The Horizon

Investing in property – but without the ‘misery’ of letting

Rental apartments are the favourite investment for Belgians with a small pot of savings. There is good reason behind the common Belgian saying that ‘Belgians have a brick in their stomach’. But bricks can be hard to digest!

Suppose someone decided ten years ago to invest the decent amount of € 260,000 in buying a rental apartment. Immediately after the purchase of the apartment there is a loss of 12.5%. That amount covers the registration costs which applied at the time. The remaining amount (around € 230,000) therefore constitutes the maximum budget for the actual purchase.

However, the rental income does not equal the net income: calculate a loss of 10% for property tax, 10.5% for insurance and maintenance and a total amount of approximately € 12,500 for personal income tax. The end result is a net income of approximately € 100,000 over ten years.

At first it seems to be a reasonable return (IRR) but, in reality, it is one that has taken a great deal of effort and time. After all, a rental apartment requires not only investments, but also the administrative hassle of maintenance, repair work and the search for new tenants. Not to mention the risk of vacancy if the search for new tenants fails or if you, as the owner, are in a legal conflict with tenants.

In our opinion, operating a rental apartment is not the best way to invest in property. Residential property is extremely robust – the corona crisis has proven this once again. But running one or two apartments means you operate with a high degree of inefficiency and also more risk. Each month of vacancy has an immediate impact of almost 10% on annual turnover. As a private person it can also be difficult to follow up on this type of rental property – just listen to the huge range of complaints you hear about ‘landlords’.

At Home Invest Belgium, we recognise that there are important economies of scale when operating a large portfolio. If you had spent your € 260,000 on shares in Home Invest Belgium (ENX: HOMI), your total net income today would be €400,000. A return that is four times higher than the return on your rental apartment.

Landlord with scale

At Home Invest Belgium we have a clear purpose: we want to become the ‘landlord of choice’ of Belgian tenants. At the same time, we want to give everyone the chance to own property – but without the corresponding difficulties.

These two elements of our purpose are inextricably linked. We want to relieve Belgians of the ‘bricks in their stomachs’; renting should be seen as a fully-fledged lifestyle choice, not something you only do while waiting to buy your own house. And by helping to create a stable rental market, we offer an investment that is robust and safe.

There are clear economies of scale when operating a large portfolio. You can offer a much better rental experience because you can spread maintenance and management over many properties.

Our large scale (more than 2,000 rental properties) means we are able to set up our own buildings specifically for rental purposes. In our apartments, you don’t have to park your bike on the balcony and/or put your washing machine in the hallway, as is the case in many rental apartments. We design our buildings with common areas such as a laundry room, shared terraces and meeting rooms, bicycle sheds and even guest rooms.

We build with durable, premium materials because they save us maintenance costs in the long run. Here, too, we differ from the building salesmen who erect buildings with a view to selling them quickly at maximum margins. Our know-how in developing projects allows us to offer a premium apartment, but priced in the mid-range segment. In Brussels, we can thus offer a new, two-room apartment in a reasonable area for less than a thousand euros a month.

And, because we operate in markets where there is a structural housing shortage, such as Brussels, we can keep our vacancy rate very low. Even at the height of the corona crisis, our occupancy rate remained around 95%. Nassim Taleb would call that ‘antifragile’; housing is a basic need, and you can’t really economise on that.

Regulated property company

For the investor, this results in a low-risk share that generates a lot of cash. Most of this cash is also paid out to the investor.

Regulated Real Estate Companies (RRECs), such as Home Invest Belgium, are subject to strict rules and are therefore an exception in the investment sector. In addition to a maximum debt ratio of 65% (currently around 50% at Home Invest Belgium), the law stipulates that RRECs must distribute 80% of their profits to shareholders.

What does the future bring? Our purpose, to become the ‘landlord of choice’ and offer investors a way to invest in property without the corresponding misery, remains our guiding principle. We will redouble our focus on the core: building more apartments, marketing our brand more assertively to consumers, and creating more operational excellence in the organisation. In short: more of the same, but even better.