Reserved for well-defined rental investor profiles, the loan ultimately has a real tax advantage. If the interest is higher than a depreciable credit, it is tax deductible. Tax exemption likely to generate significant savings, with a well-crafted financial package.
Who is the loan for ultimately?
For real estate investment purposes only (and not for the purchase of a principal residence), the loan in fine may prove to be interesting through the play of tax deductions authorized by this credit, for:
- Individuals, whose tax rate is in the 30/40% bracket, with solid land income and good financial capital.
- SCI type companies.
What are its advantages and limits?
As part of a loan in fine, the monthly repayments are built only with interest, which has two immediate advantages: the amount is identical from the start to the end of the loan and remains lower than that of a repayable loan, since it does not integrate capital.
A capital which is only due at the end of the loan: to do so, the borrower usually takes out life insurance, which will be used to reimburse him. Note that the bank will request a personal contribution of at least 30% of the capital and regular income deposited on this investment.
The main drawback of the loan ultimately lies in its rate, which is significantly higher than those observed for amortizable home loans. However, by being high and not declining, they also allow a larger tax deduction.
In other words, it’s all about good calculations – which you can leave to a real estate broker.
What is the saving in terms of taxes?
If your borrower profile corresponds to the credit in fine, it is possible to make great savings, compared to an amortizable loan. As this example shows:
- The investor profile: a household with 3 tax shares, an annual net income excluding land of USD 45,000, revalued each year by 2%. This is the first rental investment made by the household.
- The property is bought for USD 200,000, with a loan over 15 years and a rent of USD 800 per month (without charges), revalued by 1.5% each year.
By choosing a loan in fine, the borrower obtains a rate of 2.50%, with monthly payments of USD 416.67. At the same time, he receives USD 800 in rent and USD 466.81 from his life insurance (3%), which already receives the USD 60,000 of personal contribution required by the bank. Or a monthly effort of USD 83.48 for a balance sheet at USD 277,834.
With an amortizable loan, the loan is no more than USD 140,000 (taking into account the USD 60,000 contribution), with an APR of USD 2.05, or USD 904.14 monthly monthly payment. At the same time, the borrower receives the rent of USD 800, which requires a financial effort of USD 104.14 per month, for a total of USD 296,236 after 15 years.
Despite the higher interest rates, the loan ultimately saves USD 18,402 in this example – an economy combined with tax deductions and the return on savings.
If you are seriously considering taking out a loan in fine, do not hesitate to ask the assistance of a broker, to concretely estimate the profitability of this operation – taking into account your savings capacity, as well as guarantees and insurance costs for each device.