Our ideal loan payment

This post is the continuation of yesterday’s post.

In order to find out if modulating the amount of money borrowed and the loan duration could have helped, I first had to calculate our ideal loan payment.

Ideal loan payment = rents collected – expenses – taxes

(I slightly rounded down the figures of our first year of renting because the start is always a little bit more complicated than the following years)

The amount of our ideal loan payment really struck me as it was 3.5 times lower than our actual loan payment.

So could have we done anything better in retrospect?

I used one of the many tools available online  to simulate loans and here are my findings:

Even by borrowing 5000€ less and spreading the loan payments over 30 years, our loan payments would still have been far from our ideal loan payment. It is a pretty weird finding, as though we were bound to lose money anyway. I guess it was just not the right market to buy in: even if we got decent prices, the real estate bubble was still at one of its highest points so it was not too smart from us to buy back then. In our defense, the prices we were used to seeing in Paris and in Spain were so ridiculously high that our studios really seemed a given in comparison.

Taxes are also working against us. I already discussed taxes in France in previous posts (here and here for instance) and will soon tell you about my adventures filling in our French tax return for 2008. So I am not going to get into too many details here, just insist again on the importance of learning beforehand about the tax laws in the country you plan to buy a property in. Taxes can really turn an ok investment into a hole. In our case, we sure made mistakes but if we didn’t have to pay so much in taxes, we wouldn’t be doing that bad. Of course, you can always argue that taxes ought to be paid, they are necessary and there is no escaping it: it’s true, but as far as real estate in France is concerned, it takes so much effort to make a little money (or worse, to try to limit your losses as much as possible) that being taxed so many times and so much even when you are in deficit makes it not worth the trouble at all.

So, it seems nothing we could have done differently back then would have improved our current situation anyway. So what actions can we take now to stop losing money? Tomorrow I’ll introduce you to a little tool I’ve built to get a clearer picture of our situation.