Investing in an apartment to rent out is not without risk, but the fact that three million French people own at least one rental property shows that it’s probably worth it… Read on to learn all you need to know before you invest, without faux pas!
Don’t only focus on private sales
Dealing with another private individual directly can prove not to be such a good idea after all. Sellers often overvalue the sales price of their property, which is the main factor behind the buyer’s motivation initially. With no real knowledge of the market, sellers tend to calculate their prices based on estate agents’ property ads. Those prices, however, almost always include estate agent fees! In fact, the savings expected can quickly become illusory.
It is also important to remember that emotions play an important role for sellers. Emotionally attached to their property, they will be less inclined to lower their price even if there are major disadvantages, like being a poor location, for example. On the other hand, estate agents don’t earn anything when they don’t sell any properties. It’s in their best interest to convince sellers to fix a fair sales price, which is consistent with market values.
Finally, it’s worth knowing that notary fees are calculated on the price excluding agent fees, so you may even save money by going through an estate agent.
Preparing Your Project from a Tax Point of View
Undertaking a rental investment also means being confronted with previously unknown tax obligations. It’s best to be aware of that from the start, because whether you decide to rent out a furnished or unfurnished apartment, opt for a simplified or actuals tax regime, how much you can lower your tax bill by can vary enormously.
Whether your rental property is furnished or unfurnished, you can decide to opt for a simplified tax regime that will entitle you to a flat-rate reduction. You should be aware that the reduction is much higher for a furnished apartment (50% reduction) and, even better, the maximum income threshold to benefit from it is higher (70,000 euros per year). When you need to limit your outlay, this method of taxation is ideal.
However, if you are anticipating your expenses being very high (interest on your mortgage, renovation works, upkeep costs, agent fees, etc.) it would be in your interests to opt for the actuals tax regime. And that applies whichever type of rental you’re planning. The actuals regime takes into account the exact amount of your expenses, which is then deducted from your rental income. In the event of a deficit, the loss can be deducted from your overall taxable income. You could even, therefore, envisage the possibility of not being eligible to pay tax for a few years. Your expenses are turned to your advantage.
Seize the opportunity for leverage
A record number of sales were recorded last year – 952,000 – and interest rates are still very low: an average rate of 1.7% over 20 years, according to broker Meilleurstaux.com. With indicators like these, which are the basis of a successful property investment, how could we not advise you to invest?
The increase in property prices, widespread in big cities like Paris, Lyon and Bordeaux, looks set to continue in 2018: +2.5% is the national average according to specialists at Crédit Foncier. An exciting perspective that will play an important role in maintaining a good level of profitability for rental investments.
And where there’s a good level of profitability, the leverage effect for mortgages is at its most effective. As well as boosting your investment capacity, the loan will lead to you generating regular income. Income that can even go as far as covering your total outlay. When everything’s in your favour and with expat specialists to help you, there’s no reason to hesitate… Good housing market conditions are here and now !