In France, increasing your wealth often means investing in stone . An initiative all the more popular that at present, interest rates for mortgages remain very low, despite the slight rise in recent months. By fully controlling the leveraging system, it is even possible to optimize it, while maintaining a safe investment approach. Explanations.
What is the leverage effect in real estate loans?
The purpose of the leverage effect of a loan is to “boost” the investor’s wealth, through financing, by valuing its own funds . Controlled, this device allows here to enrich, without having to bear the entirety of monthly payments of the loan associated with this rental investment.
In concrete terms, leverage is measured by the difference between the economic profitability of a good and the financial profitability . The first refers to the difference between net profits and the sum of equity and borrowing; the second is calculated by subtracting net profits, before and after taxes, and the sum of interest and equity.
It is interesting to use a credit when the leverage is considered positive, ie 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 repayments of the loan are 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 be able to acquire only low potential property (limited surface, bad geographical location …). On the other hand, if the couple subscribes, each, a new loan of 110 000 €, of which it mobilizes, of their savings, only the cost of the expenses, 2 x 10 000 €, the operation can be definitely more interesting .
Faced with a property well located, with a rent to the height, the monthly effort of the couple can be reduced to its maximum (difference between the rent collected and monthly repayment), while allowing them to keep a secure savings ( € 30,000).
What borrower profiles is it?
Naturally, the leverage effect of a credit only concerns borrower profiles with strong incomes and a minimum of savings to be valued . We must also take into account its level of taxation.
Not to mention that we must be able to analyze the impact of other variables to this operation, to determine its viability, such as the situation of the property, its profitability, the local market, the weight of the borrower insurance, etc.
Why call a credit expert?
As you can see, the operation requires heritage advice. All these elements require the expertise of a professional, to decide whether the operation is appropriate or not for the borrower. The principle being not to “suffocate” financially “the latter, but on the contrary, give it a real boost, to boost its heritage. The network AJ Raffles.NET being free with no fees for primary residences, secondary and 1 rental investment, the investor you are, at heart will reduce the burden of its operation, even if it is fully deductible from his property income.