Buy or Invest?

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Are you thinking of buying a house? Have you thought about postponing the purchase of the house for a few years and doing the opposite process of starting by buying houses to rent to others, and renting your own house?

When you buy your own home with funding, you are not creating an asset. You are creating a liability because every month you have to repay the mortgage to the bank.

When you buy a house to invest in and rent to others, you are buying an asset because it is the tenants who put money in your pocket.

If you purchase a house for 350.000€, you will have initial downpayment of about 72.041€ (52.500€ down payment + 18.841€ tax + 700€ deed), and if you add all the charges associated with the purchase, you will pay about 1.100€ / month of repayment to the bank.

Imagine using the 70.000€ you would spend on the downpayment and buying three 1-bedroom apartments for 95.000€ each in the outskirts of Lisbon, spending around 22.000€ on each, and leveraging with a mortgage. Instead of financing to buy your own house, you finance to buy houses for others. This alternative investment offers you around 300€/month, i.e., a return of around 5.5% (this could be even more with optimisations). If you include that part of the capital that is paying off the house (capital amortisation), the real return is 15.5%. You can hardly get a better alternative risk-adjusted investment than real estate.

Buy price95,000 €
Deposit14,250 €
Taxes1,736 €
Deed700 €
Furniture/Decoration5,000 €
Downpayment21,686 €
Repayment258.61 €
Rent650.00 €
Net Rent357.50 €
Profit98.89 €
Return excluding amortisation5.5%
Return including amortisation15.5%
Comparison Buy vs Invest

If you choose to rent a cheaper house and continue saving to buy apartments, after a few years, your rented apartments pay for the whole of your house, and if you continue, you achieve financial independence. As your apartments increase in value (capital appreciation) you can renegotiate the loans and withdraw all the capital invested initially, i.e., you are risk-free.

The risk of residential real estate is lower than other investments, as there are always people looking for homes to rent. Contact me to discuss how to put your money to work.

Examples of Investment Apartments

2 BR Apartment in Amadora

Price: 129,000 €
Furniture/Decoration:  7,000 €
Rent: 850 €
Yield: 7.5%

3 BR Apartment in Almada

Price: 130,000 €
Fixing:  2,500 €
Furniture/Decoration:  5,000 €
Rent: 875 €
Yield: 7.6%

2 BR Apartment in Arroios

Price: 350,000 €
Furniture/Decoration: 7,500 €
Rent: 1,300 €
Yield: 4.4%

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