How is the bank involved in the real estate purchase? What role does it play?

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

Here is the transcript of episode 40 to read:

How is the bank involved? What is its role? That's 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 don't pay for it yourself. For that you borrow the money from the bank, and in large parts the tenant and the tax office pay the money back.

But buying a property without a bank will rarely work. The loan from the bank also has another big advantage: In times of high inflation, which we are currently experiencing, it means that you borrow good purchasing power money today and pay it back in the next few years with inflation-devalued money. Because in a mortgage contract, in a loan contract with the bank, there is no inflation compensation. So you take today's strong purchasing power money and buy the real asset with it. Real estate usually increases in value during inflation. But the loan agreement has a set amount, and that amount loses purchasing power over the years. So you pay back today's good money with tomorrow's inflationary devalued money, and thus you will also have less and less monthly costs.

Because the value of the money you pay each month will naturally decrease over time. That's why the bank is a very important factor in the success of investment real estate. The bank will help you make sure that someone else can pay for the property and not you. The bank will also help you benefit from inflation in two ways.

Keywords:

Bank, passive income, real estate investment, inflation, bank loan, purchasing power, capital investment real estate.