Buying a second home, whether for rent or to sell later with finantial income, involves, however, several costs that can not be overlooked. This article explains how you can meet these costs with the best financing alternatives.
Buying a second home to rent or sell can be an excellent solution to get some extra income. However, before we move on to real estate investment, it is important to make a retrospective.
Take into account not only the initial investment - namely the price of the property, taxes such as IMT and IMI, deeds, cost and loan commissions -, but also the annual expenses that the ownership of a property entails - multi-risk insurance, life insurance and condominium and maintenance costs.
First of all, it should be borne in mind that a credit for a second house is subject to different conditions than a loan for the purchase of the first home, also called permanent home ownership. Because the owner does not depend on this villa or apartment to live in, the credit risk perceived by the banks is higher.
We’ll let you know the aspects that differentiate a second-home loan from a first-home loan.
First of all, there is a higher probability of default on a second-home loan if there are financial difficulties on the part of the landlord, lack of a tenant or other complications. In order to mitigate this risk, banks usually increase the spread.
LTV (Loan-to-Value) defines the amount of financing granted to the investor on the basis of the valuation of the property, which is generally lower for a second dwelling than for a permanent dwelling.
While in home loan for first home, banks usually finance 80% or, in some cases, even more, in loan for rental or second housing, this value tends to be lower, around 70%.
Since spread is generally higher on second-home loans, the APR will also tend to increase. This is one way for the bank to guard against potential defaults on credit.
Some institutions restrict the payment period of the loan when it comes to financing the purchase of a second home. This is the case with Caixa Geral de Depósitos, where permanent-housing credit offers repayment terms of 40 years and second-home loan only of 30 years.
Not all financial institutions in Portugal provide specific solutions for the purchase of secondary homes. The table below presents examples of the conditions of some banks - in terms of spread, amount of financing and payment period - that provide specific credit solutions for the purchase of second homes, in order to broadly illustrate the market supply.
|
Bank |
Product |
Spread |
Loan-to-Value |
Payment period |
|
Banco CTT |
Secondary Housing Credit and Leasing |
1,10% to 1,70% |
Up to 70% |
40 years, applicants up to 75 years old. |
|
Caixa Geral de Depósitos |
Mortgage Credit - Lease |
1,23% to 5,35% |
The lowest value between 75% of the valuation value and 80% of the investment value. |
30 years, provided that the maximum age of the owners does not exceed 80 years. |
|
Santander |
Second-home loan |
From 1,10% |
The lowest value between 70% of the valuation value and 80% of the acquisition value of the second home. |
40 years, with a limit of 75 years of age of the holders at the end of the period. |
|
EuroBic |
Mortgage Loan for Lease |
1,20% to 2,20% |
Up to 80% of the minimum value between the valuation and the acquisition value. |
40 years, the age of the bidders may not exceed 75 years at the end of the loan. |
|
Deutsche Bank |
Rental Credit |
1,30% to 2,15%
|
Up to 80% based on the lowest of the following values: transaction value (defined by the deed value) and valuation value (defined by the valuation report). |
30 years, provided that the age of the owners does not exceed 75 years. |
|
Second-home loan |
40 years, provided that the maximum age of the owners does not exceed 75 years. |
If you are considering buying a second home on credit, it is important that you consider all these aspects before making a decision. Don't forget to also look at your effort rate, especially if you already have a mortgage loan made for first-time housing.
Be sure to compare all the offers and analyse which one fits you best and which one corresponds best to your needs. And if you are already one step ahead and have already taken out a mortgage, know that you can transfer your mortgage loan to another institution at any time. This change can lead to very large savings, so you should simulate in order to know all the offers at your disposal.
Real estate leasing is a form of financing in which a consumer pays a rent and has the option, at the end of a certain period, of permanently acquiring the property by paying the residual value, which is no more than the value of that property, less the total of the rents paid to date.
In this modality, the payment of the instalments can be made in a personalized way and with an adjustable periodicity. Besides, it is possible to rent the apartment or villa to third parties during the term of the contract.
If we compare real estate leasing with housing loan, the former provides greater agility in the payment of instalments. In housing loans, there is an obligation to pay monthly instalments until the debt is fully settled, whereas in leasing, the tenant can decide at any time to terminate the contract without having any kind of legal obligation at the outset.
Another two of its benefits relate to the inclusion of procedural costs (Municipal Tax on the Onerous Transfer of Real Estate and notarial costs) in the total value of the financing, as well as to the fact that it covers any works that may need to be carried out on the property.
Note, however, that in a real estate leasing contract, the owner of the property is the bank and it will only be the customer once he pays the residual value. In case of non-payment of the rents, since the property belongs to the bank, it is much easier and quicker to proceed with the attachment.
It is possible to terminate the contract in advance; however, you will have to pay again IMT on the value of the early settlement (when you have already paid IMT on the purchase in the leasing deed).
Still with regard to the disadvantages, it should be noted that the IMI exemption does not apply to consumers who opt for real estate leasing. Portuguese law includes some situations in which the owner is temporarily exempt from paying Municipal Property Tax (IMI), namely in the case of low-income families or individuals who are acquiring a property for the first time. However, none of these incentives applies to property leasing.
Finally, as real estate leasing is generally shorter than most real estate loans, the monthly instalment may result in a higher charge.
While it is ideal for those with limited initial capital, real estate leasing can result in a high-monthly effort. Still, this is worth considering. Simulate a home loan and compare it with real estate leasing, so that you can find the most advantageous solution for you.
If you want to rent, despite the various costs of buying a house and the very risk of the investment, the truth is that the rent paid by tenants can often cover the monthly instalment - it's a matter of doing the math.
It is also necessary to consider the possibility of increasing the value of the property. A house is an asset that is valued over time, especially if it is located in large cities, such as Porto.
