Rental investment without contribution: how to go about it?

If it is quite possible to make a rental investment without contribution, it is not either the standard as regards real credit. To give you every chance of getting the green light from the banks, your loan application must be all the more careful. Discover all our advices to build up your real estate assets without having to touch your savings.

What is the personal contribution?

A down payment is a sum of money that a borrower can provide to a lending institution, a credit agency or a bank, to unlock a loan.

It is often used to finance the notary fees, as well as the real estate agent's fees. The latter are estimated at about 10% of the total amount of the operation, which generally represents the amount of the contribution requested.

Does the law require a personal contribution to make a real estate investment?

There is no legal requirement for the borrower to provide a personal contribution in order to borrow from a bank. A fortiori, the rule also applies to real estate loans for the acquisition of a principal residence or to make a rental investment.

However, it often happens that practice makes things evolve and makes principles that are not legally mandatory. This is the case, for example, in the area of real estate loan insurance or personal contribution for a bank loan.

Concerning the personal contribution, the banks generally require approximately 10 % of the amount of the operation. However, they are sometimes more flexible when it comes to a real estate investment, and do not impose it. In the latter case, we speak of a 110% real estate financing, since the bank will finance the totality of the envisaged rental investment: the amount of the property + the notary fees + the real estate agent's fees.

Why are banks more favorable to real estate investments without a down payment?

Banks may be reluctant to release funds without a personal contribution, as this represents a financial risk for them. They take more risks to lend since the notary fees and the real estate agent's fees could not be recovered in case of default of the borrower. Indeed, they can always pay themselves on the resale of the acquired real estate, but lose the annexed expenses which are not integrated in it.

The framework of the rental investment, coupled with a solid file, reassures the lending institution. The rents generated by the apartment or the house will cover part or all of the monthly repayments of the real estate loan. The risk of non-payment is therefore linked to the absence of a tenant in the property. If your investment is well thought out, which will be seriously considered by the bank, there is little chance that the area you are interested in will be a rental desert.

How do I know if the bank will finance my rental investment without a personal contribution?

If you do not have a personal contribution, or you do not wish to use it for your rental investment, the challenge will be to find a bank that agrees to finance your project at 110%.

You do not lose anything to ask your banker for a simulation of real estate loan without personal contribution. The offers of loan without contribution depend on the commercial policy of the banks and on the solidity of the presented project. There is not a particular bank that will accept your file.

To find out, we recommend that you approach several lending institutions.

5 tips for investing in real estate with no down payment

While it may seem more difficult to borrow from a bank without a down payment, it's not impossible. Here are 5 tips to help you make a rental investment without using your savings.

Have a stable income

To obtain a real estate loan to invest without having to release your savings, the golden rule is to have a stable income.

The bank will comb through your professional status:

• If you are an employee, having a permanent contract is the Holy Grail. If you are on a fixed-term contract or a temporary job, your situation may be more difficult to defend.
• If you are self-employed, your last 3 balance sheets must be consistent and provide you with a sustainable income.

Taking care of your personal finances

Good personal finances show that you are serious about managing your money in a measured way. You must therefore avoid bank overdrafts, the Banque de France file, and any repayment incident.

The bank will probably ask you for your account statements for the last 6 months. Your savings will be carefully scrutinized.

Have a viable rental project

Your file must reassure the banker on the targeted investment. You must provide all possible guarantees on the sustainability of your project.

In particular:

• A rent expected to be in balance with the amount of the monthly repayments.
• A geographical sector in tension (without rental vacancies).
• An interesting rental yield.
• Proximity to existing or future public transportation...

To estimate the rate of your rental return, the calculation formula is as follows:

((Rent x 12) / purchase price of the unit) x 100

The gross profitability only takes into account the rents. It does not reflect the exact reality since you will have to pay some expenses.

To know the net profitability of your rental investment, you can remove :

• The cost of insurance for the accommodation.
• Condominium fees not recoverable by the tenant.
• Loan interest.
• Property tax.
• Miscellaneous expenses.

It is possible to call upon professionals such as Raizers Transactions to accompany you throughout your rental investment project and to help you set up your project.

Specify the tax exemption scheme used

Some government schemes exist to lighten the cost of a rental investment and thus give you the best chance of carrying out your project without any contribution. Indeed, you benefit from a tax advantage if you invest in a new or old housing, intended for the rent.

3 rental investment schemes exist. PinelDenormandie or Cosse, tell your banker which one you choose for your project.

You will have understood it, to invest in the stone, you must have a solid file. The objective is to reassure your banker on the viability of your project, to make him want to lend you the requested amount of money, without having to provide a personal contribution of 10%.

Demonstrate the profitability of your previous rental investments with no down payment

If you have other outstanding real estate loans, which you have used to make rental investments, make sure that your cash flow is balanced or, even better, positive. This will demonstrate the seriousness of your profile and will invite the banker to trust you again.

Why keep your personal contribution?

If your bank agrees to finance your rental project without asking you for a personal contribution, don't insist and keep this sum carefully. It constitutes a security savings and assures you an emergency "mattress" in case of unforeseen events during one of the stages of the rental of your property: emergency work to be carried out, facade renovation, bad payer...