A smart friend

The French version: https://blog.ghalebi.in/2018/03/un-ami-malin.html

A friend of mine is running a business which has unveiled a rather curious phenomenon. He takes out bank loans in order to buy small apartments and rents them out for more or less the amount he owes back to the bank. My question is: why do people not take out the mortgages themselves instead of making this friend of mine rich?

The reason is down to the way French banks manage the risk of an unpaid loan. In France, a bank loan is not secured by the value of the real estate itself but by the borrower's income. Is this reasonable? Apparently so, but what is the main way to prove an income? Of course a payslip from a well-known company, or the State, helps. So what’s the problem? There isn’t one! Just three million self-employed French people, a figure that is steadily on the rise. Although they do have an income, it is tricky to prove with the banks, especially in France where banks are bogged down in red tape. So even though they have an income that allows them to repay a mortgage, these people still rent.

This is a situation that allows my friend to take the opportunity to get rich off other people’s money. Yet, many people remain life-long tenants and never become homeowners. I’m not going to explain in detail here how to go about buying a home for investment purposes or the impact it has on long-term purchasing power.

So what can we do? Blame the banks? That’s not going to solve the problem! Ask everyone to start working for a big company? Economically speaking, this would not be possible! Claim government support? There’s not enough to go around! Then what? Have a think about it and next time I'll share some ideas with you which we can reflect on together.