Using property leverage to ensure the success of your investment with TREVI

Leverage is a concept that is often the subject of debate amongst investors. However, it is a powerful tool for maximising the return on a property investment, particularly in Belgium where financing conditions remain attractive. Understanding how this mechanism works gives you the means to grow your wealth whilst minimising risks.

Understanding leverage in property investment

Leverage involves using a loan to finance part of your investment. Instead of drawing entirely on your savings, you take out a mortgage to purchase a property. This use of debt can increase the profitability of the investment, but it also requires a good understanding of the market and prudent management.

Why borrow when you can invest using your own funds?

Many people are reluctant to take on debt when they have sufficient cash available. This caution is understandable. Investing solely with your own funds avoids interest charges and simplifies management. However, borrowing offers significant tax advantages in Belgium, particularly regarding the taxation of rental income. Furthermore, leverage amplifies the capital gain on the funds actually invested.

Leverage explained simply to help you invest more effectively

Imagine buying a property for 200,000 euros by putting 50,000 euros of your own money towards it and borrowing the rest. If the property’s value increases by 3 per cent per year for 15 years, the capital gain realised

will be much higher than that achieved by investing €200,000 without borrowing. It is this mechanism that allows you to significantly increase the return on your property investment through leverage.

Investing without borrowing: advantages and limitations

Buying with cash guarantees an investment free from interest charges and repayment obligations. It is simple to manage and the purchase is secure. However, this choice reduces your investment capacity and the potential for wealth growth. In Belgium, where interest rates remain low, not making use of financial leverage in property investment may limit the overall performance of your portfolio.

What capital gains can be expected without leverage?

Let’s take a property purchased for 200,000 euros, which came to 240,000 euros including fees. With an average annual increase of 3 per cent over 15 years, its value rises to 312,000 euros. The gross capital gain is therefore €72,000, or 36 per cent of the initial purchase price. Relative to the capital invested, the real return stands at 30 per cent. This is a solid result, but one that remains limited by the lack of financing.

Example of return: 30% over 15 years without borrowing

By choosing not to take out a loan, Mr and Mrs Dupont retain their financial independence. Their flat will have increased in value by 72,000 euros, a significant gain. However, their capital is entirely tied up in this asset, leaving them no scope to diversify or reinvest elsewhere.

Buying a property with a partial mortgage: maximising your leverage

Taking out a loan to finance part of a property investment frees up capital. This cash can be used for other projects, thereby increasing your overall investment capacity. However, you must ensure that the rental income covers the loan repayments and service charges to avoid any financial strain.

The benefits of borrowing to boost profitability

By taking out a loan, you invest less of your own capital whilst benefiting from the capital appreciation on the property as a whole. This strategy optimises the return on the capital invested. Furthermore, the tax deductibility of the loan interest reduces your tax liability, thereby improving net profitability. In Belgium, this approach is particularly relevant in areas where rents are stable and there is genuine potential for capital appreciation.

A numerical example: a return of 183 per cent over 15 years thanks to leverage

Mr and Mrs Janssens are buying the same property. They are borrowing 130,000 euros and contributing only 110,000 euros of their own funds. After 15 years, the property is still worth €312,000. Their actual capital gain amounts to €202,000, representing a return of 183 per cent on their invested capital. This performance is further enhanced by the tax benefits associated with the loan and the ability to reinvest the freed-up capital.

Questions fréquentes

How can you use leverage in property to maximise your investment?

To maximise leverage, you need to optimise the amount borrowed in relation to your deposit, choose a property with a good rental yield and manage the risks associated with borrowing. The aim is for the income generated to cover the monthly repayments, whilst increasing your net worth through debt.
What is the optimal level of leverage in the property market?

The optimal level of leverage depends on the investor’s profile and the market, but moderate leverage helps to limit risks whilst increasing returns. Excessive leverage can increase exposure to market fluctuations and interest rates.

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