What return to expect from my buy-to-let investment?
About this model and its assumptions
Our model calculates the expected internal rate of return (IRR) on own funds net of all costs, fees and taxes applicable to residential real estate in Luxembourg. Hence, It calculates all the cash flows over the investment period. The IRR is primarily impacted by (i) the gross yield on the property, (ii) the property price evolution over the investment period and (iii) the leverage effect from debt financing.
The calculator builds a model based on all the information you entered on the buy-to-let specificities, the financing data and your personal situation. The model calculates all the associated costs and revenues with buying, owning and reselling the buy-to-let investment.
Our model takes into account the tax payable / savings resulting from the investment based on the actual and applicable tax rates & deductions in Luxembourg. Please refer to Nexvia Tax Smart Card for further information. It is important to not that the calculated tax impact in our model is the one applicable to Luxembourg residents and taxpayers, owning the property directly. The tax impact may differ according to your personal situation (i.e. country of residence, existence of taxable income in Luxembourg or recourse to a holding company). We advise you to contact Nexvia to confirm your tax status in relation to this model or to get further information in relation to your country of residence.
Down payment corresponds to your investment in cash (with your own funds) at the start of the buy-to-let investment. It includes the share of the property price financed in cash, the stamp duty, the notary fees, the banking fees and the kitchen & cupboards' costs, if applicable.
Cumulated cash flow is the sum of all the associated costs and revenues by the buy-to-let during the investment period. A negative cumulated cash flow corresponds to the savings required by the investor during the investment period (excluding the down payment) to finance the buy-to-let investment. A positive cumulated cash flow corresponds to the revenues generated by the investor during the investment period.
Cumulated tax due is the amount of tax you will pay during the investment period. This corresponds to the net sum of annual tax payable and annual tax savings during the investment period in comparison to a situation where you would not have invested in a buy-to-let.
Cumulated tax savings is the amount of tax you will save during the investment period. This corresponds to the net sum of annual tax payable and annual tax savings during the investment period in comparison to a situation where you would not have invested in a buy-to-let.
Cumulated net cash flow is the sum of all the associated costs and revenues (after tax ) by the buy-to-let during the investment period. A negative cumulated cash flow corresponds to the savings required (after tax) by the investor during the investment period (excluding the down payment) to finance the buy-to-let investment. A positive cumulated cash flow corresponds to the revenues (after tax) generated by the investor during the investment period.
Net proceeds from sale are the money obtained at the sale of the property after repayment of the remaining loan balance, payment of the capital gain tax (if applicable) and payment of the selling cost (agency fee). Note that our model does not consider any potential indemnity for early repayment of your loan.
Internal rate of return is the rate of return on own funds that will be earned on the buy-to-let investment. It corresponds to the annualised effective compounded return rate of the money invested by the investor in the project.
The State of Luxembourg fixes stamp duty and notary fees that depend upon the property price and the mortgage amount. For off-plan and new properties, we consider in our calculation that the land value corresponds to 35% of the total property price. Please refer to Nexvia Tax Smart Card if you wish to view the applicable Stamp Duty rates.
The other notary charges considered in our model include the VAT payable on the notary fees plus other expenses and disbursements your notary will charge for executing the transfer of ownership (+/- €1 000) and the mortgage registering (+/- €500). These expenses and disbursements charged by the notary may slightly vary depending on the specific situation of your acquisition. Our estimate should however be very close to the actual price you will pay.
The banking charge considered in our model is the one-off fee that banks usually charge when taking out a mortgage. We estimate this fee to €1 000 for a buy-to-let investment project but this may change from one bank to another.
The tax administration fixes amortisation and deductibles applicable to construction, investment expenses, repairs & maintenance and furniture. The specific treatment applicable to your situation is considered in our model. For off-plan and new properties, we consider in our calculation that the construction value corresponds to 65% of the total property price. Please refer to Nexvia Tax Smart Card if you wish to view the applicable amortisation and deductions, or contact Nexvia.
The project fee in our model is paid cash in case you do not recourse to leverage and therefore included in the down payment. If you recourse to leverage, the financing of the project fee corresponds to the financing of the property acquisition price and only a share of the project fee is included in the down payment.
The management fee is included in the annual costs along with our estimate of property tax, communal charges, maintenance & repairs and owner's insurance premium not rechargeable to the tenant. We believe our estimate to be very close to reality. For further information about the auxiliary costs, do not hesitate to contact Nexvia.