Property investments at home and abroad

Using financial leverage means that you buy property with someone else's money. So you are putting in very little of your own capital.

The basic principle of investing money in property [AVAILABLE SOON] is that the less you inject of your own money into a property deal, the greater the return on your own contribution.

This is because as an owner, you can enjoy the annual increase in the value of the property in the long term, without having to finance everything yourself.

In other words, with a limited own contribution you can still enjoy the principle of compound interest, applied to the full value of the property.

Put differently, if you sell, say, after 15 years, you will have multiplied your original own contribution after paying off the loan.

This can be explained by the annual increase in the value of the property, which, at the end of the day, provides a considerable surplus value.

Moreover, you can pocket all of this added value yourself, even though you initially only financed a limited percentage of the purchase price yourself.

The bank only wants the repayment of the original borrowed capital and not part of the capital gain.

Compared to shares, real estate is an enormously stable and value-retaining investment in the long term. Real estate is also less volatile than the stock markets.

Because of this, banks and lenders are willing to offer high to very high rates for real estate financing.

The ratio of a mortgage loan [AVAILABLE SOON] reflects, in percentage terms, how much you borrow in relation to the total purchase price of the property.

For example, if the mortgage loan ratio is 80%, this means that you borrow 80% of the purchase price and finance the remaining 20% of the purchase price (plus transaction and purchase costs) yourself with your own funds.

In certain cases and in certain countries (such as Germany), it is still possible to obtain a ratio of 95 to 100% through a local lender.

If the mortgage loan ratio is 95%, you will only have to finance 5% of the purchase price plus the purchase and transaction costs with your own funds.

Good to know: You generally cannot borrow for the purchase and transaction costs. So even if you can find a mortgage loan with a 100% rate, you will still need to have sufficient funds to pay the purchase and transaction costs out of your own pocket.

When working with financial leverage, however, you should be aware of the three main pitfalls associated with it:

Over-indebtedness

As a real estate investor, you need to do your homework to assess your creditworthiness yourself.

Don't rely on the lender to see how much you can borrow responsibly. Taking on excessive debt is to be avoided at all costs.

Maintaining a good credit rating is crucial as a private investor. So make sure you have enough financial breathing space after the monthly instalments.

Negative cash flow

You can avoid this first pitfall by thoroughly analysing and selecting the right income property [AVAILABLE SOON] and by drawing up the financial plan in such a way that your monthly cash flow is neutral or positive.

The latter can be achieved by increasing the own contribution and thus reducing the monthly loan charges.

Transaction and purchase costs

The second pitfall is the transaction costs of a property purchase (think brokerage fees, notary fees, registration fees or VAT, etc).

Real estate usually has one of the highest transaction costs of all possible investments.

Depending on the country you invest in, these can be as much as 10 to 12% of the purchase price.

If you read between the lines, you will understand that such a cost needs to be spread out over a sufficient number of years to make the investment financially worthwhile. This means that you should preferably use an investment horizon of 10 to 15 years.

That way, time, the annual increase in value and the principle of compound interest can do their work to achieve a wonderful return that more than compensates for and recovers the transaction costs originally paid.

Are you not keen on working with a loan (and financial leverage) to finance an income-producing property?

Then with limited funds, you will not jump far in terms of purchasing full ownership of a property.

This need not be a tragedy as you can still get exposure to property as an investment.

In practice, you can already invest in property funds [AVAILABLE SOON] with a modest amount. You then buy shares in a property fund that invests in numerous properties in various countries. 

So you invest indirectly in real estate by buying shares in a professionally managed real estate company. This company generates income from the rental of residential and/or commercial real estate [AVAILABLE SOON] as well as from the purchase and sale of properties.

The minimum contribution required to invest in a real estate fund is usually quite limited.

In terms of return, you could be eligible for a periodically distributed dividend and, in the long term, there is a real chance that your shares will increase in value (given the price trend of residential property and the population trend).

Real estate can be a good protection against inflation. However, a potential investment property should always be properly assessed as thorough due diligence is an important factor for financial success.

One major advantage of buying property to let is that you can build up your wealth using other people's money. 

How? Well, if you can put in the minimum required equity, you can take out a mortgage loan to finance the rest of the purchase price.

Then you can have the tenants pay the capital and interest payments (by using the monthly rent they pay for this). After the loan is paid off (by your tenants), your positive cash flow increases dramatically!

An additional advantage is that you can regularly index (increase) the rent to compensate for the negative effect of inflation on your returns.

And as a possible bonus, you can also book a capital gain on the property through the long-term increase in the value of real estate.

If you are looking for an investment method that will make you a millionaire in the blink of an eye, then property investing is not for you!

You should consider building wealth through buying and renting real estate as a slow but steady process.

Those who take it slow but steady will win the race (becoming wealthy with real estate [AVAILABLE SOON] is a marathon, not a sprint).

Some investments in real estate can definitely yield lucrative and quick profits.

But in any case, be prepared to be patient when it comes to building wealth through buying income-producing real estate [AVAILABLE SOON]. And don't be put off by periods of correction in the property markets.

For most people, the period between 35 and 65 is when they earn the most money.

Therefore, during these years of life, people usually have extra money to spend. Some spend it on fun things during their midlife crisis while others invest a significant part of it for the future.

The average person enjoys rising earnings until the end of their career thanks to high seniority. However, this does not mean that they have already secured their position - on the contrary.

Once one falls back on a retirement income, there is a real chance that the monthly income will not be enough to cover the cost of living.

In other words, many of those who do not invest for the future end up with insufficient income. When they finally retire, they will not be able to maintain their standard of living.

In contrast, those who do invest during their working careers can use money from their investments to maintain their living standards.

Building up your own extra pension [AVAILABLE SOON] by investing in property for rent is an interesting option in this context.

Property investments are an interesting choice to secure additional retirement income.

Building wealth by investing in property for rent offers some great advantages.

Countless ordinary people from all backgrounds have already managed to build considerable wealth by investing in rental properties. They all slowly but surely built up a property portfolio.

And over time, their monthly cash flow from their property investments became greater than their salary and other income.

In other words, real estate has become their main source of income over time. And once you reach the same level, retiring from real estate [AVAILABLE SOON] and retiring early is a possibility.

Not everyone is cut out to be a successful active investor in rental property.

Here are a few thoughts before you get started in the do-it-yourself active rental business:

Investing in rental property offers advantages and disadvantages. You should think carefully about what suits you best: active or passive investment in real estate [AVAILABLE SOON].

If the headaches, responsibilities and stress do not appeal to you at all, there are still plenty of opportunities to invest in property for rent.

For example, you can invest passively in real estate [AVAILABLE SOON] through turnkey investment property [AVAILABLE SOON] with a rental service and/or rental guarantee [AVAILABLE SOON] with guaranteed income.

Some people still keep their money physically in a secret compartment, for example under a mattress, in a safe, in a sock or in a classic money box.

However, by dealing with savings in this way, one cannot generate interest on the initial capital. So you miss out on the power of the compound interest principle.

It is still better to deposit money in one of the savings formulas that are usually offered by the local bank.

You can put your savings in a savings account and withdraw them at any time. Or you could also buy a cash receipt or certificate of deposit. Both savings products usually require a minimum deposit and come with a predetermined fixed term.

When you buy such a savings bond or certificate of deposit, you are actually lending money to the bank for a specific term. In exchange for the capital you lend, you receive interest. At maturity, your initially lent money is repaid.

The interest on such a certificate of deposit or cash bond is higher than on a traditional bank savings account.

When you invest in stocks or shares, you become part owner of the company. As an owner, you are entitled to a share of the company's profits.

Companies often distribute part of the after-tax profit to shareholders in the form of a dividend and keep a portion for future development and unforeseen expenses.

Investors in shares often also hope for an increase in the value of the shares they own. In this way, it may be possible to realise a capital gain at a later sale.

You can invest in a foreign currency in the hope that it will rise in value against your own currency.

This is a form of speculation and comes with a high risk. The profits can be large, but the losses can also be high.

So, in any case, be careful when trading in currencies and only do this with a part of your capital.

An investment fund is a company that brings together money from investors (shareholders) and invests it in a range of securities (shares, bonds, etc.).

Some investment funds specialise in a particular type of investment.

For example, one mutual fund may invest only in government bonds, another may invest only in proven dividend stocks with a track record, and yet another may invest only in real estate (also known as a property fund [AVAILABLE SOON]).

One reason why people invest in investment funds is to spread their risk. When you invest in a mutual fund, you own a small portion of different underlying securities instead of a larger portion of only one thing.

Another reason why people choose mutual funds is that they do not have to worry about specific investment decisions. The investment fund's professional management team makes all the decisions.

People also buy scarce art, trading cards, stamps, coins, memorabilia, miniature cars, vintage cars, cigars, wine and other items in the hope that demand (and therefore value) will rise.

As an investment, you could also lend money to others. Making money by lending money [AVAILABLE SOON] is possible because you can charge interest (and possibly administration costs).

Investing in loans [AVAILABLE SOON] without much risk is possible by demanding collateral from the borrower. If you then provide a loan and the borrower stops paying, you can seize the collateral (such as real estate).

You can then sell that collateral (or have it sold) and use the proceeds from the sale to recover your lent capital.

Instead of granting a loan yourself, you could also buy a loan from someone who has already granted a loan in the past. You then replace that person as lender and collect the remaining payments from the borrower.

Depending on the interest rate of the loan (the interest rate the borrower pays), you may be able to take over the loan with an additional charge or a discount.

By the way, there are several online peer-to-peer platforms [AVAILABLE SOON] where you can grant new loans or take over existing ones.

Companies and governments often need large sums of money. They often raise that money by selling bonds to the public.

When you invest in bonds as a private investor, you lend money to the company or government institution that issues them.

Most bonds usually earn interest semiannually or annually and repay the initial capital at maturity (which can range from a few months to many years from the date of issue).

In contrast, some bonds, called zero-coupon bonds, pay out the entire interest at once when the bond matures.

Real estate is a collective term for land and buildings that are attached to the land and are immovable by their purpose.

Many people who invest money in property [AVAILABLE SOON] do so by first investing in a house to live in. 

Then they might buy a small residential property to rent out, such as a studio, flat, terraced house, duplex or triplex. 

Over time, they may then invest in larger income properties, such as apartment buildings or commercial properties (such as office buildings or shop premises).

You can also invest in undeveloped land (such as a parcel of land or a large plot for future development).

Also be aware that you have the choice between active or passive [AVAILABLE SOON] real estate investment. 

This means that it is also possible to make money from rental property [AVAILABLE SOON] in a completely passive way [AVAILABLE SOON] if you wish. 

This is possible thanks to turnkey rental real estate [AVAILABLE SOON] including care, all-in rental service and also by investing in real estate with guaranteed return [AVAILABLE SOON].

People invest in gold, silver, copper and other metals in the hope that they will increase in value.

There is something to be said for this, given the scarcity of these items compared to, for example, the euro or the dollar, which are continually being replenished at a rapid pace.

The above scenarios are certainly not meant to discourage investing money.

On the contrary, the aim is to encourage cautious and defensive investing by making sure the risk is not more than you can handle.

In the past, some investments have done well in periods of inflation while others have done well during economic recessions.

Most people invest their money in different types of investments to limit the overall risk.

The following proverb is applicable in terms of making money from investing [AVAILABLE SOON] without much risk:

"Don't put all your eggs in the same basket"

Finally, a tip: When it comes to prudent investing, we would like to point out our free online defensive real estate investing [AVAILABLE SOON] course.

You can become financially free by keeping in mind the following guidelines:

What does it take to taste financial happiness? What do you need to do and give up NOW to have financial peace of mind LATER?

In practice, people often talk about the 4% rule of thumb.

The 4% rule of thumb means that you can consider yourself financially independent as soon as a 4% return on your total asset portfolio is enough to cover all your annual costs.

In other words, as soon as your assets have a value of +/- 25 times your annual expenses, you can consider yourself financially independent.

A calculation example can clarify matters:

Suppose you live on 24 000 euros (or dollars) a year, all-in. Then, according to the above rule of thumb, you reach financial independence when you have invested assets of 600,000 euros (or dollars).

If you live on 60,000 euros (or dollars) a year, then you are financially independent with an asset portfolio of 1,500,000 euros (or dollars).

Becoming and remaining financially independent is therefore as much about controlling your annual expenditure as it is about building up your wealth.

When you are financially independent, you can start living from your investments. There are many wealthy people who live off real estate [AVAILABLE SOON], possibly supplemented with other investments such as dividend stocks and mutual funds.

When you become financially independent, you can decide whether you still enjoy your job or entrepreneurial activities and want to continue your career or try something new.

If you continue to work, even though you have actually already "made it", you remain active and are less likely to be bored and feel dull. Moreover, you are able to invest almost 100% of your earnings.

You now live from the proceeds of your investments. So you can invest all the additional professional income, which will drastically accelerate the growth of your assets.

Becoming financially independent, it is a concept that can be freely defined. In other words, it is rather a target that makes you think about your current savings capacity, investment behaviour and accumulated wealth.

Most likely, you will want to spend money from your earned income while striving for financial freedom. While keeping your investments intact and supplementing them with what remains of your professional income after covering all costs.

In any case: The additional growth of your invested capital by continuing to work even when you do not need it financially, ensures a growing disposable amount per year if you ever decide to live full-time from your investments.

Once you have achieved financial independence and are able to live on +/- 4% of your invested capital on an annual basis, you can decide for yourself what you do, when you do it, with whom, how and where.

So you can decide to make your current lifestyle a bit more comfortable, without increasing your annual expenses beyond the 4% limit of your assets.

Do you enjoy family moments, outings with family, moments with friends? If so, as a financially independent person, you can definitely plan a lot more quality time with these people.

You could also consider moving into that dream flat or house you've been talking about for so long... But beware, haste makes waste. Property that you live in is usually not a high yielding investment.

It does not bring in any rental income and only costs money. In other words, a private home with much more luxury is an expensive indulgence and rarely a rock-solid investment.

So only buy a bigger house if you can easily afford it and if it offers the change of lifestyle you absolutely want.

In short, make a clear distinction between buying a private home that will only cost you money and purchasing a buy-to-let property that will bring in rental income as well as a return.

Becoming financially independent is a long-term process. Naturally, this does not happen in a few days. This does not mean that you should despair if you are already over 50.

It is never too late to become financially independent. Young and old can, with the right strategy and discipline, achieve financial independence in a relatively short period of time.

Finally, this: The road to financial independence is strewn with pitfalls and obstacles. Perseverance and a long-term vision are the keys to success.

Buying an income property with little equity can be done by using already built up capital in a property.

Suppose you live in your own home and you have already paid off half of your mortgage.

And suppose your property has also increased in value over the past ten years because of improvements and because the property market is doing well.

In such a scenario, you may not have much cash in the bank. But that need not prevent you from investing in investment properties.

The reason is obvious: Your accumulated equity in the property is a form of dormant capital.

Moreover, the property has also increased in value and this increase in value (an appraiser can officially assess this) is also considered to be a form of additional dormant capital.

The trick is to make this dormant capital, built up in real estate, liquid by pawning it via a mortgage loan for an investment property [AVAILABLE SOON].

The advantage of this is that you can still invest in real estate with very modest liquid assets. Moreover, you can withdraw this accumulated equity tax-free by pawning it (borrowed money is not taxable).

Of course, you must give the property in question as collateral (the lender will then place an additional mortgage on it). The dormant capital that you can take out via loan in this way is limited by various parameters and rules, but it can be well worth it.

A final note: Borrowing for a buy-to-let property [AVAILABLE SOON] means more debt, which in turn means higher interest payments and/or capital repayments. This has a negative effect on the monthly cash flow.

Suppose you barely break even every month (cash flow neutral situation) or have to contribute money every month (negative cash flow), you will have to be very careful to continue to meet your financial obligations.

Tip: If you are refinancing an existing property, find out what hidden costs and possible repayment penalties may apply.

Have your children left home? Then the chances are that you are actually living too big. This is associated with rather high costs per head versus when the children still lived at home.

A sensible move might be to sell the parental home and live in a smaller and more modern home. Given the evolution of the property markets in recent decades, there is a chance that you can pocket a substantial capital gain, on top of the accumulated capital in the property.

You can use part of the revenue from the sale to buy a smaller residential unit, such as a newly built flat in or around the city centre or by the sea, for example.

Another part of the proceeds can be invested in an income-producing property that can provide a monthly passive pension income [AVAILABLE SOON].

Attention: Double check the rules regarding capital gains tax on real estate in the country where you own the property. In most countries, there is a tax exemption once you have owned the property for x number of years.

Have you been longing to diversify your investment portfolio? Then you can earn money by investing [AVAILABLE SOON] your savings in different types of investment products and assets.

Are you interested in investing part of your capital in property for rent? Then you can achieve a maximum return on your own funds by financing part of the purchase amount with a (mortgage) loan.

In any case, even if you finance with a loan, you will need sufficient own funds to cover the required minimum contribution and the purchase costs.

The most obvious way to obtain this necessary minimum capital is by saving.

Avoid a lavish and expensive lifestyle, live modestly and put your money aside.

This saved capital can then be used to meet the minimum capital requirement.

Do you have an investment portfolio with shares and/or bonds? Then you can also make this capital liquid by pawning it.

In other words, you can give your investment portfolio as collateral and take out a bullet loan to finance an investment property.

The advantage of this is that you do not have to sell your investment portfolio. You can continue to own it in consultation with the lender.

In other words, it is possible to finance property with an investment portfolio [AVAILABLE SOON] (without selling it).

Attention: Do you own an art collection? In this case too, you can use niche financing to pawn this art collection (known as a Lombard loan [AVAILABLE SOON] in practice).

Note: This is a specific form of niche real estate financing that is not available from every lender.

Did you know that you can already withdraw all or part of your dormant pension capital during your active career?

In other words, you can use this capital to finance investment property. This can certainly be interesting in case your pension capital yields little or no return.

Putting such dormant and low-yielding capital back to work and increasing its return through investment property is in high demand these days.

Concretely, you can pawn the already built-up capital in a supplementary pension [AVAILABLE SOON] in order to buy real estate with it. In practice, this is possible with group insurances [AVAILABLE SOON] and other types of supplementary pensions (examples for Belgium specifically: IPS [AVAILABLE SOON], FSPSE [AVAILABLE SOON] and SPPA).

Fact: For self-employed entrepreneurs with a company in Belgium, it is even possible to already pawn the capital that has yet to be built up in an IPS with a bullet loan.

In any case, ask for expert advice before you take this route because there is a lot involved (also in terms of cash flow planning because the bullet credit will ultimately have to be repaid in one go as regards the borrowed capital).