How is the bank involved in buying property? What role does it play?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 40 to read:

How is the bank involved? What is its role? That is a great question. The bank has very important functions, because the idea of passive income with real estate is that the tenant and the tax office pay for the property for you and you do not pay for it yourself. To do this, you borrow the money from the bank, and to a large extent the tenant and the tax office pay the money back.

However, buying a property without a bank will work in the rarest of cases. A bank loan also has another major advantage: in times of high inflation, which we are currently experiencing, it means that you are borrowing money with strong purchasing power today and paying it back over the coming years with money that has been devalued by inflation. After all, there is no inflation adjustment in a mortgage contract, in a loan agreement with the bank. So you take the money with strong purchasing power today and use it to buy the tangible asset. Property generally rises in value during inflation. But the loan agreement has a fixed sum, and this loses purchasing power over the years. You are therefore paying back today's good money with tomorrow's inflation-devalued money, and will consequently also have fewer and fewer monthly costs.

Because the value of the money you pay each month naturally decreases over time. That is why the bank is a very important factor for success with investment property. The bank will help you to ensure that someone else can pay for the property and not you. The bank will also help you to profit from inflation in two ways.

Keywords:

Bank, passive income, property investment, inflation, bank loan, purchasing power, buy-to-let properties