Real estate leasing? Well yes. This form of financing generally used for cars, machinery or industrial tools is also available for the home.
In recent years, in fact, there has been an increasing talk of real estate leasing as an alternative to more traditional mortgages, not only for businesses but also for private citizens.
What is it about exactly? It is a particular form of financing, which allows you to dispose of a property in exchange for a periodic rent, acquiring its effective ownership at the end of the contract, upon payment of a pre-established share of the redemption. What changes compared to the mortgage and above all, which of the two solutions is the best.
How does real estate leasing work?
The operation of the real estate leasing is quite simple: the tenant (and future owner) undertakes, for the entire duration of the contract, to pay a fixed monthly fee. The rent will be paid by the user to the leasing company, bank or broker, must take account of the purchase price and the duration of the contract with the addition of interest.
Upon its expiration, you can buy the leased property, paying the ransom. The amount of this final installment, previously set, is lower than the market value since the fees already paid are subtracted from this amount.
Alternatively, it is possible to return the landlord to the landlord or renew the contract, confirming or reviewing the economic conditions.
The rent paid by the user is therefore a sort of mortgage installment, in fact for the user from a practical point of view, nothing changes, except that at the end of the contract he will have the right not to redeem the asset.
If you stop honoring the rents, the property will return to the intermediary by right. If, on the other hand, the difficulties are temporary, loss of work (for natural persons) or lack of income (for companies), it will be possible to suspend the payment of the periodic fee, only once and for a maximum period of 12 months, without any delay or additional expense.
Mortgage or Leasing: advantages and disadvantages
Although both solutions have the same purpose, there are numerous differences, we see the advantages and disadvantages of each.
Advantages of leasing:
- With this method you can finance up to 100% of the total value of the property to be purchased, and also include the costs for the furniture.
- A leased asset cannot be confiscated or seized as it is not owned by the tenant.
- There is no mortgage and therefore notarial expenses are saved.
For companies also:
- as it is not owned by the company under a leased asset, it is not recorded in the balance sheet among the company’s assets;
- The VAT is not to be paid in full at the time of signing the contract but is divided into the fees and the redemption price.
- Periodic leasing fees can be 100% deducted if the purchased asset is instrumental to the activities carried out for the companies.
One of the biggest advantages of leasing is from a tax point of view. In fact, for young people under 35 years and up to 55 thousand dollars of income, a tax deduction of 19% is foreseen, the maximum annual deduction limit is therefore 8 thousand dollars. There is also a 19% deduction on the final maximum installment relating to the redemption of the property and therefore the purchase. The deductible amount must however be less than 20,000 dollars.
There are concessions for those over 35, even if reduced by 50% so the deduction on the fees will amount to a maximum of 4000 dollars per year and 10,000 dollars on the maxi-installment of final redemption. These concessions will be valid until 2020.
What about the disadvantages?
- Being a leased asset, it cannot be sold or sold, not even in usufruct to anyone, as you are not the owner but simple users.
- Given the maximum allowed shorter duration than the mortgage, the monthly fee to be paid is generally much higher than the mortgage or a normal rent.
- The leasing has higher interests than the mortgage and insurance coverage against damage to the property is rather expensive.
- The leasing company may request as an initial installment an amount between 10 and 30% of the value of the property itself.
What about the mortgage?
The mortgage is the classic and most common way to buy a property. Again let’s see the positive and negative sides.
- With the mortgage you are immediately the owner of the property, so you can dispose of it as you see fit: use it, rent it, mortgage it, renovate it or resell it.
• In general, the loan installment is lower than that of the leasing, as the repayment plan is longer (it can also last 30/40 years) and the rate applied is usually lower.
- In the loan agreement there is no final redemption fee;
Now, however, let’s see what are the disadvantages that a mortgage contract can imply:
• Being the owner of the property involves a series of charges and responsibilities including tax (taxes, VAT, fees and various expenses to be paid by the owners).
• VAT is paid immediately upon purchase and on the entire value of the goods.
• The deductibility calculated on depreciation is lower than that calculated on rents, as the useful life of the asset is generally longer than the duration of the leasing contract.
Is leasing or mortgage more convenient?
You will have understood that there is no single answer. As you have just read, both solutions present a whole series of advantages and disadvantages. Convenience is given by a number of relative factors, and you need to make broader and more personal assessments.
So the choice between mortgage and leasing varies according to your needs and needs (or those of your company).
Generally, if the cost of the asset is not particularly significant, the choice is made considering only the interest rate variable.
The mortgage often represents a cheaper tool, but it does not cover 100% of the investment (normally it stops at 80%, even if there are 100% mortgages, you can also compare them here on Good Finance! ), And above all the criteria to obtain them they are much more rigid, requiring a fairly solid and stable income situation.
So, for the purchase of the home or a building where to carry out your business, real estate leasing is a valid alternative for those who have difficulty obtaining a mortgage.
The same thing applies to those who are most at risk of foreclosure, they will hardly opt for the purchase of an asset through a mortgage, but will opt for the leasing which has greater protection in relation to the asset if the rental fees are not honored.