{"id":3144,"date":"2017-10-26T10:36:59","date_gmt":"2017-10-26T08:36:59","guid":{"rendered":"https:\/\/my-life.lu\/?p=3144\/"},"modified":"2019-12-19T10:17:52","modified_gmt":"2019-12-19T09:17:52","slug":"investing-real-estate-highly-profitable-10009","status":"publish","type":"post","link":"https:\/\/my-life.lu\/en\/investing-real-estate-highly-profitable-10009\/","title":{"rendered":"Why investing in real estate is highly profitable!"},"content":{"rendered":"
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Historically, property has a positive image in Luxembourg, especially among investors for whom it represents a secure capital, with a solid return and with a high revaluation potential. But is it really the case? We will analyse the arguments that prove that a buy-to-let investment is truly profitable!<\/em><\/p>\n

With the instability of the financial markets and the low interest rates, many are considering this opportunity to build real estate assets<\/a><\/strong><\/span> and to generate additional income. However, due to the large sums involved, few actually go through with the investment. Not necessarily due to a lack of funding capacity, but rather because of the misunderstanding of the four financial levers that make investing so worthwhile in Luxembourg: gross yield, debt, property revaluation of the property and a favourable taxation.<\/p>\n

Yield<\/h2>\n

Although the yield has tended to decrease, the rates still lie between 2.5 and 5%. For a 500,000\u20ac property, a reasonable asking rent could therefore be between 1,050\u20ac and 1,666\u20ac, depending on the property location.<\/p>\n

For a 500,000\u20ac property, a reasonable asking rent could therefore be between 1,050\u20ac and 1,666\u20ac, depending on the property location<\/em>.<\/p><\/blockquote>\n

Areas that are more in demand will have a lower yield, reflecting the security and the liquidity of the investment. The investor should therefore not limit his analysis to this single financial component, and take in account the three other levers that make buy-to-let investments truly profitable.<\/p>\n

Debt<\/h2>\n

For most financial products (stocks, bonds),\u00a0 the investment must come from your own funds. Taking on debt is usually not an option, though some specific options are aimed at well-informed investors like the Lombard loan<\/a><\/strong><\/span>. One of the major advantages of real estate is precisely the fact that you can use your available income \u2013 including your salary – to fund your investment through debt. This leverage effect allows you to invest larger amounts with little or no capital.<\/p>\n

Taking in account the no-limit deductibility of the net rental income, contracting a debt to finance your buy-to-let investment is much more profitable than using your own funds. Through a fixed rate loan and taking in account the current market situation, you can take advantage of a close to 1% mortgage interest cost on your whole investment period.<\/p>\n

On average, the real estate market has increased 4,9% per year on average, reaching up to 7% in 2018.<\/em><\/p><\/blockquote>\n

Property revaluation<\/h2>\n

Although it is difficult to predict the long-term evolution of any market, real estate in Luxembourg has historically been increasing year after year. On average, the real estate market has increased 4,9% per year on average, reaching up to 7% in 2018. The property revaluation is therefore an important component of the investment. Moreover, Luxembourg has remained resilient to the 2008 crisis \u2013 setting the most cautious investors\u2019 minds at ease.<\/p>\n

Is this price increase durable? In our article \u201cIs real estate too expensive in Luxembourg?<\/a><\/strong>\u201d<\/span>, we did an in-depth analysis of the price increase and the causes behind it. We notably state that \u201cif a weakening of the market is always possible, it remains very unlikely as it is supported by economic, demographic and fiscal elements\u201d.<\/p>\n

Favourable taxation<\/h2>\n

To compensate the housing shortage due to the country\u2019s population growth, the Luxembourgish government has taken several measures to incentivise property investment. Three main measures exist, and will vary depending on the specific investor situation and the property type.<\/p>\n