Are you looking to invest in real estate ? Are you a beginner and not familiar with the options for this investment? No trouble. From the definition of your project to the choice of accommodation and tenant, we will give you keys to successfully complete the operation and start your career as an owner-lessor.
First and foremost: precautions before investing in residential rental property
Studying your project: Buying a property to furnish it, rent it and collect tax-exempt income requires meeting certain criteria associated with Non-Professional Furnished Rental but also requires to choose the future property well.
Do not go headlong into a rough operation at the risk of enduring some setbacks.
Your priority is therefore to be well informed. You must analyze the type of property, the rental market, the choice of the tenant, the setting of the rent, the financing and the credit, the type of taxation without forgetting the management of the rental.
Understand your investment: you must start by defining your objectives. The goal is to know what you want to do with your investment. Indeed, if you want to collect rents in the long term, you will not choose the same type of accommodation or the same place as if you wish to take back the property in a few years.
It is therefore advisable to take into account all the fiscal, patrimonial aspects or even the location. Investing in real estate should not be improvised. This purchase is a serious matter which impacts your finances and your assets.
What is the strategy for a good investment?
Investing in stone means asking yourself upstream a set of questions in line with the project: do you want to recover the housing in a few years to make it your main residence? Would you like to resell it in order to receive a capital gain? Do you plan to house your children there or pass this heritage on to them?
Choosing your objectives: based on the answers to these questions, you will develop your strategy and therefore define your objectives which will determine the location and type of accommodation.
- If you want to live there within ten years for your retirement: then prefer a residence in a popular coastal town.
- If you opt for the collection of rents and the plus and profitability: you will choose a city with high rental demand
- If you want to rent it out to a student: invest in municipalities with university centers.
The environment: pay attention to the environment of your rental investment. Indeed, a property in a dynamic district, close to shops and facilities will be rented more easily and will be resold without difficulty.
In the case of joint ownership, you must pay attention to the general condition of the building (entrance hall, stairwell, elevators, etc.). These elements will be sensitive for potential tenants.
Finally, study the documents related to the financial situation of the co-ownership in order to consult the minutes of the general meetings and to know the planned work.
Choose the right location
To elect the preferred location, you should choose as if you were the future tenant. Prefer a safe neighborhood, well served by public transport and close to shops.
Keep in mind the resale: if you sell the property, it must quickly find a buyer at a fair price and this is much easier with a good location. In real estate this is referred to as the depth of the market. Thus, transactions will be easier in dynamic cities than in declining municipalities.
The added value also depends on the correct address of your accommodation.
A buoyant market: opt for cities where demand is high. The Ile-de-France, large agglomerations, university towns, metropolitan areas with a high net migration rate and border areas will offer you the advantage of renting your accommodation without pitfalls and with rents ensuring you good profitability.
Which property is better to invest in?
Priority to the tenant: keep the tenant in mind. Indeed, without him, no rent, no revenue and a complicated loan to repay.
Seduce him with many features. The address must be located in a pleasant area, with good connections, public facilities, green spaces, etc. …
Target your tenants: the type of accommodation will not be the same depending on the tenant profile. Choose an apartment or house that meet their needs.
If you buy a large surface, there is a good chance that it will be occupied by a family. On the contrary, if you invest in small areas, then they will be more intended for students or professionals on the move.
- If you rent out a furnished apartment in classic LMNP: opt for a property located in a dynamic district, with excellent connections, close to shops, sports halls, places to go out, etc.
- If you rent in LMNP Censi-Bouvard: opt for a property located in a dynamic district, with excellent connections, close to shops, sports halls, places to go out, etc.
|Type of residence||Prefer …|
|Student residence||Focus your research on big cities near to universities, do not neglect a high-performance service which is essential for the comfort of life.|
|Residence d’affaires||Make sure you are located in transfer locations (train station, airport, etc.) in a large metropolis.
Choose business districts and industrial areas.
|Tourisme residence||Target areas of economic activity and close to the coast. Also, you can offer additional services such as cleaning or even catering services to differentiate yourself.|
|Residence senior and Ephad||It is essential that the location is not too far from the heart of the city so that people do not feel further isolated from their families. Pay attention to the quality of the medical staff and the reputation of the residence or retirement home which can very quickly degrade the profitability of your investment.|
Rental demand – conduct the survey: in some municipalities, large numbers of new homes were built at the time of the Robien tax exemption. Thus, the rental supply is greater than the demand and the rental price is low.
It is therefore necessary to detail the rental market of the chosen city: monitor the state of supply, demand and the evolution of rents.
New opportunities – keep an eye out: comb through urban planning and office real estate projects that attract employees and therefore potential tenants. Indeed, when they are the subject of urban renewal or housing improvement, these neighborhoods can offer great opportunities. The tenants find their interest there with new equipment, new buildings, the creation of green spaces that restore the luster to these places.
Also, you have very strong possibilities of benefiting from capital gains over the long term.
Invest in new or old?: Buying new is more expensive than investing in the old one. However, this pitfall is offset by tax advantages such as the Pinel law or even by lower charges.
Investment and budget
Choosing your accommodation also depends on your budget. If you have a limited budget, go for a studio. If, on the contrary, you have more resources, you can buy several studios in order to smooth out the risks of a small space or even a two-room apartment. For wealthy investors, the larger envelope provides access to a wider range of choices: feel free to mix surfaces, new and old, etc.
Savings effort: your budget depends on the propensity of the amount you can invest monthly in your real estate project.
Pay on credit: the advantage of rental investment is that it allows you to acquire significant wealth through the leverage effect of credit. It allows you to become the owner of an asset that would be difficult to pay for in cash. No other investment gives you this advantage.
In addition, the price of the property will be partly absorbed by the rent paid by the tenant.
Tax deductions and financing: the interest on your loan is deductible from your rental income. As a result, the more you borrow, the more you deduct and the more your taxes decrease. Financing your real estate project via credit is therefore tax advantageous.
Invest with or without contribution?: You can reduce or, at best, cancel your savings effort by placing a personal contribution in your rental project. The bank will give you a better rate, you will pay less interest because you borrow less.
Choose your tenant and determine the rent
Choosing the right tenant is essential. Indeed, you have to choose a reliable tenant and calculate a rent which makes it possible to rent easily while having a good profitability.
The tenant: you can find him via an advertisement on special search engines. He should be asked to justify this income, which must represent at least three times the amount of the rent.
To secure the rent, you can require a security deposit equivalent to one month’s rent or a joint deposit. A third party will be responsible for paying this.
The rent: it is freely determined between you and the tenant. To estimate the amount, use listings of similar properties.
However, be careful: with the Elan law, in some municipalities located in tight zones, the rent is capped.
Charges: you will only have to pay those relating to the possession of the property such as property tax or those relating to the structural work.
Your tenant will have to pay the charges inherent in the use of the accommodation (housing tax, etc.) and recoverable charges.
How to manage your rental investment?
There are two choices for managing your investment:
- Management by yourself: it gives you the advantage of not having to go through an intermediary and thereby save money and therefore increase your earnings. However, you should bear the tasks related to the day-to-day management of the rental:
- Collect rents and charges
- Review annually the amount of rent and charges
- Send the tenant his rent receipts
- Establish the tax declaration for rental income
- Take care of repair and claims management
- Relaunch the tenant’s unpaid bills
- Manage the formalities for the beginning to the end of the tenant’s contract (inventory of fixtures for re-entry and exit, return of the security deposit, etc.)
- Delegate rental management to a professional: in this case, it is the manager who takes over and fulfills all the obligations of the lessor.
Beyond rental management, it can also:
- Represent you in general meetings of co-ownership
- Pay the charges and taxes
- Prepare the elements allowing the lessor to proceed with his tax declaration
If you choose a professional, you must pay attention to the services offered in the contract before signing it. The price varies up to 12%, depending on the services offered which lowers your earnings.
In conclusion, betting on residential rental properties is an opportunity to build wealth and secure your future through attractive returns.
However, your investment should not be an improvised operation at the risk of experiencing certain setbacks (difficulties in renting, risk of lowering the rent, resulting in a loss of profitability and consequences on financing, etc.).
This operation requires rigor, attention and good information. From the choice of location and tenant, to the determination of rent, financing and credit, not to mention taxes and rent management, your study must be done well and nothing must be neglected.
Investing in furnished rentals requires patience, time and energy to manage your investment. Between the tasks of day-to-day management, administration, formalities at the start and end of the contract, regularization of charges and possibly repairs, it will be necessary to arm yourself with perseverance to overcome them.
However, you can delegate rental management to a professional to the detriment of reducing your profitability and being vigilant about the tasks to be carried out listed in the rental management acts.
Do not hesitate to contact competent professionals to advise you and guide you to carry out the operation successfully.