Owner-occupied house/condominium investment/security bond safety?

Hello dear people,

I would like to briefly explain my plan to you. So far, I do not own any residential property.

I want to buy a small house to live in myself for €150,000 and finance 90% of it. I am about to have the notary appointment. The Allianz offers good conditions, which I have chosen, everything fits so far, also with my income.

In addition, I want to buy about 5 small rented apartments as an investment during the year, also with a 20-year full repayment mortgage. My plan was initially to finance these also at 90%, basically the same as my house. Allianz does not do that with investment properties, at most 80% loan-to-value. However, they even offer 100% with the conditions of an 80% financing. But only if I pledge the 20% in an Allianz bond for an indefinite period (but of course at most until the financing is complete) as collateral.

I do not know what to think of this solution, also because this bond is associated with relatively high fees. How do you evaluate that, is that a accommodating solution from them? Or are there much better solutions with other banks, do other banks perhaps not require collateral for 100% financing? Should alternative collaterals such as bank guarantees also be possible?

Thanks in advance! Christian

If you can contribute cash in the form of a deposit at Allianz (amounting to 20%), why don’t you include these 20% as equity in the financing? This "right pocket-left pocket principle" only makes limited sense with the current interest rates (also or especially with V+V).

Does a full repayment mortgage even make sense for an investment property? Actually, the interest rate is more or less irrelevant.

If you can contribute cash in the form of a deposit at Allianz (amounting to 20%), why don’t you include these 20% as equity in the financing? This "right pocket-left pocket principle" only makes limited sense with the current interest rates (especially or even more so with V+V).

Thank you for your comment. I will calculate it again carefully. But if I am not mistaken, it is like this: If I include the 20% as equity, my only advantage is that I pay less interest overall for a project.

If I finance 100%, I pay interest on the additional 20%, which I can deduct again. So, from the say 2%, only about 1.3% remains, depending on the tax rate. As soon as I earn more than 1.3% with the Schatzbrief minus its fees and capital gains tax, this is the better deal.

Or am I overlooking something?

Does a full amortization loan even make sense for an investment property? Actually, the interest rate is more or less irrelevant.

To ask a counter-question, why shouldn’t it make sense? I see the advantage that I know my rate for 20 years and therefore can avoid unpleasant surprises in case of a sharply rising interest rate.

Interest is tax-deductible. The repayment rate is not.

As a rule, a higher repayment reduces the return.

I recommend a tax advisor.

I have calculated it and have also definitively decided today in favor of the solution with the Schatzbrief. I have calculated both cases as examples for an apartment valued at €40,000. So the case with a classic 80% financing vs. the case with 100% financing at the conditions of the 80% financing through the Schatzbrief.

Overall, the second solution costs me nearly €2,000 less because the 20% of the purchase price in the Schatzbrief works for me despite fees and capital gains tax. I assumed a term of the full repayment loan as well as an investment period in the Schatzbrief of 20 years and considered the compound interest effect. The effect could increase even more if the interest rate in the Schatzbrief rises within the next 20 years. I do not believe that it will (significantly) fall further. Another advantage is that I could withdraw the money as soon as the first 20% of my 100% financing is repaid.

And once again a clarity eliminated. And no, I do not receive any commission from Allianz for this thread ;)