How to make a buy-to-let investment without a large personal contribution
Buy-to-let is a great way to create a property portfolio, supplement your revenue or prepare for retirement, but how do you finance a project without using up personal credit?
Whether you are hesitating to invest because you don’t have a large sum for down payments, or you want to maintain your savings and profit from interest rates, good news! It is entirely possible to invest in a project with low personal contribution through leverage. Leverage is a the way in which an individual can increase return on an investment without using more of their own capital. As long as the profitability of your investment is greater than the interest on your loan, you can make money by borrowing some of the amount you invest.
Many shy away from borrowing a large sum without much personal contribution because leverage can increase both profits and losses on an investment. Therefore, it is important to know how secure your investment is before you take out a loan. Traditional buy-to-let can be difficult, as unforeseen costs or periods of vacancy could lead to loss. However, if you choose a commercial lease with an operating company, rent can be guaranteed and maintenance is taken care of, meaning you can easily calculate your return.
Furthermore, interest on loan payments is deductible from rental income. This is the case for both unfurnished rentals and furnished buy-to-let property in France, which allows deduction of expenses and depreciation of assets. Investment without contribution not only enables you to become an owner, but also allows you to reduce taxes.
In order to make a purchase without large contribution, you must first convince the bank of the security of your investment and seriousness of your financial plan.
Calculate your Budget
The first step of your project is to calculate the necessary budget to make an investment. Price of the property you are looking to acquire is evidently the first expense you will incur. In most cases, you must also account for agency fees, this can vary from one case to another, but is around 4 to 10% of the purchasing price. It must also be remembered that these fees are always charged to the buyer and not the seller. In the case of French property, you will also need to take into account fees from the notaire (similar to a UK property lawyer). These vary by region, but are around 7-8% of the property price. If the property you are buying is in need of renovation, you also need to accommodate work costs in your budget.
95% Loans and Mortgages
95% loans enable you to borrow almost the full amount and although 100% loans are no longer available in the UK, they can still be found abroad, such as in France. The first step to success in obtaining this type of loan is presenting a concrete, secure and correctly budgeted project, as banks take on a greater risk than with typical loans. However, each year many loans for buy-to-let investment are agreed without down payment, meaning it is entirely possible to find one for your project. This is because a buy-to-let investment carries less risk than purchasing a primary residence, as rental income can be used to reimburse the loan provider.
Banks also look at the quality and location of the property in order to gauge its capacity as rental accommodation. It is always easier to finance a small lot in an ideal location than a larger residence located far from businesses and transport. You can also look to service-providing residences such as assisted living or tourist residences, as these are generally more reliable in attracting tenants.
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