5 reasons to put your trust in real estate!

At the time of writing, the arrival of a vaccine against the coronavirus may seem imminent, but the virtues of stone for our well-being seem certain. As a primary residence, it provides us with the safest place to live. As an investment product, it enables us to look to the future with greater peace of mind. Under these conditions, real estate is more than ever justified as a means of overcoming difficulties. Let's find out which formula is best suited to each investor profile.

To supplement income
Priority to profitability

The current health crisis will be accompanied by economic upheavals. Many people are wondering what they can do to bridge the income gap. Real estate, with its ability to absorb shocks, appears to be a major lever for improving day-to-day living.
The key to success lies in ensuring that your investment is profitable. This is assessed by calculating the ratio of rental income to purchase price. In other words, you need to keep your investment budget low, while still generating decent rental income.
To find these affordable homes, you need to look at medium-sized towns such as Limoges, Le Mans and Troyes, where property can be purchased for a median price of €1,500/m2. That's a much more affordable entry ticket than large cities like Bordeaux or Rennes, where prices flirt with the €4,000/m2 mark!
Under these conditions, a 60 m2 home will be on the market for €90,000, while it can be rented for €480 per month. To finance it, a deposit of €15,000 and a loan of €75,000 give us a monthly payment of €377 over 20 years. In this example, the gross return is therefore (€480 x 12) / €90,000 = 6.40%.
An investment which, what's more, yields more each month than the monthly loan payment costs. An investment that pays off immediately and pays off over time. It should be pointed out, however, that work will be required to keep the property up to standard, which will have a slightly adverse effect on profitability.

• Our advice
  ? Check rental demand in the investment area to ensure that your property isn't vacant for too long!

To reduce your tax bill
Use tax exemption schemes

In addition to its wide-ranging wealth potential, real estate also offers tax benefits. When you invest in a new-build rental property, the purchase price can be substantially reduced. Let's take a look at the conditions you need to meet to benefit from a tax reduction.
The 5-letter answer is "P I N E L" for the associated tax reduction scheme. It applies to the purchase of a VEFA (vente en état futur d'achèvement) home, and enables you to reduce part of the purchase price. It represents the following percentage, provided you commit to renting the property for a given period of time:

- 12% for a 6-year rental commitment ;

- 18% for 9 years;

- 21% for 12 years.

To benefit from Pinel, the property must be located in a "zone tendue" (Abis, A and B1) or in a commune covered by a redynamization contract since January 1, 2018. The rent must be capped at around 20% below market rents, and the tenant's income must not exceed certain thresholds.

For example, for a property purchased for €200,000, if the owner agrees to rent it out for 9 years, the annual tax reduction will be: 200,000 x 18% / 9 = €4,000.

Here's an overview of the various ceilings to be respected:

• Our advice
  ? Make your purchase based on the location and quality of the property, not just on the tax benefits it offers.

To build wealth
The benefits of credit

Along with real estate, this is the only investment that allows you to take on debt in order to be financed. What's more, property can be used to build wealth, thanks to the leverage effect of credit, particularly in the current low-rate environment.
How to optimize the financing of an investment? With interest rates at rock-bottom levels, averaging 1.30% over 20 years, the benefits of credit can be felt far and wide in terms of the profitability of the operation.
Let's take the example of an apartment purchased for €200,000:

- if the property is fully financed by a personal contribution and earns €8,000 in annual rent, the gross rental yield is 4%, i.e. €8,000 / €200,000.

- if the personal contribution is limited to €100,000 and the remaining €100,000 is financed by a loan, the interest on a loan at 1% over 15 years is €1,500, and the investment yields only €6,500 once this interest has been deducted (€8,000 - €1,500). When this gain is related to the initial outlay - and not to the purchase price of the property - the return rises to 6.5% (€6,500 / €100,000).

Taking out a loan increases the return by 2.5 points, from 5% to 6.5%!

• Our advice
  ? Run all the necessary simulations with your banker, but opt for the largest possible credit financing to secure the operation with death, unemployment and disability insurance.

To renovate a property
Assistance for investors

While new homes benefit from tax breaks under the Pinel scheme, older properties are not left out in the cold. The Denormandie and Malraux schemes offer attractive incentives for investors.
How to take advantage of tax breaks for older properties?

- The Denormandie scheme takes the form of anincome tax reduction granted to individuals buying a home to renovate in 222 "Coeur de ville" designated districts. Granted as part of a rental investment, it is designed to encourage the renovation of older housing stock. To qualify, the work must represent at least 25% of the price of the property. As with the Pinel scheme, you must commit to renting the property for a period of 6, 9 or 12 years in order to benefit from a tax reduction of 12%, 18% or 21% on the net cost of the property (purchase price + cost of renovation).

- Aimed at preserving our real estate heritage, the Malraux scheme triggers a tax reduction of up to 30% for the renovation of an old building intended for rental:

- for buildings located within the perimeter of an outstanding heritage site (SPR) or in a run-down old quarter, the scheme offers a tax reduction of 30% on the amount of eligible work;

- in the case of a plan for the enhancement of architecture and heritage (PVAP) or a restoration operation declared to be in the public interest, the tax reduction is 22%.
Expenditure on work qualifying for the tax reduction is subject to a ceiling of €400,000 over a maximum period of 4 years. In concrete terms, if you spend €100,000 on work over four years, the tax reduction will be either €22,000 or €30,000, depending on the zone in which the property is located.

• Our advice
  ? Take advantage of these grants to renovate older homes in attractive locations and in buildings with character.

Provided you define your objectives carefully, real estate offers a number of ways to make a secure investment. To ensure that your purchase is part of a sound asset management strategy, don't forget to consult your notary!