Between new housing trends, the uncertainty of the retirement system, low real estate rates coupled with a stable real estate market; investing in real estate is on the rise more than ever.
The advantages of furnished rentals combined with the tax niche of LMNP status ring even louder to reassure investors in the El Dorado of rental real estate.
However, you must take into account the different tax laws, the variety of leases and the various factors and criteria to become a Loueur Meublé Non Professionnel and make your investment a success.
Analysis of the various factors to make your LMNP a success
Furnished rental properties are an investment on the rise. Indeed, the demand for this type of housing is increasing among professionals, students, travelers or even among the aging population.
However, we must not succumb to the euphoria and this media exuberance without taking the time to make a study.
All real estate investments are not equal and deserve reflection, analysis, comparison in order to optimize the rental profitability according to your objectives and constraints.
- The geographical sector :
This is the most important element on which you have to spend a lot of time: the place where you buy must be chosen with the greatest care since it is a guarantee of your rental success.
The better the location is, the better your investment will be: choose the most privileged locations or those that are in the process of becoming so to ensure that your property always retains a certain value.
Indeed, in the context of the current real estate bubble, it is a security guarantee to prevent the property from being dismantled when prices fall.
In addition, the best locations are the most popular, so it will be easier for you to find a buyer the day you want to resell your property.
Finally, it can be a source of significant capital gain in the event of an increase in property prices.
Several aspects must be taken into account when choosing the location:
- Social, economic and demographic aspects must be taken into consideration.
- Assess the average age of the inhabitants of the agglomeration, the number of vacant homes in order to refine your search and ensure good rental profitability.
- Favor areas close to poles of professional activities: the proximity of housing to a sector where employment is very electric is an El Dorado for many working people.
- Joint ownership of services: focus on areas that have nearby shops, facilities for cultural or sporting activities will further enhance your property.
- The sight: the properties which will have a particular sight (seas, mountains, historical monuments) also have an importance. Many people are willing to pay more for the chance to contemplate a beautiful landscape or monument every day.
- Exposure to the sun: a north-facing home will be less in demand than a good south-facing one.
- Calm: a property located in a quiet environment will be more prized than a property exposed to noise pollution.
- Take into account the changes planned in your city or district: the purchase of a property is generally planned for the long term.
It is therefore necessary to study the changes planned in your area in order to:
- Identify areas or cities that are expanding and where your property will retain or even increase in value.
- Avoid a purchase that is too expensive in a declining area which would lead to the depreciation of the property.
Find out from local authorities, mayors, traders etc. about development projects and rumors about anything that could have an impact on your purchase.
All of these criteria will guide your choice. It will be more interesting to buy a studio in a student sector or for traveling professionals. Accommodation with several bedrooms will be preferred in an area for families.
The demand must be analyzed in order to offer a property corresponding to the needs of the sector.
Also, keep in mind that the perfect location is where most of the population would like to live. If your budget does not allow you to invest in these places, do not be too careful. Do not hesitate to negotiate the prices downward to protect yourself from a loss in case of resale.
- The type of lease agreement:
Furnished rentals are more intended for small areas that facilitate quick installation of tenants who are passing through (students, professionals on the move). The lease varies between 9 and 12 months.
If your accommodation is located in a tourist area, these leases can be alternated with rentals of shorter periods intended for vacationers.
- The various interlocutors:
The purchase of a property and then its rental management brings you into contact with a number of players: tenant, management company, trustee, bank, insurers, tax administration …
You must integrate these interlocutors in your purchase decision because legal relations with them are sometimes a source of difficulty, costly and time-consuming.
Optimizing rental management
You have finally signed the purchase of your property. Congratulations, you are the proud owner of a lucrative investment.
You will find, in the following sections, the recommendations to carry out your project.
- Have your tenant sign the right lease
So far there are a multitude of furnished rental leases: between the main residence lease, the secondary residence lease or even the mobility lease, it is imperative to choose the best rental policy.
When making your decision, do not forget to take into account the profile of your future tenant, the duration of the lease, the rental price, etc. to rent out your property with peace of mind and in accordance with the law.
- Evaluate the time you need to manage this activity
Renting out your property is not a long calm river.
It takes time, energy and patience to manage visits, enter and leave the premises and draft and sign a lease.
Not to mention the need to follow up on signing leases to avoid vacation periods in rentals and to be present at the request tenants in the event of problems.
So it can quickly become a real headache, especially if you don’t live in the area.
It is therefore appropriate to outsource these tasks to a rental management agency, which will take care of all of these logistical and administrative constraints if you do not have the time and energy to do it yourself.
Moreover, these costs are deductible from your income if you have chosen the régime réel simplifié, so as not to deprive yourself.
- Optimize the occupancy rate thanks to the visibility of your property
In order to find the right tenant and have the best visibility at the local or national level to rent your property throughout the year, do not hesitate to call on:
- Local real estate agencies
- Online Real Estate Portals
- Word of mouth
Also, if your real estate project is to reach professionals in mobility, French or foreign, with a large purchasing power, do not hesitate to entrust the management of your property to recognized players in the furnished rental market: through their multilingual teams and their website, they will ensure you a wide visibility with tenants around the world and you will thus optimize the occupancy rate year-round.
In the previous sections, we have gone through the elements to take into account at the time of your purchase and we have communicated to you the keys to embark on your rental activity project with the LMNP status.
It is important now to think carefully about the “tax chapter” in order to optimize your project and make it a real cash cow.
- The taxation:
The LMNP status offers the choice between two interesting tax regimes:
- The Micro Bic regime: taxation of 50% or 71% in case of furnished tourism classification. In empty rental, this allowance is only 30%
- The simplified regime: it makes it possible to amortize the value of property, furniture and work and then deduct all expenses related to the activity (condominium fees, acquisition costs, agency fees, loan interest …).
Therefore it is necessary to consider which of the two plans is the most interesting in order to pay as little tax as possible or no tax at all. All the more so since the transition from one to the other involves additional administrative formalities.
- Determine the incorporation date of your company
In most cases, the date of incorporation is the date of purchase of the property or the date of the first expenses related to the LMNP activity.
The choice of this date is very important to be able to deduct all the expenses related to your activity if you have opted for the réel regime.
- Choosing to be accompanied
We strongly advise you to get help in your efforts throughout your project.
Indeed, between the calculation of depreciation, the deferral of deficits or the information of the tax package you can quickly get lost.
Especially since the administrative procedures and communication with all the actors in the chain can be heavy and the repercussions important in case you forget something or make an error. In addition, the professionals will accompany you to optimize profitability and direct the needle of your project to the success slider with peace of mind.
To conclude, lenient taxation, flexibility in lease management, increased rental income as well as an increasingly growing demand: this is the cocktail that explains the boom of the LMNP, despite its management constraints.
However, the investor must keep his head cool in this rental euphoria and must not lose sight of the fundamentals. You must first study a set of elements, the mode of operation but also the tax package in order to ensure the success of your project.
Moreover, like any investment, investing under the LMNP status requires time and skill.
Do not hesitate to delegate all or part of your investment to companies that specialize in turnkey investment. They will be responsible for finding the right property, defining a profitability forecast, coordinating the work and interior design if necessary.
As for LMNP accounting, it must be rigorous in order to benefit from this tax niche.
You can do it yourself if you have the legal, tax and accounting skills as well as the time. However, you run the risk of not optimizing tax breaks and expense deductions, not to mention the risk of penalties in the event of an error.
You can also use our chartered accountant services to delegate the accounting and help you choose the best tax option with confidence: better a good sleep than a good bed.