Borrowing money to invest in real estate: what solutions?

With the drop in rates and still the concern to lower taxes and prepare for retirement, more and more households will come to rental property. It is not necessary to have a significant contribution, it is also possible to carry out your project without personal capital. Banks willingly lend for investment in stone, whether it is furnished housing in a residential complex, empty apartments intended for main residence or SCPI shares. A quick tour of these solutions that are available to households, and how to finance them.

Furnished accommodation included in a service residence

Furnished accommodation included in a service residence

The investor buys a house or an apartment, fully furnished and equipped. Accommodation is included in a service residence, offering reception, breakfast, maintenance and laundry. It does not take over the rental, it signs a contract with a professional operator. The latter himself manages the catering, maintenance and reservations. He pays a monthly or quarterly rent to the investor, which can be revised upwards annually.

Tourism, business, nursing homes and senior residences

Tourism, business, nursing homes and senior residences

The service residence can be intended to accommodate residents on a short or long term. The long term particularly concerns senior residences as well as nursing homes. The shortest durations are for tourist and business residences. Specialized promoters offer new and old programs, including the sales contract and commercial exploitation.

How to borrow to invest?

How to borrow to invest?

Banks like to finance rental investment in furnished residences, especially when the developer / operator is a major player in the sector. Specialists who can find a long history of default-free rent payments generally find their way into bank branches.

Once verified the ability to repay and the sustainability of investors’ income, the lender wants to be assured that the operator will pay the rent to the investor. The rates are relatively attractive because the risk is minimized by the return on investment, and sometimes you can borrow without contribution.

The Censi-Bouvard tax exemption law and the ability to recover VAT make it possible to reduce the investors’ budget, which represents an additional argument for the lender.

Apartment or house intended for the main residence

Apartment or house intended for the main residence

The investor buys a house or an apartment, generally equipped with a kitchen and a bathroom. Furnishings, dishes and linen are the responsibility of the tenant. The targeted accommodation is mainly studios and 2-room apartments, or even 3-room apartments for young families. Houses are rented less well, generally being the target of first-time buyers.

The rental can be entrusted to a professional, or taken care of directly from individual to individual. There are unpaid rent insurances allowing to cover the defaults of tenants, as well as the possible degradations.

Where and what to buy

Where and what to buy

2 main choices are available to the investor: new and old. The first is generally more expensive than the second, but can make it easier to find tenants, thanks to the low energy consumption. In both cases, tax exemption systems exist, with the Pinel law for new real estate and the land deficit for the purchase of old with work.

It is better to target large cities, especially apartments close to shops and services. The student clientele represents significant potential, particularly in university towns. In this case the investor should prefer small areas, not necessarily close to schools but especially close to the busy city center.

The addition of a tram line does not necessarily increase prices per square meter. Some rental investment professionals advise to be concerned with yield rather than added value, the latter depending on too many factors.

Borrow to invest in the rental, not so complicated

Borrow to invest in the rental, not so complicated

Banks master the technique of rental property investment, and willingly finance it if the conditions are met. The first condition is the future debt ratio, which must not exceed 33% of borrowers’ tax revenues. But above all, the lender will comb the project. He will try to find out if the housing is not overvalued, if the neighborhood is not in distress, and if the expected rent is realistic. Households able to make a personal contribution are able to obtain an even more attractive interest rate.

Today the imbalances between demand and supply of housing suggest that the tenant is in a weak position. However the behavior of the market varies greatly from one city to another, it can be interesting to approach a professional in order to target the right apartment.

What is the Civil Society for Real Estate Investment?

What is the Civil Society for Real Estate Investment?

A SCPI is a legal structure, supervised by the Best Lender. Its purpose is to acquire a building stock, thanks to private financing. Investors receive a dividend in the form of part of the rent paid by tenants, after deduction of operating costs and reserves.

SCPI managers are more interested in professional real estate: store walls, offices and warehouses. The risk of unpaid rents is low, and above all its management is left to the responsibility of the company. The distribution of rents is done according to the principle of mutualisation, thus allowing all shareholders to absorb defaults, these being anyway relatively rare.

During this year, Pinel SCPIs should appear, investing in new real estate complexes intended for housing, and allowing each shareholder to benefit from a share of tax exemption.

Borrow to buy SCPI shares

Borrow to buy SCPI shares

Investing in one or more real estate investment companies is considered a rental investment by a bank. The latter appreciate the fact that the sector is regulated by the Best Lender, and constantly receive activity reports from managers.

Lenders therefore know the quality of the housing stock and the expected return, however the fact that there is no guaranteed capital could slow some of them.

The investor is strongly advised to approach a specialist. There are variable capital SCPIs, others with fixed capital, some have just completed their work, others have to provision to renovate. All these factors influence the yield and the price evolution of the units. Overall, the average dividend paid by the SCI has exceeded 5% for many years.

Loan for Temporary workers.

There are employees who are only needed for seasonal events. The best example is Christmas sales. The companies hire temporary help weeks in advance to cope with the rush for the Christmas business.

After that, most of these workers will be unemployed again, because companies usually do not take on temporary help. It is positive for those affected to finally have work again, but this job also has disadvantages. A temporary job has a particularly negative impact on financial matters, because there is rarely a loan for temporary workers.

Co-applicant can still be used

Co-applicant can still be used

If a loan for temporary help is refused due to the situation described above, a co-applicant can still be used. Its salary is then counted as income. But for him the risk is very big, because it is nothing more than a guarantee. If the borrower does not pay his installments, the co-applicant must step in. The situation is different if the spouse appears as a co-applicant. In this case, both partners are the borrowers anyway and must also pay for the loan together.

If the temporary job takes longer

If the temporary job takes longer

The longer a temporary job lasts, the more promising a loan request is. In addition to seasonal employment contracts, companies also hire long-term help if the order situation is good. Sometimes even two-year contracts are possible. A loan for temporary help can also be approved under these conditions. However, the Credit bureau must be positive and the loan must be paid off within this employment relationship.

Large sums of money should not be expected, but to cover a small financial shortage, a small loan for temporary help may well be possible. That varies from bank to bank. Basically, it must be mentioned here that a Lite lender loan for temporary workers is not possible in this case. The reason is simple. A Lite lender loan is rejected by the banks with a temporary employment contract.