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.

Loan: How To Find The Right Amount Of The Loan Installment

Thanks to the Internet and digital application processing, it is often only a matter of hours to take out a loan. But if you make decisions too quickly, especially regarding the term of the loan and the resulting monthly installment, you could find yourself in financial difficulties.

If your own financial liquidity is limited and does not permit necessary purchases and/or repairs, taking out a suitable loan is often the only solution. The number of credit offers is large, and by using a credit comparison, it is often possible to “find” the right credit quite quickly. All too often, attention is focused on the classic characteristics of a low interest rate and a low monthly rate. Especially the low monthly rate for the desired loan is often the decisive element when choosing a loan.

Low loan rate sounds tempting, but can be expensive

But this is exactly where a certain danger lies, because it is often much cheaper to choose a higher loan rate, even if this is more of a burden on your own budget.

The higher the loan rate, the cheaper the loan.

But why can a higher credit rate save a lot of money? And how can a certain financial flexibility be guaranteed? In addition, the question then also arises, which amount of a loan instalment is then actually individually suitable?

Low loan rate = long term = high interest payments

The amount of the installment for repayment of the loan always depends on the term. And the longer the term, the more interest must be paid. Even with a low interest rate, a considerable amount of interest payments alone is incurred over the long term.

Which in the reverse conclusion means that the shorter the term is chosen, the smaller the sum that has to be paid for interest payments alone. The price for this is that although the monthly installment to be paid for the repayment of the loan increases with a shorter term, the loan as a whole becomes more expensive. How much can be saved with a short term, therefore, depends mainly on the amount of the loan and the interest rate.

Important: How much credit rate can I realistically afford?

Basically, before taking out a loan, the question should be asked how much credit is actually needed and can be repaid. In order to find out how much a monthly loan installment can actually be paid, while maintaining the necessary financial flexibility, it is advisable to use the classic budget calculation. Which means nothing else, that all regular expenses of a month are compared to the monthly income. The deduction of all expenditures from the income is the sum of the monthly disposable income. Within this free amount, the maximum payable monthly loan instalment can then be determined.

In addition, a credit calculator should be used with which various scenarios can be simulated with regard to different interest rates, maturities and the resulting credit rates.

The consequences of choosing too high monthly credit instalments

However, the use of generally too high credit rates should also be avoided. Because too high credit rates almost always mean a maximum restriction. And this restriction usually means the loss of any financial (residual) flexibility: If, for example, another problem arises during the term of the loan (new car, unexpected workshop bill, high additional payments for ancillary costs, etc.), it is once again not possible to resort to one’s own financial resources to solve the situation.

How much financial leeway, even if it is already burdened with a loan instalment, should be chosen with care. In this respect, after calculating a maximum affordable loan instalment, this amount may have to be reduced slightly.

Loan Despite Poor Credit Score: Possibilities And Ways

Invoices not paid on time, too many credit requests or an ongoing dunning procedure: These and other factors have a negative impact on the creditworthiness of prospective creditors. An unfavourable EXPERIAN score can quickly get in the way of important borrowing for a new purchase or open account. But there is also the chance of obtaining a loan despite a poor credit rating. Providers such as Vexcash permit the granting of credit in this case, provided that other conditions are met.

Credit despite bad creditworthiness: Is this possible?

It is not impossible to obtain a loan despite poor creditworthiness, but it is very difficult. After all, banks protect themselves by checking the creditworthiness of potential borrowers in advance: the credit rating indicates how likely it is that the loan will be repaid punctually and regularly, including interest. If you regularly overdraw your account, have many current loans or pay bills too late, your credit rating will be negatively affected. The (new) granting of credit will soon be over.

However, typical reasons for refusing a loan do not only concern the active repayment behaviour of the prospective customer. Loans can also be rejected due to a strongly fluctuating or very low income and existing unemployment. Conversely, loans can be granted by some financial institutions without a credit assessment if there is evidence of a fixed income or available equity capital.

Possible way out: guarantor or second borrower with poor creditworthiness

However, for people with payment difficulties, for example due to unemployment or low income, it is advisable to provide a guarantor when applying for a loan. This guarantor will undertake in writing to step in if the borrower is no longer able to pay the loan. However, the guarantor himself must meet certain conditions for taking out a loan. These include proof of regular income, which the main borrower lacks. The guarantor must also have a good credit rating. For many prospective borrowers, the search for a guarantor is already difficult.

The alternative to a guarantor, who only has to pay in an emergency, is a second borrower. This is usually the applicant’s spouse or a close relative. With this credit model, the instalments are paid equally by both parties. However, the second borrower, like the guarantor, must also have a good credit rating or proof of regular earnings.

Improving your own credit rating: How it works

If you can’t find a guarantor or a second borrower and you don’t want to take out EXPERIAN-free loans, you can improve your own Experian score. For example, loans can be taken out with small loan amounts that match the credit rating of the prospective creditor – as with the credit rating option from Lender. The punctual repayment of these small loans has a positive effect on your own score, so that higher loans may also be possible afterwards.

Furthermore, it is recommended to obtain the EXPERIAN self-assessment, which is free of charge once a year, before taking out a loan. The records in the credit agency are not always up to date or error-free. For example, incorrect entries could have resulted in a poor credit rating score that the borrower is not aware of. In this case, the credit rejection would come as a complete surprise and put financial planning to a hard test.

Tip: For the future, it should also be noted that no concrete credit inquiries, but so-called condition inquiries are made for interesting loans. Condition inquiries do not require an entry in the EXPERIAN and still allow interested parties to choose between different loans.

The EXPERIAN score for bank customers. Status: 2019

For customers of Lender a flash credit with the rating level M is also possible.

                                  No open negative features
Rating level Score Risk ratio
A 9.863 – 9.999 0,80 %
B 9.772 – 9.862 1,64 %
C 9.709 – 9.771 2,47 %
D 9.623 – 9.708 3,10 %
E 9.495 – 9.622 4,38 %
F 9.282 – 9.494 6,21 %
G 8.774 – 9.281 9,50 %
H 8.006 – 8.773 16,74 %
I 7.187 – 8.005 25,97 %
K 6.391 – 7.186 32,56 %
L 4.928 – 6.390 41,77 %
M 1 – 4.927 60,45 %
With open negative features
N 4.112 – 9.999 48,47 %
O 1.107 – 4.111 77,57 %
P 1 – 1.106 96,08 %

 Credit despite poor creditworthiness: key data

If the recommended points are all insufficient to obtain the desired credit, prospective customers usually look for a credit without EXPERIAN. However, the search could take some time, because not all financial institutions offer such a loan. If the EXPERIAN-free credit is possible, the other requirements for taking out a loan are narrowly defined.

Due to the lack of EXPERIAN information, the borrower’s own proof of existing assets or income is very important. If a certain amount of equity capital is available or if the prospective creditor can convince with a regular, fixed income, the credit is often already approved despite a negative credit rating. If this is not the case, in many cases a guarantor with a good credit rating is required or the loan amount is sharply limited. In addition, an intended purpose, for example a car loan, can create additional security for the bank, so that the loan is approved without EXPERIAN.

Risks with loans without EXPERIAN

However, borrowers should note that depending on the loan, they may be charged high fees. Through these fees, the bank compensates for the borrower’s higher default risk. Fees can be reduced by a smaller loan amount or a shorter term. If the term is shorter, however, it should be noted that the instalments to be paid can be very high.

Unfortunately, many black sheep also take advantage of the difficult situation of prospective borrowers with poor credit ratings. Anyone who wants to apply for a loan despite poor creditworthiness should therefore check the seriousness of the provider in advance. Serious banks and other lenders usually grant the verification of the credit application free of charge.

Credit despite poor creditworthiness with Lender: How it works

A serious possibility for a credit despite poor creditworthiness is the provider Lender. It offers a so-called credit option for customers with poor creditworthiness. With this certificate, the own creditworthiness can be improved and thus ultimately perhaps the desired credit can be taken out in a higher amount. The credit option of Lender is a short-term loan, which allows borrowers to improve their creditworthiness by repaying on time.

As the name suggests, the short-term loan has a shorter term than a conventional installment loan. In addition, low interest rates are incurred. Furthermore, new assessment criteria are applied to the solvency of the borrower. For example, default risks due to insolvency or incapacity to work are lower if the small loan is chosen with Lender. Maturities of less than twelve months are common for this.

Lender makes a risk calculation for possible payment defaults for the short-term loans mentioned above and grants different high loans with different maturities based on this. In general, the principle of trust applies at Lender: New borrowers can borrow a maximum of 1,000 GBP, while for existing customers who pay on time, the credit limit increases over time.

Conclusion: Alternative loans for customers with unfavorable creditworthiness

Through providers such as Lender, it is possible to obtain a loan even with a poor credit rating. With a guarantor, a second borrower or proof of equity capital, a negative EXPERIAN score can often be compensated for, so that larger purchases can be made without difficulty.

 

Is it possible to obtain a loan from Lender despite poor creditworthiness?

Yes, due to the short term and low interest rates, we have other criteria for the evaluation of our microloans.

 

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.