Construction costs and financing for apartment or house

Or why do you think investors still take out loans? The return on equity is almost always higher than the total return.

Not always. If the total return is below the debt interest rate, your return on equity is negative. Reverse leverage effect.

Just as an example, the rate for a full financing is lower than the rent. You make a 99% financing with only 1% equity. This one percent equity is then opposed by the complete surplus of the rent. You buy a property for 350,000 that yields 1,500 rent. You borrow 330,000 from the bank and pay about 1,150 for 30 years. For the 20,000 equity, the rest of 350 that is 4,200 per year remains, which makes over 20% equity return. That of course doesn't work for every property, but it is certainly possible. Or why do you think investors still take out loans? The equity return is practically always higher than the overall return.

Euphemistically spoken, gross is confused with net.

From the 4,200€ p.a., all ancillary costs of the building including maintenance/administration/reserves/property (purchase) taxes/rent defaults/acquisition costs etc. must be paid. That corresponds to a lousy 1.2% of the investment or 23% of the net cold rent, whereby already about ~2,000€ go just for maintenance. So all that goes down from your 20% pre-tax (!) gross return.

The only reason why this is worthwhile is that you can offset such losses (!) against profits from other sources of income and sell tax-free after 10/20 years or after the financing has expired.

Best regards Dirk Grafe

I just wanted to quickly explain the principle. Of course, it should be clear to anyone dealing with this that numerous other factors also play a role. Otherwise, anyone who still has 10,000 euros somewhere could generate a mega return with it.
It goes without saying that this works worst with a single-family house or a single apartment, but rather with larger income properties where the default risk is distributed or minimized.

Otherwise, anyone who still has 10,000 euros somewhere could earn a mega return with it.

Oh, so that's not possible after all!? ^^

Did I say that everyone can do it (without risk)? I merely said, as far as I can remember, that a return on equity of 10% is possible.

Google "Stadtflucht" The trend is back to the suburbs. So hurry up and buy in the suburbs now and watch the rising prices _________ Not a completely serious post