Expected interest rate for investment object 2 ETW

Hello everyone,

Searching for a suitable condominium as an investment property, which is to be rented out within the family (at market conditions) for the next ~10 years and should ideally be financed 100% with equity, I came across a package of 2 apartments (sold only as a package), both of which would fit exactly my search criteria. Whether I pursue this further would also depend on the approximate terms of a loan.

General about you:

[*]Who are you? M, 37 years old, engineer, senior project manager in industry, employee

Income and asset situation:

[*]What income do you have (gross/net)? For this project, a maximum of €1300/month from income (freely available without restrictions on quality of life) plus approx. €1300/month from resulting rental income are available.
[*]How much equity do you have? For the project, a maximum of €245k is available in the short term, and in the medium term an additional €100-150k through the sale of another plot of land.

Construction or purchase costs:

[*]Total costs approx. €425k including ancillary purchase costs, broker fees, etc.

Necessary loan details:

[*]Minimum loan amount €180k
[*]Maximum monthly installment approx. €2050 (in case of rental default in one of the condos), but does a high installment make sense here?
[*]Are special repayments possible? After sale of the plot of land in approx. 1-3 years €100-150k

My question is less about the feasibility of the project and more about the "optimal" way to achieve the lowest possible interest rate. A fixed interest period of 10 years seems sufficient to me, as any outstanding balance after 10 years could possibly be paid off with equity.

Why is the lowest possible interest rate your goal? Is your only concern with the two apartments to have the lowest possible interest burden?

I am happy to pay a higher interest rate (which I can also claim for tax purposes) in order to preserve my equity and have a good leverage. Better five projects with 5x1,000 income than just two, each generating 1,025€ income. But that is a personal decision that must also fit your overall financial situation. What good are high deductible expenses if I only have a marginal tax rate of 25%? At 40% it looks different again.

You get the lowest interest rate with as much equity as possible (more than 50%), high repayment, and a short fixed interest period. Possibly fixed for 5 years and hope that you get a good follow-up financing. You can calculate how much the interest rate would have to rise for it to no longer be worthwhile.

Hello Nordanney, there are still 1-2 more projects in the real estate sector in the medium term, which have more "emotional" significance for me, as they have been in the family for a long time. That is why a direct solution ETW for a family member was actually only planned as the purchase of a property. Actually, I am rather risk-averse when it comes to excessive debt. In this case, the question arises for me whether it makes sense to repay as quickly as possible or to repay only around €1000 for a certain period (10 years) and then settle the remaining payment from the liquid equity available again by then. But you are absolutely right, basically I am looking for the financially optimal solution without great risk. My marginal tax rate is actually 42%.

Then roughly calculate how much remaining debt will remain or should remain after 10 years to satisfy your need for security. Whether you pay 1.3% or 1.6% interest now does not matter for a rough calculation. Afterwards, you can take two paths. 1.) High equity contribution and not such high repayment = rather better conditions or 2.) Lower equity contribution, but high repayment = higher interest, but offset by better tax opportunities.

Well, with a 42% marginal tax rate and some reluctance towards interest rate risk, one can also consider a bullet loan fixed for 10 years, where the repayment funds a building savings contract and is therefore suspended, which has the consequence that during the fixed interest period the same interest burden can always be deducted and the building savings contract guarantees me an interest rate for the follow-up financing on a certain portion (or the whole).

Even if the equity capital is available for coverage after the interest rate expires, the question arises as to how sensible it is to use this or parts of it for debt repayment. If interest rates have possibly risen again, one would rather invest it at a better interest rate, while the purchased building savings loan with its guaranteed loan interest is repaid through the tenant, the rental income. Also, the question remains whether one would not rather use the available liquidity, the existing equity, for further purchases or investments.

Low interest rate, also achieved through manageable fixed interest period, deduct this, repayment buys the follow-up financing and interest rate security, amount flexibly designed and depending on the level of interest rate development and the market interest rate, since this – if initially greater than 1% – can be reduced at any time and the repayment capital is thus kept flexible and possibly better invested in the market than in the repayment of the fixed loan interest rate.

The first point of contact here is a tax advisor, and I mix their statements and calculations with my individual demands and objectives, as well as my financial capabilities.

I would use equity in such a way that I run out at 90% loan-to-value ratio and, among other things, sign a low-interest bullet loan with the DSL Bank.