Making A Real Estate Investment With A Repurchase Agreement

Today, real estate investment appears relatively unattractive due to very high prices in large cities and steadily falling prices in rural areas. In order to obtain attractive returns, it is essential to think outside the box and not hesitate to invest in atypical products such as repurchase agreements. A system still little known to the general public that can offer you high profitability.

How does it work?

The principle of the sale with right of repurchase is for the seller to become a tenant of the property sold and to buy it back at a price agreed from the outset within the limit of five years. Concretely, the seller and the buyer sign a deed of sale as for any real estate sale. The deed has the particularity of including a clause called the buy-back option. This clause specifies the buy-back price and the maximum time the seller has to exercise it. A lease or an occupancy agreement is signed at the same time so that the seller remains in the property.

As the buyer, you collect the rent during the rental period and receive the difference between the buy-back price and the sale price when the seller exercises his buy-back option. You thus benefit from two sources of income, the rents and the resale margin.

What return can you expect?

Because of the buy-back option reserved for the seller and the rental of the property, you buy the property with a discount of about 30% compared to its real value. Depending on the arrangements, the rents can range from 6% to 10% of the sale price. You also benefit from a margin on the purchase between 0% and 10% of the selling price. You can therefore expect an annual return of 6% to 15%. In addition to this attractive profitability, you have the advantage of being protected against the downturn in the property market since you bought the property at a discounted price.

What is the interest for the seller?

The majority of sellers carry out a sale with a repurchase agreement because they urgently need financing and are unable to pay the monthly instalments of their loans. They are sometimes in foreclosure proceedings and risk having their property sold at auction. To solve their over-indebtedness problems, a sale with right of repurchase is often the last resort for these owners who wish to keep their property.

The sale of the property with a repurchase agreement allows them to pay off all their loans and continue to occupy it. As soon as their bank accounts are cleaned up, they buy back their property at the price agreed at the start of the transaction. Thanks to the repurchase agreement, they keep a property to which they are attached and settle their debts.

Under these conditions, the sale with a repurchase option is a successful operation for both parties. The investor has benefited from a profitable investment in stone and the seller has managed to reduce his debt by keeping his property.

However, the sale with a repurchase agreement is not without danger. It is necessary to be attentive to the seller’s ability to buy back his property before committing himself. Otherwise, you risk finding yourself with an eviction and litigation to deal with. Some unscrupulous buyers have sometimes taken advantage of the distress of the sellers to make “rémpéérés” and acquire the property definitively at a discounted price. It is important to respect a certain ethic. The operation being already expensive for the seller, it is necessary that it is beneficial to him.

Before embarking on this type of operation, it is essential to meet the sellers and build trust by discussing the project in detail. It is preferable to be accompanied in your steps by a specialized company.

Real Estate As An Investment – Important Aspects And Risks Of Buying A House As An Investment

If you are looking for a capital investment in the current low interest rates, you have the opportunity to use a property as a capital investment in addition to investing in shares. Houses and apartments are generally considered to be very stable in value, but they also offer potentially high returns. However, if you are considering investing in real estate as an investment, there are a number of aspects to consider, which are presented in the following article.

Buying property as an investment at a good price

In order to use a house as a capital investment, a very high investment sum is usually required, which often cannot be raised completely. A property is therefore usually financed to a large extent by a loan, which is paid off in the following years. This enables sellers to offer the property as a capital investment to a larger circle of interested parties and achieve a higher sales price. In return, they promise stable rental income, which pays off the cost of the loan after a few years.

However, the mortgage interest rate of building loans should be taken into account here. If the yield is higher than the mortgage interest rate, a high yield is possible with a construction loan, as the buyer pays less for the loan taken out than he earns by buying the property. However, if the yield is below the mortgage rate, the financing costs exceed the possible yield, which makes a property unattractive as an investment.

Location of the property is decisive

If you are considering buying a property as a capital investment at a low price, you should also pay attention to the location. Since the purchase prices are highest in Manchester and many other large cities, you should avoid buying a property as an investment. Especially in smaller, however, it is advisable to use a property as a capital investment, since in addition to relatively low purchase prices a high return is expected by 2030.

Real estate as a financial investment – calculation of the return

Many estate agents quote a yield of 4 to 6 percent if a property is used as a financial investment. To calculate the expected return, you need to ask yourself the following questions:

  • Is the purchase price of the property in a favourable ratio to the annual rent?
  • How high is the achievable rental income?
  • What are the costs for estate agent, notary and land transfer tax?
  • How long should the property be held as a capital investment?
  • How high are the costs for administration and possible renovation?
  • Are there any risks regarding the future performance?

If you are unsure whether a property is suitable for you as a capital investment, you should consult a seller or advisor. He or she can make a concrete return calculation based on the above questions, so that you can see whether your assumptions are realistic.

Forms of financing real estate as a financial investment

In order to finance a property as a financial investment, a distinction is made between equity and debt capital. However, most people will not be able to do without at least a proportionate debt financing. With the banks you will find many different interest rates and conditions, so that a comparison can be very difficult. In addition to your own research, it is a good idea to hire an expert here, as the banks usually only look at their own returns and do not suggest the most favourable offer for the customer.

In order to use a property as a capital investment, however, it is also recommended to have an equity capital of at least 20 to 30 percent in order to somewhat alleviate the burden of the loan. A second borrower is also recommended here. By the way, this also makes it easier to negotiate a loan with the bank. However, real estate financing without equity capital is also possible, although you can expect higher interest charges here.

Calculation of the real estate tax

In the case of real estate as a capital investment, taxes must also be taken into account. For the calculation of the marginal tax rate, depreciation is included, which reduces the basis of assessment for the tax calculation. The legislator provides for a depreciation of just under 2 percent p.a. over a period of 50 years. However, this is only applied to the costs for the building. Therefore, when you purchase an investment property, you must differentiate between the land value and the building value.

Possible risks when buying a house as a financial investment

However, if you decide to use a property as an investment, you should also consider the numerous risks involved. For example, it may happen that tenants are unable to pay or can no longer pay or that expensive repairs are necessary. The risk of a low sales price is particularly high, so that there is even the risk of a negative return. So when choosing a location, make sure that the demand for apartments will remain high so that a property is worthwhile as an investment.

However, the development of an investment property is not predictable, so that even with a careful selection there is always a certain risk. In contrast to an investment in a fund or ETF, the risk of an investment property cannot be spread.

What you should be aware of when buying a property as an investment

Using a property as a capital investment is not always a sensible option. The expected return basically depends on the future performance. In addition to this financial aspect, you also have to consider the behaviour of tenants. Some people pay rent very unreliably or treat a rented apartment as if it were their own. However, real estate is worthwhile as a capital investment if you choose a location that promises a significant increase in the value of the apartments in the coming decades. At the moment, this is especially true for the smaller cities in UK. However, you should avoid an investment in the metropolitan areas, as a purchase at the present time is unlikely to yield a positive return.

 

Investing In Real Estate In Florida

The USA is attracting more and more Europeans, including British people who consider this country as the new Eldorado for real estate investments. Indeed, market conditions are more favourable there than in France. Due to its geographic location and climate, Florida is a state with a constant flow of migrants and the French community has found its place there. The point.

Why invest in real estate in the United States?

The United States recorded several sales at attractive prices from 2008 to 2015 due to the unprecedented financial crisis. Many homes were seized by banks and then resold at below market prices. For 8 years, selling prices were 60% cheaper than buying. In 2020, they have still not returned to their initial level and real estate investment is still timely.

Favourable areas for real estate investment

The American territory is favourable for renting, especially in northern Florida, as this area is particularly dynamic. Although Americans have recovered from the economic crisis, they still prefer renting to buying. However, property values tend to increase over the years. It is therefore important to choose the right investment location. For example, it is quite possible to buy a house in Florida because the unemployment rate is low. In addition, several French companies have a strong presence in Florida.

The advantages of investing in the USA

Of all investments, real estate is the most profitable. This is especially true in the United States, where the tax system favours fund investments. Indeed, the unemployment rate is low and foreign investors are welcome. The tax rate is also lower than in France. The American real estate market still offers many properties to acquire at affordable prices.

In addition, the value of the most affordable housing is growing strongly. Despite the decrease in the number of new buildings, demand is still growing. Even more reassuringly, the reliability of the country’s economy ensures that the population is able to pay the charges inherent in renting a home.

Florida Real Estate Investment Update

Real estate investment in Florida is promising because of the expansion of the sector, but also because of the booming U.S. economy. Florida is also a tax haven where the state does not recover taxes. Moreover, there is no wealth tax there either. The only tax you will have to pay is the “property tax”, which is equivalent to the property tax in France. The estimated value of the building is the basis for its calculation.

The type of property to invest your money in

To find out what type of property you should ideally invest your money in, ask yourself what you intend to do with it. If you want to buy a holiday home, budget is the criterion that will guide your choice. It should be noted that the purchase of a condominium apartment involves management and maintenance costs which, once accumulated annually, weigh heavily on your budget.

In order to guarantee the rental of a property, buy preferably a detached house with a surface area of more than 100 m² with a garden where families can barbecue. If you wish to invest in rental property, I recommend that you opt for a house ideally located on the outskirts of a large city. Families looking for pleasant and secure areas are attracted by these properties. Moreover, they generally settle there for the long term, thus facilitating the management of the accommodation.

The type of promising investment in Florida

The real estate rental market is particularly flourishing in Florida.

  • Nearly 40 percent of Americans also choose to rent, and the number of people looking for housing is constant.
  • Since the 2000s, the price of real estate has been revised downwards (-50%) and remains relatively low to this day.

The conditions for buying property are therefore ideal. In addition, the demand for rental accommodation is continuously increasing, while rents are still quite high.

Investment friendly cities in Florida

In order to benefit from these particularly favourable conditions, I advise you to invest in areas where growth seems particularly sustainable in the medium and long term. The assessment is made by taking into account employment, population growth rates as well as the prices of goods in one year. The two most promising cities are Orlando and Miami. Other cities that are conducive to real estate investment include Tampa, Fort Lauderdale, Sarasota and Jacksonville.

Real estate investment in Orlando

Orlando is a city known for its important tourist flow, but also for its amusement park. It also attracts large companies that come here because of the lower tax system and the pleasant atmosphere. Most of the time, newcomers come to find work or to join their company, especially in the context of a transfer. Investment in properties close to amenities and schools is highly recommended, as families are often looking for quiet neighbourhoods to raise their children.

Investing in real estate in Miami

Miami is a first choice destination if you want to invest in the rental or resale market. The market is particularly flourishing here, which is why more and more investors are investing their money and moving here.

The Magic City is one of the most popular cities, as it is one of the safest cities in the United States. The tax system is also favourable because there is no wealth tax.

You only have to pay a 2% property purchase fee and a 15% capital gains tax on any resale after one year’s ownership of the property. Miami is also a dynamic and young city where tourists and businessmen meet throughout the year in a relaxed and pleasant atmosphere.