often involves investing in stone. This initiative is all the most popular given that, at present, mortgage interest rates remain very low, despite the slight increase in recent months. By fully mastering the leverage system, it is even possible to optimize it, while maintaining a safe investment approach. Explanations.
What is the leveraging mechanism for mortgage loans?
The purpose of the leverage effect of a loan is to “boost” the investor’s heritage, through financing, by enhancing its equity. Controlled, this device allows you to enrich yourself here, without having to support the entire monthly payment of the loan associated with this rental investment.
Concretely, the leverage is measured by the difference between the economic profitability of a good and financial profitability. The first refers to the difference between net profits and the sum of equity and borrowings; the second is calculated by subtracting net profits, before and after taxes and the sum of interest and equity.
It is advantageous to resort to a credit when the leverage is considered to be positive, namely when the economic rate of return is higher than the interest rate of the loan. In this case, the borrower acquires a property and the monthly repayment of the loan is borne by the tenant. Note that with a personal contribution, greater than or equal to 35% of the total transaction, the monthly installments are fully covered by the tenant.
How to use this financial tool?
Imagine the case of a couple holding $ 50,000 in savings, with monthly income of $ 4,000 and already repaying a first mortgage, built around their main residence.
If the rental investment is only built on the basis of their savings, this couple will only be able to acquire a property with low potential (limited surface area, poor geographic location, etc.). On the other hand, if the couple each subscribes a new loan up to $ 110,000, of which they only mobilize, from their savings, the cost of the costs, ie 2 x $ 10,000, the operation can be much more attractive. .
Faced with a well located property, with a rent up to par, the couple’s monthly effort can be reduced to its maximum (difference between the rent received and the monthly repayment), while allowing them to keep a reassuring savings ($ 30,000).
What borrower profiles does it concern?
Naturally, the leveraging mechanism of a loan exclusively concerns borrower profiles with solid incomes and a minimum of savings to be valued. You also have to take into account your level of taxation.
Not to mention that it is necessary to be able to analyze the impact of other variables in this operation, to determine its viability, such as the situation of the property, its profitability, the local market, the weight of borrower insurance, etc.
Why call on a credit expert?
You will understand, the operation requires heritage advice. So many elements that require the expertise of a professional, to decide whether the transaction is appropriate or not for the borrower. The principle being not to “suffocate” financially ”the latter, but on the contrary, to give it a real impetus, in order to revitalize its heritage. The Lending Lite Finance network being free and without fees for the main, secondary and 1st rental investment, the investor that you are, will be keen to reduce the cost of its operation, even if the latter is fully deductible from its income land.