Starting a rental investment project usually requires a loan. Whether you go to your bank or a broker, you will need to repay this loan in the form of monthly installments. You will also receive rent by renting out your apartment. But how can we ensure that the rent you will receive is as close as possible to these monthly payments? What are the conditions for repaying your loan with rent? We explain everything to you.
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Rent and profitability
When you start an investment project, the goal is generally to rent out the apartment to receive rent. Whether in France or elsewhere, rents vary depending on the types of apartments, areas, and cities where the property is located. But generally speaking, annual rents correspond on average to a percentage of the purchase price: this is the gross rental yield of an apartment. This percentage varies depending on the risk and rental demand. It can range from 3% for a low-risk investment to as high as 7% in the case of higher rental risk. But then, what type of apartment should you buy so that your rent “covers” your monthly payments?
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Financing
Rental investment is often financed by a personal contribution and a loan. You provide the contribution, and the bank provides the borrowed amount. You then need to repay the loan in the form of monthly payments, usually constant (in the case of a fixed-rate amortizing loan) that include both interest and repayment of the amount the bank lent you. And of course, in a package, the larger the personal contribution, the less the necessary loan, and thus the lower the monthly payments as well. What is the link between rent and loans?
Balanced assembly to repay the loan with rent
Arranging a financial setup that allows an investment to self-finance means that the rent equals the monthly loan payments, with nothing to add or, in other words, no savings effort required. But how do you achieve this balance? It all depends on your personal contribution: the higher your contribution, the lower your monthly payments, so the closer your rent amount will be to your monthly payments. Simple. But what is the right contribution to achieve this balanced assembly? Since rents and thus profitability differ from city to city, the contribution needed for a balanced assembly will depend on where you invest. The calculation is a bit complex, but to give you an idea, know that in Paris, for example, your contribution will need to represent 50% of the apartment price, while in Lyon, a contribution of 30% of the apartment price may suffice. The desire for a self-financing investment essentially depends on what your contribution represents relative to your budget. Therefore, it is important to prepare your project well, especially its financial structuring.
Do you have a real estate project? Contact us to discuss it; we will study the most appropriate setup for your situation.
Tag : early repayment real estate