Among the different investment methods , rental real estate is very attractive to many people. Indeed, it is a safe method with good profitability. Buying a property allows you to make a lasting investment and renting it out allows you to receive an additional sum every month. But how to invest in rental property? In this guide, we list the main steps.
Good reasons to invest in rental property
Before starting any step, it is better to think about the reasons why you want to invest in rental real estate. Indeed, if this investment represents a regular cash flow every month, it is also synonymous with a heavy workload.
A safe investment
Unlike many other assets, real estate devalues very little. In times of crisis, stone represents the safest investment. You are therefore guaranteed to invest your money wisely by buying a property to rent it out.
Once you have clearly defined, alone, as a partner or as a couple, the reasons which lead you to invest in rental property, it is time to prepare your various steps. Indeed, even before looking for a property for sale, you will have to make certain preparations to ensure the success of your purchase.
Improve your buyer and borrower profile
If you do not have enough money to buy the property you need, you will have to go to a bank. To increase your chances of getting a loan, it is better to take stock of your bank scoring and possible ways to improve it.
What is bank scoring? It is a rating that will be assigned to you by your banker in the event of a loan application. It will assess your repayment capabilities. This rating takes into account different criteria:
This score will not be communicated to you but it will guide your bank’s decision to grant you a loan or not. You will therefore have to try to improve it to increase your chances of obtaining a loan. The following criteria will be decisive:
– Present regular salaries: your regular income will provide proof that you will have the means to repay your credit.
– Have a stable professional situation: It is better to be an employee on a permanent contract to increase your chances of obtaining a bank loan.
– Keep accounts in an exemplary manner: You will have little chance of obtaining credit if you end up overdrawn every month.
– Being able to save: To increase your chances, you can present a substantial sum of money which will serve as a contribution. In addition, showing that you are able to put money aside every month will also be reassuring for the bank.
Set your budget and define your borrowing capacity
Once your project has been defined, you still have to set a budget for your real estate investment . This is the time to find out about your maximum borrowing capacity. You can then start looking for a specific property. Your budget will depend on two factors: your personal contribution and the credit allocated by a bank.
The higher your down payment, the shorter the repayment period of your home loan. You will also have more chances of accessing loans that are advantageous to you. In general, it is considered that the personal contribution must represent approximately 10% of the sum borrowed. This money is mainly used to pay notary and file fees with your bank.
But it is also possible to start without personal contribution provided you have a permanent contract and regular income. However in this case, the borrowing rate may be higher.
Mortgage: Depending on the bank, the maximum amount of the mortgage can vary. It is better to compare the offers of the different banks to be sure to obtain the most advantageous rates. Also consider the repayment term of the loan.
You can borrow from different interlocutors. If your usual bank is a first choice, it is better to ask for quotes from different establishments. You can also call on a broker who will offer you the most suitable offers for your situation.
Once your maximum budget has been defined, you can begin to precisely define your rental property investment project. You will have to choose between different types of goods:
Once your budget and your project have been defined, it is time to start looking for your future property. To be sure of making the right choice, it is better to be attentive to various criteria which will increase your chances of renting your future property and obtaining a good return on it.
The location of the property
The location of the property will be an important factor to take into account to select the most suitable accommodation for a profitable investment. For example, in a large student city, you will rather invest in a studio. You will be sure to find student and young active tenants without any difficulty.
Also be sure to check the immediate environment of your property and the various infrastructures. The presence of public transport can increase your chances of renting your property quickly. The presence or absence of shops near the apartment is also to be taken into account: you will attract more tenants if there are a few shops that are quickly accessible around your property.
