How to get to the first investment home?
I often run into the misconception that investing in housing would only be a matter for the rich. That the account should have at least that hundred thousand euros so that you can even start playing. In fact, as the owner of several investment homes, I can tell you that this is far from reality! This post illustrates by way of example how every low-income person can invest in housing.
According to an annual membership survey commissioned by landlords, landlords, ie housing investors, are just ordinary, middle-income people. Housing investing is also not just a matter for older people. Namely, the same survey reveals that there are home investors of all ages!
I think it takes to study and faith to invest in housing. The right kind of mindset. And well, a little of that money, but not as much as you think. And if money becomes a challenge, it’s time for ingenuity to step into the game!
Studying is easy these days. You can find everything you need to know about housing investment to get started. Then it would be faith. Or that Mindset. One has to believe that housing investment is possible for me as well. If you don’t believe it, getting started is more challenging.
From 100,000 euros for the first apartment?
Well not for anything! Fortunately, home investment can only be started with a fraction of that amount. Let’s start with the fact that the investment home does not have to be located in the center of Helsinki or even Tampere. There are good investment homes much cheaper elsewhere as well. As an example, I could mention the suburbs of big cities, the downtown areas of neighboring municipalities, etc. It is important that you want to live in the area and not move out of it, ie it is not a so-called migration loss.
This is easier to illustrate with an example. Let’s say you want to buy an apartment that costs 70,000 euros (how many of these are in Finland!). How do you get 70,000 euros? First, of course, you go to the bank for stuff. Virtually all home investors use debt. Also those big and rich. Especially those big and rich. The bank usually lends you about 70-75% of the price of the apartment. This is because the bank likes to borrow money against collateral and usually qualifies it as 70-75% of the price of the apartment as collateral. 75% is used in this example.
So the apartment costs 70,000 euros and the bank will lend you 52,500 euros. You will therefore have to pay EUR 17,500. This part is called the self-financing contribution.
Where to 17,500 euros for self-financing and bank guarantees?
€ 17,500 is big money and probably not in many bank accounts. But no worries! Now begins the phase that requires a little ingenuity. After all, a bank usually lends money if the bank receives collateral in return for the loan. So now we are talking about the beginning of the housing investment journey, later there may be challenges here, which can be solved again with new ideas!
Do you have an owner-occupied home from which you have already repaid some of the loans, or has its value increased? If so, you can go back to the bank and say, “Now that I have this owner-occupied apartment worth € 200,000 at the time of purchase, but it has now risen to € 230,000, or € 30,000, I could offer you this share as additional security, if I could get more credit for that self-financing contribution ”. The bank may want a formal valuation book from the broker for the new value. If that’s okay, then the bank will probably answer, “Okay Mimmi, we’ll have 75% of this 30,000 euros as collateral, which would be enough for an additional loan of 22,500 euros to pay that self-financing contribution”. Yes! Then just for home shopping! But not everyone is known to have owner-occupied housing.
Good news! Its owner-occupied home doesn’t have to be Sun! Would your parents have a condominium with free security? Or would your brother or sister have an owner-occupied home whose free collateral you could use? Does anyone have an owner-occupied dwelling? It’s nothing. Did you know that forests, shares, etc. are also used as collateral for the bank, in which case, however, the collateral value is less than 75%? Depending on the situation, you can also buy additional collateral from the bank.
Let’s go back to the example and assume that your family has a forest from which you received an additional guarantee of 10,000 euros. Now there are only 7,500 euros left to pay.
Where is the remaining € 7,500?
Did you know that you don’t always have to buy an investment home alone? You could consider buying an investment home together with, for example, your mother, spouse, or friend. If both pay 50%, you would need to have 3750 euros left. You can get this for 3750 euros even by saving, for example, 156 euros per month for two years. So only 156 euros a month for two years, and you could have an investment apartment!
Housing investment is a long-term business
If you get less money to save each month, don’t worry. You have to remember that investing in housing is a long-term job and you will hopefully have an apartment for years to come. So after 15 years, you no longer remember whether it took two or three years to save.
In any case, there is some need to study housing investment. If you start now, you are ready to buy when the required amount is saved in a pile!
How do I use collateral myself?
As operations grow, the importance of free collateral becomes more important. Few people have so much money that they could constantly buy homes and always save 25-30% of the self-financing for each new project. Nor would it be an efficient use of equity. I monitor the situation of my free collateral monthly. When home loans are shortened, the collateral is released. Whenever I buy a new item, I try to take advantage of the available collateral as much as I can and spend as little of my own money on the item as possible. This is exactly what has allowed me and many other home investors to grow their portfolios.
A few words about the risks
There are always risks associated with home investing, like all investing. However, investing in housing is a good form of investment because it is easy to understand, and by studying the subject, most of the risks can be minimized. The risk associated with the use of debt in this context is that the more a loan is taken out, the higher the monthly installments become. What is important, then, is to buy an apartment whose rent can cover loan repayments and interest after consideration.
You can also consciously take out more loans and pay off your monthly deficit, so this just keeps you aware. Interest rates may also rise, leading to higher monthly payments to the bank. To hedge against interest rate risk, I prefer fixed interest rates, ie interest rates that are always the same, even if market interest rates fall or rise.