The basic rule is not to put your money in investments that you do not understand. Rental investment is the type of real estate investment easy to assimilate. It involves buying one or more real estate (house or apartment) for the purpose of renting. With the rents collected, you can write off the purchase price if you have a bank loan. Once the entire credit is repaid, you will have more profits since you have no more debt.
It is also quite simple to encrypt the yield of a property because there are not too many parameters to take into account. Basically, it’s about:
- Calculate the income per square meter per year.
- Calculate the expenditure per square meter and per year.
- Calculate net operating income by subtracting expenses from revenues.
- Divide the net operating income by the property price and compare it with your yield requirement of between 2% and 10%, depending on the geographical location of the property.
- Then, figure out the net amount of payments, i.e. add the expenses for financing and see what it will bring you as a benefit.
Real estate investment is easily achievable by bank loan
Another advantage of real estate is the low risk to the investor and the security provided by this type of investment. Generally, when you talk to the banks, they generally agree to lend, without major problem, up to 75% of the total cost of real estate investment to achieve. In other words, if you have 25% as self-financing, you can usually borrow the rest.
The advantage of this is that the return on equity can often be between 10% and 25%, which is very beneficial. That’s the secret of real estate: you do not get a return of 2 to 3% on total capital, but rather 10 to 25% on equity. In reality, it’s not strange, that’s basically what all the owners of villas and condominiums do now.