Buying a rental apartment is not something that can be improvised. Every potential investor will be careful to avoid a few pitfalls when choosing a home, its location, or its tax status. This will help you avoid certain disappointments and make your real estate investment profitable. Here are our real estate tips for a successful rental investment.
Rental investment: a reassuring investment
Rental investments are on the rise. The French are rushing towards investments that yield more than regulated savings and life insurance contracts.
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Due to the very low real estate prices, many buyers are turning to rental investments to save on taxes or build up wealth. Furthermore, “the share of rental investments is exploding: +31.8% between the first half of 2018 and the first half of 2019,” notes the Century 21 network. In 2019, according to this network, one in four real estate purchases will be a rental investment.
Forced savings and building a real estate portfolio
“Households have understood that a rental investment is a form of forced savings that allows them to gradually build up wealth. When concerns about retirement are strong, and when the profitability of stock market investments is uncertain, rental placements become THE refuge for everyone, whether they are wealthy families, more modest categories, seniors, or young professionals,” emphasizes the network of real estate agencies.
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But you don’t embark on an investment that represents an outlay of several tens of thousands of euros without careful consideration. A bad investment can quickly become a financial black hole, especially if you can’t find a tenant…
Rental investment: choosing the property
You want to make a rental investment this year but don’t know what type of property to choose. Here are some tips to keep in mind when searching for a property.
The size of the building for a rental investment
You are browsing real estate listings and are hesitating between a studio and a T3 for your rental investment? If this is your first operation of this kind, it is preferable to choose a studio or a small T2. Smaller units are generally rented at a higher price per square meter than larger ones, and the purchase price is usually lower.
“There is actually an eternal basic rule that the smaller the apartment, the more expensive it is per square meter. The same observation applies to sales; the smaller it is, the higher it will be sold. And such a real estate investment is more profitable, especially in cities like Lyon, Paris, or Bordeaux,” notes Stéphane Desquartiers, founder of La Maison de l’investisseur. “In small spaces like studios or small two-bedroom apartments, the average yield is 5.5%, and 6% in major cities. In the second or third quarter, profitability decreases slightly but averages around 4.5% or 5%. In new constructions, you will have a slightly lower yield due to rent ceilings. In the Pinel law, for example, the yield is 3 and 3.5%, but this investment remains interesting if you pay a lot of taxes,” adds Stéphane Desquartiers.
The return on investment of a rental
In addition to building your real estate wealth, you can expect a more or less high return from your rental investment. A good way to prepare for retirement or supplement your income.
So don’t forget to calculate the gross and net yield when searching for a property. These calculations allow you to compare the yield between two real estate acquisitions.
However, be cautious in choosing the tax regime, as you will always be taxed on your rental income. It is advisable to seek the opinion of a professional on this choice to avoid excessive taxation of your rental income.
The location of your rental investment
Another basic rule that should be observed in any real estate investment: Location comes first! The location of the property is indeed very important for any real estate investment.
“I even advise you to make a rental investment close to home. I discourage making investments remotely. Real estate is not like life insurance; it requires attention, even if you have a manager. It is easier to personally check if the apartment is in good condition or to take care of changing furniture in case of furnished rental,… In short, it is easier to manage and allows you to buy at the right price because you know the market and the areas you are targeting,” continues Stéphane Desquartiers.