Rental property: The magic formula for investing

Before you get started...

To ensure that your rental investment is a success, and therefore profitable, here are a few introductory tips that we urge you to follow:
- don't focus solely on the tax aspect. Don't forget that this is a long-term investment, with all the obligations and constraints that entails. That's why it's essential to think things through in advance. Before you sign anything, you need to know what you're aiming for. The type of investment won't necessarily be the same depending on whether you want to reduce your taxes, build up your assets, supplement your current income or compensate for the loss of income when the time comes to retire;

- evaluate the budget ("savings effort") you can devote to your purchase. To do this, take into account the price you're paying, the amount of your downpayment, the monthly loan repayments (if you've taken out one), the rents you expect to receive and what you'll have to pay for utilities and management costs (insurance, property tax, etc.). This will tell you whether you have sufficient financial capacity. If not, you may need to scale down your project;

- measure the profitability of your investment. If you choose your rental property carefully, there's little risk of making a mistake (good location, quality of construction, suitable surface area, good rent estimate, services offered, etc.).

In new-build property, the indestructible Pinel

For your first rental investment, you want to keep things simple and effective by opting for new-build property. This is an excellent choice if you're "allergic" to renovation work and are looking for a spacious, functional property that meets the latest construction and safety standards. In short, a property you can be sure of renting out every time. What's more, it's a 100% tax-win since you can opt for the Pinel scheme. This scheme allows you to invest in property in towns where the rental market is tight (and demand very high), even without a deposit. All with a tax reduction ranging from 12% to 21%, depending on the length of the rental commitment.
With Pinel, rent as a family
Pinel allows you to rent the property to your ascendants and descendants (provided they are not part of your tax household).

Denormandie, for old-fashioned enthusiasts

Ah, the charm of old buildings and the old stones of historic city centers! But these properties often need a major facelift to attract investors and tenants. Not always easy when you consider the cost of the work needed to turn them into something that will attract tenants. As a result, vacancy rates are often high, and closed properties deteriorate over time. To put a stop to this "predicted decline" of certain old town centers, the government has just implemented the"Denormandie scheme". It's almost like copying and pasting the Pinel scheme. The only difference is that it only applies to older properties, and its aim is to combat substandard housing and the "desertification" of town centers, by encouraging the renovation of run-down housing before letting it out. Investors are required to carry out "heavy" renovation work (loft insulation, changing the boiler or windows, etc.) to improve the property's energy performance. Expenses incurred are reimbursed up to a maximum of 300,000 euros. If you meet all the conditions, you can count on a tax reduction identical to the Pinel scheme.
Another option
By buying an older property with work carried out, you can also create a "déficit foncier" (property deficit) to reduce your tax bill by 10,700 euros a year. To do this, the costs incurred for the renovation and financial charges (interest on the loan, property taxes, etc.) must exceed the income from the property.) must exceed the rental income, and the property must be rented out until December 31 of the third year after the deficit is deducted.

Optimize the profitability of your investment

If you really want to boost your rental yields and optimize your tax leverage, there are a few tips worth following. They may seem obvious, but they're worth remembering:
- find the ideal location. We can't stress this enough: location is key to the success of your investment. Location in the city, but also, more generally, in the region or département. Opt for areas where you're sure to find tenants, and find out about the local rental market. Choose towns that are on the move and have strong economic potential. If the town has a reputation for high vacancy rates, move to another location. To get all this information, talk to professionals who really know what's going on in the real estate market (first and foremost your notary, of course);
- know who you want to rent to. Students, couples with children, young single professionals... adapt the property to the profile of your future tenant. This will involve not only its location in the city (close to shops, green spaces, universities...), but also its size (a studio apartment is perfect for a single student, but a couple might find it cramped) and its amenities (balcony, elevators...);
- think about financing.

If the return on a "traditional" investment seems a little low, think outside the box and take advantage of opportunities that may arise:
- invest in neighborhoods that are old or not very highly rated at the time of purchase, but have great potential. By thinking ahead, you can buy below market price and make a good deal;
- think about sharing. This type of rental is very popular with students... but not only. Even senior citizens are trying it out! You won't lose out, as there will be very few (if any!) vacancies, and you'll benefit financially. A shared apartment can be rented for slightly more than a standard rental. You'll also limit the risk of unpaid rent, thanks to the solidarity clause, which allows you to turn to all the flatmates in the event of a problem.

Marie-Christine Ménoire