1. How loan principal is repaid

Loan amortization describes the gradual repayment of principal through scheduled payments. A payment may include both interest and principal. Interest is the borrowing cost; the principal portion reduces the outstanding debt. The split depends on the contract, interest rate and repayment structure. A fixed monthly payment does not mean the same amount of principal is repaid each month.

2. A simple two-month example

Assume a loan principal of 100,000 currency units, monthly interest of 1% and a monthly payment of 1,500. Interest is calculated on the opening balance. This hypothetical example assumes no fees, additional borrowing or other adjustments; the rate is not a market quotation.

  • Month one: interest is 1,000. The remaining 500 repays principal, leaving a balance of 99,500.
  • Month two: interest is 995. Principal repayment is 505, leaving a balance of 98,995.

The payment stays unchanged while the principal portion increases. An actual lender's written repayment schedule should show the agreed calculation and payment dates.

3. When the loan balance can increase

Negative amortization can occur when a payment does not cover the interest due and unpaid interest is added to principal. The debt can then grow despite payments being made. Check whether the proposed loan permits this and how the outstanding balance would change.

4. Accounting depreciation of a building

Building depreciation allocates an eligible building cost across accounting periods. It is separate from repaying a mortgage and does not itself mean cash is being paid out. An accounting expense does not automatically create a Turkish tax deduction. Eligibility, the treatment of land and buildings, and applicable accounting and tax rules require assessment for the particular owner and property.

5. Estimating a rental payback period

A simple payback estimate divides total investment cost by annual net rental income. Hypothetically, an investment costing USD 200,000 and producing USD 10,000 in annual net rent has a 20-year simple payback period. Here, net rent is after assumed operating expenses, vacancy allowances and taxes, but before financing payments.

This example excludes financing, resale proceeds, appreciation and changes in income or costs. It does not account for the time value of money. Changing rent, vacancies and loan payments can materially alter the investment budget.

6. Questions to ask before borrowing

  • Can the lender provide a written repayment schedule separating principal and interest?
  • What is the annual percentage rate, or equivalent annual borrowing cost, including relevant fees?
  • Is the interest rate fixed or variable, and when can it change?
  • Is there a large final payment or any charge for early repayment?
  • What happens if the borrowing currency differs from your income currency?
  • Can you meet repayments during vacancies or periods of lower rent?

7. Sources and local application

The 3.8% Net Investment Income Tax, or NIIT, is a U.S. rule under Internal Revenue Code section 1411, not a general tax on property in Turkey.

Sources: the CFPB explanation of negative amortization and the IRS explanation of U.S. NIIT. These sources address their stated subjects; they do not establish Turkish tax treatment.

Explore properties in Turkey and our legal support services. Confirm the financing contract and applicable local tax treatment with appropriately qualified advisers.