Owner of an unfurnished property, are you attracted by the flexibility of lease management, the major rental income or even the lenient taxation of furnished rentals?
However, are you wondering about the administrative procedures? Does the legal framework seem to you to be an obstacle?
We will support you in the process to follow and provide you with the essential tips and keys for a successful transition.
In recent decades, whether for short-term or long-term rentals, there has been a real growth in tenants looking for furnished properties:
- In large metropolises: studios and two-room apartments are coveted by students and professionals on the move. Furnished properties with two or three bedrooms are popular for collocations.
These people find their account in the practical side (speed of installation, no furniture to buy and transport).
- In tourist areas: furnished rentals are popular with holidaymakers. Indeed, unlike a hotel room, the functionality of the accommodation (kitchen, dining room), space and comfort; are exclusive arguments for furnished rentals.
Plus, privacy and being able to get together in a group are appreciated at the cost and impersonality of hotel rooms.
Then, it is essential to perfectly furnish and equip your property. The 2015 decree addresses mandatory equipment.
We recommend that you add the equipment most expected by tenants such as internet, linens, washing machine … which are so many elements in practice essential which will allow you to stand out and to increase the cost of the rent.
Switch from unfurnished to furnished rental
The two parameters to consider with regards to furnished rental:
1. The deficit generated in furnished rentals is not attributable to overall income
2. The lessor is liable for the Cotisation Foncière des Entreprises called CFE: this is an annual tax to be paid in November/December. This tax is paid by every person that has a business activity in France (furnished rental is considered a business activity). The amount is determined by the local tax authorities.
Administrative and legal formalities
1. The preliminary steps:
Before taking any step, you must identify in which category your property is attached. You will find these different categories below. It is up to you to position yourself in the category corresponding to your situation and to follow the stated procedures:
- In the case of a lease granted to a company to house an employee or even a lease as the tenant’s main residence falling within the framework of the law of July 6, 1989: no legal action is necessary.
- If your property is located in a city of more than 200,000 inhabitants or in Ile de France: a change of use authorization is required.
Not asking for it is exposing yourself to substantial monetary sanctions: up to 50,000 euros in fines.
If this authorization is easy to obtain in most cities, it remains long, expensive and complicated in the capital.
- If you wish to rent furnished tourist accommodation for a short period of time: you must make a declaration to the town hall by means of a Cerfa n° 14004 * 02. The property will then be marked as a meublé de tourisme.
2. Establish the furnished lease:
You must then establish a furnished lease WITH the agreement of your tenant.
In the majority of cases, the lessor furnishes his home when changing tenants in order to avoid a refusal on the part of the tenant and to reassure the tax authorities on the lookout for fictitious transactions.
3. Register as a furnished rental company:
For this, you must send a form to the tax office in order to start your rental activity. This form allows you to obtain a SIRET number which then enables you to submit your tax returns. Rest assured, in order to support you in these formalities, we offer this service.
Fiscal procedures
Once the transition has been made, you change your tax system and you become an auto-entrepreneur.
While income from unfurnished rental constitutes ‘revenus fonciers’, income from furnished rental is under LMNP regime (BIC). For furnished rental you need to choose between the micro-BIC and the régime reel tax scheme (more about that in this article).
The furnished tax category is much more interesting than the unfurnished tax scheme. Indeed, while the allowance is limited to 30% on unfurnished rental income, in furnished rentals the allowance for micro-BIC is:
- 50%: for rental income less than 72,600 euros per year.
- 71%: if your property is classified as furnished tourist accommodation.
Be careful: Before making such a change in the tax regime, you must make sure that you have not incurred a unfurnished property deficit during the past three years, in which case you will be required to repay the tax savings achieved.
To conclude, despite the administrative and legal procedures to follow during which we can support you, it appears that the transition from unfurnished rental to furnished rental is proving to be a winning choice. Indeed, it targets a varied clientele for which demand is very high.
However, you will have to ensure the succession of the leases in order to avoid the risk of rental vacancies, which requires energy, time and generates costs (expenses related to the more frequent replacement of furniture or costs incurred by the rental real estate agency if you entrust him with the management of your property).
In addition, this formula is beneficial if the property meets the expectations of the target clientele, namely having well-located, richly furnished and comfortable accommodation.
In addition, in most cases, for ten years, if you declare your income under ‘régime réel’ then:
Only the rental income minus all charges and deductions will be taxable; Your property will be amortized; Your charges will be deducted; Your net profitability will be higher than in unfurnished rental: 4% net profitability on average against 2% in unfurnished rental.