Buy your primary residence or make a rental investment first

Buy your primary residence or make a rental investment first

It’s a crucial and complicated issue. If you’ve already taken out a mortgage to buy your main residence, this question won’t arise for you. On the other hand, if you’re still renting or living rent-free, and you’re wondering whether you should invest in your principal residence or invest in a rental property first, you’ll find the answer here. an answer that is completely counter-intuitive but imperative if you want to prosper with rental property investment..


To begin with, let’s define the difference between an asset and a liability. If you’re a salaried employee still renting an apartment, and you want to buy a rental property that will earn you money, you’re buying an asset and not a liability. asset, which is something that yields more than it costsand a liability, which is something for which there is no return. It’s important to know that 1 rental investment brings you back more than it costs you, because you’ll earn a monthly rent, and after deducting the bank loan and property taxes, maintenance and various charges, the balance will be positive.


Owner of a principal residence

If you invest in your principal residence first, you will generally take a credit that will max out your debt ratiowhich means you’ll get to 0.33% of your incomeFor example, if you’re a couple earning 3,000 euros net per month, your debt ratio of 33% will be 1,000 euros per month. If you take out a loan of around 250,000 euros over 25 years at 1.5 or 2%, it’s going to cost you 1,000 euros a month euros, which means that for 25 years, if your income doesn’t increase, you won’t be able to borrow any more. The bank will see that you’re working to pay off your loan, which isn’t earning you any money (Liabilities), even if you can prove that the rental investment you want to make is earning money, you’ll be asked for a downpayment and an extremely detailed file on your situationof the apartment or building you are buying, it’s going to be a lot more complicated. A principal residence will cost you 1,000 euros a month in mortgages, property tax, maintenance, etc. We call thisalienation. You find yourself obliged to continue working in order to pay off your mortgage.If you take out a loan at the age of 35 and you take out a 25-year loan and your income doesn’t increase, you’ll finish your loan at the age of 60, and you won’t be able to take out any more loans, or only over a maximum of 15 years, because the banks won’t allow a loan to be repaid in full before the age of 75, loan rates will be higher and you’ll pay a much higher insurance premium because of the mortality risk, which is inevitably higher at 60 than at 30.

Also read: the 70/30 rule


If Mr and Mrs X, who together earn 3,000 euros net per month, print and buy an apartment to rent out with different rental strategies and manage to earn 1,000 euros per month, the bank will see that they earn 3000+10004,000 a month. The bank may weight these 1,000 euros at 70%, considering 3,700 euros of income. Their new debt calculation base will be 3,700 euros, so it will still be possible to borrow to make 2 or 3 rental investments before buying the main residence. It will even be possible to buy a more expensive principal residence, because the income will be higher and they will have shown the banks that they know how to make money with money.

So it’s really important that you have this way of thinking, because a lot of people will tell you to buy the main residence for security, but you have to know that in life you have to take risks, and investing in rental property is one that requires skill. But once you’ve got them, you’ll see even with the dread of your first investment and the fears that go with it, will my tenants pay, will I see the profitability I wanted, will the banks lend to me again afterwards, etc.?. You won’t know in advance that once you’ ve made the first investment, the second will be easier, the third even easier, the fourth even easier, and so on.

That’s when you’ll be able to buy your main residence, because you’ll have a much higher income. So if you’re wondering about this, especially if you’re still renting, it’ s probably wiser to invest in rental property before investing in your main residence. Because after that, you’ll be stuck and it’ll be much more complicated to invest in a rental property, unless your income increases and/or you can pay off your loan early, or an inheritance, etc. But you’ll be dependent on an increase in your standard of living. So you need to invest in rental property before you even think about your primary residence.