As a starting real estate investor you want to respond to the developments in the housing market. The large cities of the Netherlands continue to grow in population and there is a great shortage of housing. More and more people are looking for homes, causing prices to rise. As a real estate investor, this is a good opportunity to buy an investment home to rent out. But how exactly can you finance an investment property?
Fortunately, more and more institutions are being added that provide mortgages for investment properties. However, there are strict rules attached to this. Property Professional knows exactly which rules you have to comply with and has the right contacts to assist you in financing.
Why finance an investment property with a mortgage?
Many people think that investing in real estate is impossible for them. They don't have enough capital to buy a property entirely with their own capital. As a result, many people quit and prefer to invest in shares. However, investing in shares brings with it more risks. Unlike shares, the value of real estate can hardly end at €0.00. Investment homes in the larger cities always retain a basic value. Now that it is possible to buy an investment home with a mortgage, this brings many advantages. Because of this financing, it is now possible for property investors to still be able to buy a property. Because of the so-called leverage effect of the mortgage, you earn more return than if you were to buy a home entirely with your own capital. This makes it interesting for people with savings who are looking for relatively stable investments that yield higher returns.
How am I eligible to finance an investment property?
Do you have an investment property in mind? Have you done your analysis well and do you expect a good return? The only thing missing now is the financing. In order to know if you are eligible for a mortgage, it is important to know how lenders view you as a real estate investor. As a result of the real estate crisis, the lenders have become much stricter. Two factors determine whether the financing will go ahead, namely the applicant, and of course the property.
The bank will assess the applicant on the following basis:
- KYC Know Your Customer:
Who are you? The bank wants to know who they're dealing with and will screen you to see if you have a clean past. (tip) BKR Remove
- Power position:
As an investor, you must earn at least €45,000 gross on an annual basis. On the basis of your most recent IB declaration and BKR check, the bank examines your capital position. This is how your risk profile is assessed. Your assets include: savings, investment portfolio, private home, annuity policies, study debt, and other loans. In short, we look at your income in boxes 1, 2 and 3.
- Liquidity position:
This means whether you would be able to make payments on time. It may be the case, for example, that you have a lot of assets but everything is tied up in fixed assets. This makes it difficult to meet your financial obligations if your money is tied up. The bank looks at your pay slip, career and family composition. But also a rough picture of how much is coming in and going out in a year. In short, it looks at the probability that you would be able to pay the monthly payments without any problems.
- Track Record
What kind of experience do you have in real estate and what have you done? Real estate investors who already have experience are seen as competent and therefore relatively less risky.
The bank assesses the investment property as follows:
- Market value
The investment property must be valued by a recognised but impartial valuer. An appraisal is an objective assessment of the value of the property at the time of valuation. However, the bank looks at the value of the property in let condition, which is usually lower than the property in unlet condition. The amount in the report may differ from the purchase amount agreed with the seller. Even if you can prove that the rented property is worth more by means of already signed rental contracts, the bank will provide financing based on the lowest value.
- State investment property
Investment properties have different maintenance records. A property can be bad, normal or well maintained. This affects the value of the property. This value is also reflected in the valuation report. If the property is in poor condition, it is often possible to obtain a bridging mortgage via another lender. Once the property has been refurbished properly, this part can also be financed and the bridging mortgage can be repaid. In this case too, a valuation report must be carried out to see whether the property has really increased in value.
- Maximum investment property financing
The maximum financing of an investment property is never higher than 70%. This means that at least 30% equity must always be used when a property is purchased. The relationship between market value and mortgage is also called loan-to-value. Minimum principal is €75,000 and maximum total mortgage is €10,000,000. This €10,000,000 does not apply to each property but to all properties in total.
- Tenant risk
Factors such as: rent in line with the market, location, popularity of the property, how long the tenant has been living there and annual indexation of the rent all play a role in the tenant risk. Because payments are likely to follow from rental income, it is important for the bank to have insight into this.
What are the conditions for an investment property mortgage?
When you have gone through all these steps it is of course also important to know the conditions. You can mortgage the investment property as a B.V./N.V., V.O.F., Eenmanszaak or as a private investor. It is also possible to qualify for financing together with a partner.
The mortgage forms that are given are linear and/or redemption free. In the case of a non-commercial plinth, a maximum of 50% may be redeemable and the remaining 20% must be redeemed on a straight-line basis within 10 years. The economic term for a commercial plinth is 30 years and then the full amount must be redeemed. In addition, there is the possibility to redeem a maximum of 10% annually without penalty. No penalty interest is charged on sales.
Many banks also want extra security in the form of pledging of rent and building insurance. This gives the bank the right to become the beneficiary of the rent if you are unable to meet the obligations, and if the insurance company makes a payment.
In addition, you are also jointly and severally liable for the principal amount of the loan. This allows the bank to recover the payments from your private assets when you do not
Meet your obligations.
Liability: you are "jointly and severally" liable for the principal amount of the loan. In other words: if you are unable to meet your obligations, your private assets can be called on.
Interest is of course also an important aspect. In the following table you can see what the interest rate is linked to the maturity.
Period
<50%LTV
<60%LTV
<70%LTV
1 year
3.85%
3.95%
4.05%
5 years
3.90%
4.00%
4.10%
10 years
4.50%
4.60%
4.70%
The rented houses may not be used for personal or family use. In addition, shortstay rentals are not allowed and financing is only possible in the following cities:
Cities
for
finance
Investment properties
Alkmaar
Breda
Eindhoven
Maastricht
Almere
Den Bosch
Enschede
Nijmegen
Amersfoort
The Hague
Gouda
Rotterdam
Amsterdam
Delft
Groningen
Tilburg
Apeldoorn
Deventer
Haarlem
Utrecht
Arnhem
Dordrecht
Hilversum
Zoetermeer
Leiden
Zwolle
Best advice for financing your investment property
