Traditionally, 3 aspects are always highlighted why real-estate is such a good investment:
Stable income from a monthly rent
Value increase of the property has always been significantly higher than inflation.
Beneficial fiscal treatment.
The taxes are calculated on the cadastral income which is much lower than the real rental income
The interest to pay back your loan can be deducted from the cadastral income. Meaning during the majority of the loan period, you will hardly pay any taxes.
Added value is not taxed at the moment you sell-off your property
There are many articles on these 3 aspects and the nice thing is that these effects all add-up to each other.
But there is a 4th aspect that is seldom highlighted and is nowadays of crucial importance.
The Leverage effect
With the current low interest rate, this is probably the most important factor of all.
The lower the interest rate, the more you can loan from the bank. Meaning that the money you need to invest from your own capital reduces in favor of the money you can loan from the bank (increases). A real estate investor earns money by loaning from the bank.
Let's take an extreme (not realistic) example to make it clear: imagine you loan 100% of your investment from the bank over 20 years at 2% interest rate and you have a super high property rental income of 7%. That means that the rental income could pay back the full loan (5% capital and 2% interest). After 20 years, the property is completely yours and you did not need to invest anything (0%) from your own capital. That would be Saint Nicholas or the Christmas-man and we all know they do not exist. You will therefore need to invest some of your own capital. Instead of 100% - 0% (money from bank % – your own capital %), a more realistic balance could be 50% - 50% or 60% - 40%. The return on your own capital will in these cases be very attractive as well. With a low interest rate, money is cheap and you can loan more money and have a higher leverage effect.
But where do you get that required amount of own capital? Ex-Stra can explain how your group-insurance/IPT can help you out here.
This leverage effect can only play when you invest in real estate. A bank will never loan you money to invest in the stock exchange market because of its volatility and lack of stable income to pay back the loan.
Now it´s time to do this. Don´t wait till interest rates rise again. Go to our website ex-stra.be and contact us for a free conversation. We take you by the hand and handle all the practical issues. You will leverage 2 major topics:
Your limited own capital by loaning cheap money from the bank.
Your limited real-estate expertise and available time by joining forces with Ex-Stra.
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