Real estate credit

THE AMORTIZABLE LOAN

The vast majority of loans granted by banks are amortizable loans: each loan repayment term is made up of interest calculated on the outstanding capital at the beginning of the period and the amortization of the borrowed capital.

The most common repayment methods provide for a progressive repayment of the capital with constant instalments, the interest part decreases while the capital part repaid increases over time. The repayment can also be constant or linear with decreasing maturities, the part of the capital repaid is identical over the entire duration of the loan while the interest - calculated on the remaining capital due - decreases gradually.

The borrower must start repaying the loan as soon as it is released unless a deferment is set up, two types are possible:

- Partial deferment: during the deferment period, the borrower pays only the interest calculated on the borrowed capital.

- Total deferment: the borrower begins to repay the capital and to pay the interests only at the end of the deferment, the capital will be then increased by the interests which will have run during this period.

 

THE LOAN IN FINE

The loan in fine is a contract during the duration of which the borrower refunds only the interests of the loan and the premiums of the borrower's insurance. The borrowed capital must be repaid at the end of the term, in its entirety.

The borrower will thus constitute a saving (on a support life insurance for example) during the duration of the contract, saving which will be pledged to the profit of the bank and which will thus be used for the refunding. In principle, this type of loan is used for the acquisition of rental properties and is only granted for a maximum period of 15 years.

 

What are the interests for the borrower ? They are multiple:

- The borrower's insurance protects the heirs in two ways: in case of death of the borrower during the loan, the insurance reimburses the loan and thus, the heirs can recover the savings made.

- The deductibility of loan interest and insurance premiums from taxable income gives the borrower a significant tax advantage.

 

 

THE BRIDGING LOAN

Nearly half of the purchasers of a real estate property wish to resell another property to carry out their new purchase by using in particular the product of the sale. The problem: it is difficult to make these two events coincide perfectly. The good news is that credit institutions have developed specific arrangements to deal with this cash flow problem.

The bridging loan is a short-term credit contract: the bank grants the seller a partial advance on the future sale of his property to pay for his new residence. This advance (from 50 to 80% of the value of the property put up for sale) is generally granted for a period that varies between 12 and 24 months. As soon as the first property is sold, the borrower repays the advanced funds, without any prepayment penalties.

The bridging loan thus allows you not to miss the opportunity of a new investment while leaving you time to sell a property already owned under good conditions.

 

 

THE CASCADE SALE

The cascade sale can be a real solution when you want to buy a property using the funds acquired by the sale of another. In principle, when the funds from a sale are to be used to purchase a future property, the use of a bridging loan is necessary. However, when for example it is not possible to obtain this bridging loan, the cascade sale can be a real miracle solution for the purchase of your property. Thus, the sale and the purchase of your property will be concomitant and you will only need a classic real estate loan to finance the rest of your investment.

First of all, it is essential to know the real estate market and to determine the right price of your asset in order to optimize the sale of the latter. For this operation and for the rest of the process, our wealth management consultants can accompany you. Then, once you have found the rare pearl, it will be necessary to insert a suspensive condition in the compromise in order to secure the operation.

Why insert such a clause? This will allow you, as with a loan, to buy the property only on the condition that you manage to sell your property within a predefined period. This clause will allow you not to lock yourself into a purchase when you do not have the necessary funds. Once the transaction is secured, the signing of the deeds of sale and purchase can take place in one day.

A real estate purchase is an important step in your life and can be a determining factor in the constitution of your assets. Wealth A7 can accompany you in the different stages of your purchase, contact us !

 

 

Financing of SCPI

Investing in SCPI, what is it?

Acquiring shares in an SCPI means buying real estate indirectly. A management company invests in real estate and pays you the rent it receives in the form of monthly or quarterly dividends. This type of investment allows you to own property at a lower cost. The management company takes care of the rental management, you have nothing to do!

An SCPI is a financial investment that must be approved before it is marketed.

When you want to invest in real estate directly, you fully assume the management risks such as rental vacancy. An SCPI aims to mutualize these risks by diversifying the geographical area of the properties and their sector of activity. 

 

Why invest in an SCPI on credit?

There are two ways of acquiring an SCPI: cash and credit. These different methods meet a particular demand and different needs. Financing an SCPI on credit allows you to build up a real estate portfolio while benefiting from a high leverage effect and a low savings effort. Indeed, the leverage effect will make it possible to obtain a more important capital while using the rents of the SCPI in order to refund the credit in question. The cost of the loan will therefore be partly financed by the SCPI and your savings effort will be minimized.

The financeable SCPI can be part of several investment strategies, it can be the solution to acquire a real estate asset with a more accessible borrowing capacity and a management that you do not have to take care of. Moreover, in order to prepare for retirement, the SCPI financeable will keep your liquidities while obtaining a greater number of shares and thus a more important income supplement for your retirement! 

Finally, if one day you wish to finish the loan in order to receive all your rents, it will always be possible to sell part of your SCPI units in order to pay off your loan. However, the interest of an SCPI is to invest on the long term, the horizon of investment is between 10 and 12 years, it will thus be judicious to wait this duration if you wish to put an end to your loan.

 

Types of SCPI that can be financed

All types of SCPI can be financed:

- SCPI of defiscalisation: these SCPI are intended to be part of a defiscalisation scheme like the Pinel scheme. Thus, you will have the same tax advantages as if you had bought the property directly.

- SCPI of capitalization: this investment has for main objective the capital gain and not the dividends. The management company will distribute few dividends in order to increase the value of each unit and thus generate a capital gain at the exit.

- Distribution SCPI: these SCPI are created to distribute! Rents are paid out in the form of dividends to provide you with additional income.

 

How does it work?

The SCPI on credit is financed like a classic credit with various financing organizations. It is necessary that the loan coincides with the capacity of the saver. A portfolio of SCPI will then be chosen in order to diversify the investment, which must be in line with the interests and needs of the investor. The loan in question can be a classic amortizable loan or a loan in fine. It is possible to insert a contribution, although it is preferable and possible to finance at 100% its purchase of shares, that will allow you to allocate your contribution to other supports in order to diversify your saving.

 

Consumer credit or real estate credit ?

It is possible to take out an allocated loan or a real estate loan to finance the purchase of SCPI units.

Consumer credit

Consumer credit is possible up to 75 000€. In most cases, the credit will be used to purchase the shares. The advantage is that if this credit is allocated, the taxation will always be interesting and you will be able to deduct the interests from your property income. However, the rates of the consumer credit can be less attractive and an insurance, even if it is not obligatory, can be required.

 

Amortizable real estate credit

This type of credit is the most common, it is a classic real estate loan with monthly payments comprising on the one hand the capital to be reimbursed and on the other hand the interests, the latter often being calculated on the remaining capital due. This method of financing is the most common for the financing of SCPI.

 

Real estate credit In fine

In this case, the saver repays every month the insurance and the interests of the loan, the repayment of the borrowed capital will be carried out at the end of the duration of the loan. How to repay the financing at the end of the loan? There are several options available to the investor, most of the time, a predefined amount will have to be placed on a life insurance and will be backed by the loan, the bank needing a guarantee. At maturity, the investor can either use his savings to repay the capital or sell some of his shares. The latter method implies that the investor is exposed to the liquidity risk of the real estate.

 

An interesting tax system

If the rents of your SCPI will be taxed as classical real estate income, you will be able to fully deduct the interests of your loan!

 

Want to invest? The financing of shares of SCPI will allow you to increase your patrimony while preserving your availabilities, our advisers in wealth management can accompany you in this real estate investment, contact us for more information!

Credit consolidation

In the course of a life, it is natural to resort to credit in order to finance too important expenses. Soon your living expenses can be burdened by loans from different organizations, which have different rates, different monthly payments and different terms. Finally, each month, you can be charged on several dates and it can be difficult to organize your savings.

 

Why ?

Credit consolidation can be a solution when your living expenses are too high or when you want to invest in a new project but your debt capacity, limited to 33%, is reached.

 

How does it work ?

The credit repurchase is a simple mechanism, it consists in regrouping all your credits in only one while renegotiating them. Thus you will have a single loan rate and you will not need to pay attention to the date of each of your monthly payments. Moreover, the durations will be gathered with the aim of finding the one that corresponds to your situation and that will allow you to increase your living expenses and your debt capacity. Of course, credit consolidation involves costs, because often the credits are grouped together and the duration is lengthened.

Finally, you will no longer need to have several insurances, a single loan means a single insurance!

Example: a couple is in debt with several loans of rather short but different durations. Their indebtedness is 29%. The couple nevertheless wishes to invest in a rental property with the aim of building up additional income for their retirement. The problem is that by adding another loan, the household's indebtedness will exceed 33%. In this case, it will be a question of regrouping all the credits in one, of which the credit of the rental property, and to lengthen the duration of financing. This will allow to spread out the existing credits and thus to have lower monthly payments, which will leave room for a new investment!

Credit consolidation allows you to regain your ability to save and borrow thanks to the reduction of your monthly payments. If you are interested, contact us!

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