It all depends on whether you want to carry out some works or not.
The golden rule of a real estate investment is to renew the fixtures (kitchens, bathrooms, floor coverings) after 15 to 20 years to keep the property attractive and meet tenants’ requirements. The painting of the walls needs to be refreshed every 9 years.
An essential element: increasingly restrictive energy standards. If your building is more than 5 years old, it probably no longer meets the ambitious criteria that the Regions impose today. Buildings that do not meet these standards will have to consider significant costs to meet them: we must be aware of this.
Consistency of spaces related to demand: Covid-19 has changed certain parameters of candidate tenants: the creation of an office space can, for example, improve the speed of rental. This is an expense that will probably be worthwhile if your available space allows it.
Therefore, the alternative for an investor is either to sell the property before the work obligations mentioned above, or to take these expenses into consideration (by taking a mortgage loan or not). We are really opposed to the “letting go” solution which generally results in a loss of rental income coupled with a loss of value for the property.
We know from experience that some investors tend not to want to go into debt because they have the necessary cash.
Is this the way to go? The answer is a big NO! And for two reasons:
1- LEVERAGE EFFECT
By limiting the own funds contribution to 40%, the investor benefits from a return on his invested own funds that are 4 times higher after 15 years. The current very low level of interest rates only amplifies this analysis, and in this perspective, we recommend taking a fixed-rate mortgage loan, of course.
2- TAX ADVANTAGE
Belgian taxation is favorable to private individuals who can, thanks to a mortgage loan, write off the interest on these loans. Tax base for a private person: cadastral revenue of the indexed property x 1.40. This is on top of the marginal tax rate, which in most cases will approach 50%.
There is only one way to avoid this taxation: the deduction of interest on the mortgage loan. It can be deducted at 100% of the tax base and therefore allow you to pay no tax!
We will give a very targeted response by taking as a reference only new apartments, the preferred target of “reasonable and prudent” investors. The yield of a new apartment varies according to 2 essential criteria:
- The location
- The surface / number of bedrooms
We can consider that the yield, calculated on the purchase price plus all the acquisition costs (VAT, notary, etc.) will look like this:
|Studio||1 BEDROOM||2 BEDROOMS|
|Location East/South of Brussels||3,5%||3,2%||2,9%|
|Location North/West of Brussels||3,8%||3,5%||3,2%|
Please note that, the property tax, the owner's share of the charges and the private management costs must be deducted if you opt for this solution. We estimate that the sum of these various fees decreases the yield by approximately 20% maximum.
2- CAPITAL GAIN:
We must remember that real estate is not only interesting for the rental income it generates but also for the long-term capital gain. In order to remain very reasonable, we anticipate an average capital gain of 2.5% to 3% per year over the next ten years.
In conclusion, your net income, after deduction of the various expenses mentioned above, amounts to 5% to 6% depending on the type of apartments you choose.
The world is changing and so is rental demand. The past months, we have identified 3 important trends in tenant demand:
Covid obliged us to look after pure air, aeration, an additional space of freedom. The great majority of rental demand concerns apartments with terraces. This is certainly true for the 2 and 3-bedroom apartments, a little less for the smaller units with 1 bedroom and the studios.
2- HOMEWORKING SPACE
Homeworking has become an important asset that employers will have to respect in order to retain the loyalty of their staff or attract new recruits. The proportion that we note in most companies is to devote 2 to 3 days a week to home working. Therefore, apartments having an interior space allowing to reserve an office area separate or separable from the living room, will be highly appreciated in future years.
3- ENERGY: "TOP OF THE RANGE" ENERGY PERFORMANCE
Over the past 10 years, we have noticed that demand from tenants has been every year more and more environment-friendly. Energy expenditures are chased, and tenants strongly appreciate all initiatives aimed at reducing heating costs thanks to current efficient techniques, but also electricity consumption thanks to the installation of voltaic panels.