Rental investment: the keys to profitability

Choosing the right location

It's a well-known fact that we often regret impulse purchases. It's the same with real estate. So don't rush. Take the time to prospect and study the real estate market. Select a buoyant geographical area where rental demand is strong. Choose regions with strong economic potential, where jobs are being created and new arrivals are likely to be attracted. Or university towns where students are often looking for a small apartment to live in while they study. Next, refocus your search on the neighborhood: is it close to public transport, does it have all the necessary "amenities"(shops, crèches, schools, green spaces...), is it quiet? Put yourself in your future tenant's shoes. But not too much! The property you choose for your investment is not intended to become your home. It has to suit and please as many people as possible.

Finding the right surface area

As the saying goes, it's not always easy to "find the right fit". A home that's too big or, on the contrary, too small will have trouble finding takers. And it all depends on your "target market": single students or young professionals, the elderly, couples with children... depending on the case, your needs are obviously not the same. To find the right balance, focus on small and medium-sized apartments (studios, 2/3 rooms), which make up the bulk of the rental market (especially in university towns, where students often have difficulty finding a roof over their heads).
On the other hand, tenants "rotate" more often, which may entail repair costs, as well as periods of vacancy. When it comes to resale, 2-room apartments are easy to find buyers for. This is a good opportunity to increase the value of your assets. But don't let that stop you from opting for larger apartments or houses, which will primarily attract families looking for more space, and guarantee you greater stability. But you still need to be able to afford them. That's another factor to consider.

Make simulations

Admittedly, it's difficult to project yourself into the future and give a 100% reliable prognosis of the profitability of a rental investment. However, there are calculation formulas that will give you an idea of the return you can expect. Here's a quick calculation to help you make an accurate assessment:
? gross return = annual rent / property price x 100 (e.g. for a studio bought for 130,000 euros and rented for 450 euros: (450 x 12) / 130,000 x 100 = 4.15%)
? net return = annual rent - (property tax + co-ownership charges + management fees + CSG) / price of property x 100

A few tips to boost profitability

If you want to increase the profitability of your investment, opt for solutions that go off the beaten track or traditional Pinel:

• This can boost your profitability, asolder properties are less expensive to buy, and the buyer normally has more room for negotiation. Secondly, renovating an old property allows you to "make a land deficit" and pay less tax. Taxable property income is the difference between gross income (rent received) and total property expenses. Deductible expenses include repair and maintenance costs incurred by the owner, insurance premiums, management fees, loan interest, etc.
• Dare to invest in areas that are old or not very popular at the time of purchase, but have high potential (depots or disused warehouses, industrial wasteland, areas undergoing conversion, etc.). All these areas are highly sought-after for new developments that will quickly become unaffordable. If you think ahead, you can buy below market price and make a good deal.
• Think about sharing: it's hard enough to find a tenant with all the necessary qualities... so several... it's mission impossible! It doesn't have to be, and students and young professionals are also very keen on this type of rental. You won't lose out, because there will be very few (if any!) vacancies, and financially you'll be the winner. 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 that allows you to turn to all the housemates in the event of a problem.

If you follow these few guidelines, you can expect to make a handsome profit. And why not take advantage of the tax reductions available under the Pinel scheme.

Marie-christine Ménoire