3 November 2021
Investment mortgage: calculating benefits and risks
Egle Kemezyte
Growth Marketer

Even though the Dutch government increased the transfer tax from 2% to 10.4 %, buying a second property for rent could still be considered an attractive asset class to invest your savings. Here, we discuss the benefits and risks of investment mortgages and highlight alternative options to invest your savings.

Why you should invest in Dutch real estate?

You could invest in real estate because it could generate an extra monthly income. If a property is in good condition, it requires little resources to maintain it, allowing you to keep more money in your pocket.

Use the bank's money to increase your investment.

Let's say you have €250,000 on your savings account. If you keep it in your savings account, you invest with that exact amount of money. If you want to invest in real estate, you could buy two investment properties of €300,000 by borrowing money from the bank. Suddenly you invested €600,000. The investment means a higher risk and potentially a higher return.

Return on investment (ROI)

When the economy performs well, the return on investment (ROI) can be pretty good. Most Dutch mortgage lenders finance 70% of the property value as an investment. The property value is assessed differently from the market value. An acquisition means you need to contribute 30% of your funds and pay closing costs.

The rental income in Amsterdam decreased by 6% because of the pandemic in 2020. In comparison, the rent in the private sector in Amsterdam rose by 26% in total between 2014 (=100) and 2019 (=126). However, since the second half of 2019, the rents have been falling. The pandemic and higher transfer tax for investment properties added more pressure to the rental market and were initially less attractive to investors.

Equity and ownership

When you make a monthly mortgage payment, your outstanding mortgage debt goes down, which means you build equity. When the mortgage is repaid, you become an owner of the property, and your rental income rises for the long run.

Why you shouldn't invest in real estate

Even though the Dutch housing market has been booming for a couple of years, risks are still involved.

Decreased value

One of the disadvantages of purchasing a rental property could be a decrease in the property's value if real estate prices fall dramatically. If you need to sell your home in a market where real estate prices drop, you could lose your investment.

Property maintenance

Another issue that property owners face is maintenance. Landlords are responsible for addressing issues such as plumbing, electricity, and replacements, among other things. It takes time and/or money to find and manage the property.

Lower return on investment

Your rental income may fall short of your expectations. For example, the tenant cannot pay the rent in full for any particular reason, or it can take months to find good tenants. The property becomes costly when it is empty because you still have to pay a mortgage, insurance, and taxes.

No tax benefit

You are not entitled to a tax interest deduction for the buy-to-let mortgage. Besides, you have no other or additional tax advantages when taking a new mortgage. Depending on your situation, you could be exempt from paying income tax over the rental income.

Credit Registration Office

The buy-to-let mortgage is registered at BKR (LINK TO FAQ about BKR) in addition to phone subscriptions, car leases, or other personal use loans.

Alternative ways to invest

Before investing in the real estate market, you should weigh the benefits and risks involved. There are also alternative ways to expect a higher return.

A high-yield savings accounts ( low-risk)

A high-yield savings account is a low-risk investment strategy. This type differs from typical savings accounts, allowing your money to grow even quicker while sitting in your account.

The higher the annual percentage yield on a savings account, the faster your money grows. The return on investment depends on the saving account.

Some offer compound daily, while others compound on a monthly or yearly basis.

Buy bonds

Other low-risk investments include bonds. Bonds can be purchased from the Dutch state and local governments and private corporations. You are lending money to one of these entities when you buy a bond. The bond issuer pays interest to the buyer.

Average risk investing in stock portfolios

Investing in a (preferably sustainable) stock portfolio can generate a good return on investment. Stocks are "shares" of a corporation's ownership. When you buy stock in a corporation, you become a partial owner of that corporation. Owning shares means that you're entitled to a part of the firm's profit and assets. Historically, the stocks have outperformed most other investments over the long run.

Are you thinking about investing in Dutch real estate?
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Meet the team
Sezer Yilmaz
Egle Kemezyte
Growth Marketer
Robin Uijtdehaage
Client Director & Financial Specialist
Lisa Grondsma
Financial Specialist