Buying your main residence for the first time or buying to rent…Real estate investment is a major project in your life, which can be financed by resorting to savings (personal contribution) as well as credit. Here’s how.
FIRST, DETERMINE YOUR ACQUISITION CAPACITY
To know the budget that you can devote to your project, you must assess your acquisition capacity. There are online simulators for this, but basically, it’s about figuring out “how much can I put into my real estate project”, based on several parameters:
— the level of personal contribution (savings made for the project, family help)
— the monthly payment that the household budget can support to repay a mortgage each month. It is thus customary to consider that it is necessary to have income at least three times higher than the monthly loan payment.
— Your acquisition capacity must therefore take into account the expenses of your daily life other than the repayment of the loan, and in particular taxes.
— monthly payments for any other current real estate or personal loans.
— new charges resulting from your future acquisition: property tax, new housing tax, condominium charges, works, etc.
Once your acquisition capacity has been calculated, the question of recourse to the loan arises.
BUY ON CREDIT TO LIVE
As a whole (rate, duration…), the credit offered by the banker depends on your personal contribution, as well as your borrowing capacity, which varies according to your income, your personal and professional situation, the existence of other loans in your budget …
Ideally, a personal contribution of 5 to 10% facilitates your operation, if only to pay the sum to be paid during the promise to sell.
In order for your household’s debt ratio to remain reasonable, the usual rule is that the number of monthly payments to be repaid (all credits combined) does not exceed 33% of your monthly disposable income. Now with the Withholding Tax (PAS), to find this monthly income, you just have to add your salary received + the line of your taxes deducted at source from your pay slip.
In other words, this means that you must have enough “left over to live” each month to meet daily living expenses: food, clothing, leisure, taxes, various insurance, car budget, etc. alimony, etc.
BUY ON CREDIT TO RENT
You can expect to collect rents that will cover all or part of your credit repayments. The investment can thus be self-financing with a very limited impact on your daily budget.
Under certain conditions, it is also possible to embark on a rental investment without personal contribution.
To ensure the proper financing of this type of project, it is preferable to ensure that the expected rental income will be greater than or at least equal to the monthly loan payments (unless you have a tax optimization objective, see box below).
It is also necessary to ensure the quality of the rental property you wish to acquire, to be sure:
— not to know of a rental vacancy, that is to say to always find a tenant to replace the one who is leaving. It is therefore necessary to invest in a region or in a city where the rental market will remain dynamic.
— not to suffer from unpaid rents, by subscribing, if necessary, to a Guarantee of unpaid rents with your bank.
BUY TO RENT WITH “CREDIT IN FINE”
Besides the classic amortizable credit, repayable month by month, there is another type of credit suitable for rental investment: the “credit in fine”. Its principle: during the term of the loan, you only reimburse the interest. The capital is repaid in one go, at the end of the loan (hence its Latin name “in fine”).
In order to be able to repay the capital at the end of the loan, you must, in principle, first have a certain capital that will be placed in a savings product in order to generate interest, such as a life insurance contract by example.
The credit in fine also has a tax interest! Indeed, in a loan in fine, the repayments only include interest, and these repayments are constant throughout the duration of the loan. Every year, you deduct a fixed amount of interest from your taxable rental income, while with the repayment of a classic loan, the interest, which is admittedly also deductible, automatically decreases over time.
TO HELP YOU FINANCE YOUR REAL ESTATE INVESTMENT: THINK OF TAX SYSTEMS.
Investment in the Pinel Law, Pinel Overseas, Old Cosse, Malraux and Historical Monuments, land deficit…
These tax measures constitute indirect funding assistance. Subject to compliance with certain conditions (purchase of a new property, decent condition of the leased property, rental period of the property, investment in a specific geographic area, capping of rents and tenants’ resources, etc.), these various incentive mechanisms tax to real estate investment contribute to the financing of your project, via tax reductions or tax allowances.