Rental investment: how to choose the right property to get a good return?

Investing in real estate is the first reflex of the French when it comes to building assets, preparing for retirement or generating additional income. How to choose the property to buy to rent? In the new or the old? For what profitability, and what taxation? Everything you need to know.

How to choose a property to rent?

A rental investment can meet several objectives: generate additional income , aim for a capital gain on resale , build up long-term assets, reduce taxes by opting for a tax exemption system , become the owner of a property now. although you would like to use it as your main residence in a few years, invest in housing intended ultimately for your children… Before launching your project, the priority is therefore to precisely define your objective , since the choice of the property in which to invest is not will not necessarily be the same: buying in the most attractive large towns can meet a short-term objective, while purchasing a house to rent in the countryside or on the outskirts meets a more heritage-oriented logic, in the long term. term.

Then, whatever the objective, carefully study the rental market in the geographical area where you want to make your acquisition . Regularly consult the rental advertisements to get an idea of ​​the rents charged, and to check that the accommodation for rent quickly finds takers. The most important selection criterion is to ensure that the target property can potentially attract tenants, otherwise your investment will turn into a financial burden. So choose the property not only by thinking about resale, but also by thinking about the advantages of its location for potential tenants: suitability between the type of accommodation (studio, house) and the pool of tenants (students, families, etc.) , proximity to public transport if it is a property in the city, or proximity to schools if it is a house in a rural town, for examples.

Is there a good time for a rental investment?

According to a study published in the summer of 2022 by Bevouac, a company specializing in rental investment, the ideal time to buy is between May and September, with property prices being more accessible. The study also notes that the majority of sales are made at the end of the month. This study is based on a correlation between the volume of transactions and the evolution of real estate market prices.

Another data must be taken into account in the case of rental investment, namely the period between the signing of the preliminary contract (a sales agreement in the majority of cases) and the final deed of sale . This being generally 3 months, it is preferable to acquire at the beginning of the year, in particular to be ready to rent for the start of the school year in September.

Investing in stone: what is the profitability?

Calculating the profitability of this type of investment is much more complex than it seems, because rental real estate is not just about receiving rent each month. You must take into account all the charges (maintenance work, agency fees, rental vacancy period, co-ownership charges, local taxes, etc.) and be aware that you have to devote time to it. In addition to monthly rents, financial profitability is also based on a possible capital gain on resale .

The IEIF (Institute for Real Estate and Land Savings) study center compares the performance of rental investment on the basis of the internal rate of return (IRR) . The result depends a lot on the period, the fault of very fluctuating prices, both for purchase and resale. Thus, over the period 2009-2019, investing in Parisian housing to rent returned an average of 7.1% per year (compared to an IRR of 7.4% for investment in shares, on the stock market). Over 30 years, from 1989 to 2019, the IRR of Parisian rental investment increases to 7.3% (compared to an IRR of 8.5% for equities).

How to calculate the profitability of your rental investment

To know the gross profitability , you must calculate the annual rent, divide it by the purchase price, then multiply the result by 100. Example , a home purchased a few years ago for 200,000 euros and rented for 900 euros per month brings in 5.4 % gross.

Monthly rent x 12 / purchase price x 100 = gross profitability
900 x 12 / 200,000 x 100 = 5.4%
To get closer to reality, taking into account the costs linked to rental, you must calculate the net rental yield , seeking to obtain an annual rent net of charges and taxes. Using the same example, this time we must subtract from the annual rent the non-recoverable co-ownership charges (1,000 euros), the property tax (600 euros) and the rental management fees (900 euros), this list of charges being able to be obviously extend depending on the case (repairs, unpaid rent insurance, etc.).

(Monthly rent x 12) – annual charges / purchase price x 100 = net profitability
(900 x 12) – 2,500 / 200,000 x 100 = 4.15%
Please note: all these calculations remain theoretical, since rents and charges may change over the years. And because they do not take into account possible tax advantages (see below).

Investing in rental real estate: what are the costs?

Acquisition fee . As with any real estate purchase, you must plan for notary fees and the various taxes due on the purchase. All these fees are only payable at the time of purchase. They can be included in the amount of the operation financed on credit, or be paid using personal contributions.

What budget should you plan for your real estate purchase?

Real estate loan fees . If you have to apply for a bank loan to finance your rental purchase, you must anticipate the cost of credit: loan interest and borrower insurance .

Maintenance fees . Aside from “rental repairs” (i.e. routine maintenance which is the responsibility of the tenant), improvement and maintenance work on the property is the responsibility of the landlord. For example, the owner must pay for the replacement of a defective installation (faucet or heating), roof maintenance, etc.

Condominium fees . Apartment owners most often have to pay co-ownership charges each year , which represent 49.95 euros per m2 in France on average at the end of 2020 according to the Association of Condominium Managers (ARC).

Rental management fees . You can call on a real estate agency both to find a tenant, but also to ensure rental management (rent receipts, discussions with the tenant, etc.), which generally costs around 6% of the rent. amount of monthly rent. If you do without an agency, take into account the time-consuming nature of managing a rental property directly.

Unpaid rent guarantee (GLI). Optional, unpaid rent insurance or guarantee makes it possible to anticipate payment defaults on the part of the tenant. The GLI is a paid solution, taken out with an insurance company or via the real estate agency which manages the rental of the property. Please note, since 2019 there has been a free solution, financed by Action Logement: the Visale guarantee , accessible for accommodation whose rent does not exceed a certain threshold. Like the GLI, there are other insurance solutions to cover loss of income, such as the rental vacancy guarantee to compensate for the absence of rent between two tenants.

Taxes . All owners must pay property tax . The lessor can, however, ask his tenant to pay the household waste removal tax (TEOM) , excluding management costs. This TEOM appears on the property tax notice sent to the owner each year.