Rental investment Summary.
- 1. Define your goals (About Rental investment )
- 2. Choosing the right investment sector
- 3. Buying a home is above all an investment
- 4. Opt for the quality and durability of a new home
- 5. Establish (or not) your tax action plan
- 6. Do not think too big and diversify your investments
- 7. Do not look for excessive profitability and rather think about tax exemption
- 8. Select your tenant and developer
- 9. Manage your rental investment
- 10. Subscribe a guarantee
Investing in rental real estate consists of buying a home to rent it out to collect additional income and build up a heritage.
The Rental investment can be optimized through tax benefits that reduce income tax. Indeed, the legislator or the government authorizes tax deductions in return for a rental commitment. Any taxpayer who pays taxes can therefore benefit from adapted tax exemption solutions. Rental investment is the only investment that allows you to build up assets financed on credit, ¾ of which are paid by the tenant, the balance being settled by tax savings and a reduced savings effort. Various rental investment programs exist, including the Malraux, Cense Bouvard, or Panel system.
Opting for a rental investment allows you to gently increase your assets and benefit, once the purchase has been amortized, from a significant additional income. Provided you make the right choices.
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Guide on what you need to know to invest in real estate.
Define your goals!
Above all, and above all before taking any initiative, it is important, even essential, for the success of your investment to carefully define your objectives and how you will achieve them.
Why do you invest in this type of asset and not in another? Do you invest in a rental property with cash or credit? What do you want to achieve as a goal?
The purpose of this maneuver is (obviously) to define and set the course that you will have to hold via this operation but also to define how and why you must reach this famous course.
Whether you want to build up long-term assets via credit or generate additional income for your retirement, these differences mean that your project will be different from the neighbor’s project, and therefore the means put in place to achieve this too. Investing in a rental property on a whim is never a good idea. It is for this reason that you need to be well accompanied and assisted by a professional if however, these objectives were difficult to define on your side.
Choose the right investment sector.
Choose a city characterized by a continuous increase in population, a district well served by public transport, a municipality with commercial infrastructures, etc. Before buying a 4-room apartment, for example, check the proximity of schools, or even universities, to be able to offer it for rent either to a family or to shared students.
Consult the advertisements to find out the rate of vacant accommodation in the chosen district and the rental rates. A property offered that is too expensive is more difficult to rent than another and its occupants leave it at the first opportunity. In addition, take into account the surrounding employment pool and the major industries that may be located nearby as this can be a guarantee for renting your property.
As in any rental property investment, the fundamental rule to follow is the strategic choice of the location of the property: it must be a sector where rental demand is strong, and the only way to sustain the investment in terms of occupancy and capital gain on resale. Compare the prospects for capital gains between regions because they may be less attractive in certain regions where the price per m2 is already high at the time of acquisition.
Buying a home is above all an investment
Do not involve your effect in the selection of your property. Indeed, this will not be your main residence and too much affection could make you lose sight of your primary objective: the search for a profitable investment. The selection of your property is relieved of effect, you will increase your chances that the accommodation will appeal to others and find a buyer more easily… The property must be commendable! Remember your objective: do not buy in a disaster area under the pretext of tempting prices! Visit the site before buying, to see for yourself the location of the property and the surrounding amenities!
opt for the quality and durability of a new home
A real estate investment, whether it is intended to be rented out or not, always remains a sustainable investment over time. The purpose of this operation is to ensure that this durability is as long as possible and that it generates the least cost and constraints for you.
This is the reason why investing in new real estate remains a fairly important guarantee of quality and durability. Indeed, a new dwelling benefits from a quality of construction and materials that are often higher than older dwellings.
Moreover, since these materials are generally more energy efficient and more respectful of the environment, a new home will stand out more easily from its competitors both in terms of rental and daily use. Your tenant will be more satisfied, and a satisfied tenant is a tenant that we will keep!
Let’s not forget that the latest standards and legislation all go without exception in the same direction of quality and preservation of the environment, and will increasingly highlight healthier and greener building materials. In addition, thermal and environmental regulations go in this direction, prohibiting the use of certain construction techniques or materials in housing from a certain date.
Establish (or not) your tax action plan
Rental real estate can also be tax-exempt! Indeed, investing in real estate certainly allows you to integrate into your assets an asset that will rotate regularly and which will allow you, through the rents collected, to help easily build up assets over the long term. But real estate can also allow you to reduce and optimize your taxation, and thus allow you to transform taxes into real estate assets.
It is important to get advice and support on this issue, in fact depending on your level of taxation and the amount of tax paid, it would then be interesting to integrate your acquisition into a tax system (PINEL, Censi Bouvard, Malraux, or other for that matter) and thus obtain a performance boost that can only be beneficial to your operation.
Don’t think too big and diversify your investments
With a reduced contribution (10%) and a loan limited to 20 years, your monthly effort must remain low. Don’t forget, however, that the price per square meter of small areas is higher when buying… but also when renting. This precaution combined with a diversification of investments allows you in the event of problems, unpaid rents in particular, not to have put all your eggs in the same basket and therefore to manage the problem more easily.
In terms of real estate investment, remember that the capital gain is made on the purchase price and not on the resale price! It is therefore absolutely essential to buy well!
Do not look for excessive profitability and rather think about tax exemption
Given the performance of traditional investments, a return of 3 to 4% is very suitable. In addition, a real estate investment always increases in value over the long term. With the Pinel device, you will deduct part of your taxes, over six, nine, or twelve years: an interesting calculation, even if the rents for these apartments, capped, are a little lower than the average. The financial arrangements will then allow you to study the interest rates, the different types of loans, to appeal to the different property tax exemption laws, as well as to find the appropriate investment by taking into account possible hazards (especially in the investment in the old, work is often to be expected).
Select your tenant and developer
To find the “right” tenant who will pay his rent regularly and who will not damage the rental property, the owner must request certain supporting documents to minimize the risks and make his choice in full knowledge of the facts.
For rent less than a third of the income, you have the possibility of requesting a joint and several guarantees. In the case of shared accommodation, ask for a deposit for the full rent from each participant… having as many guarantees as possible is always better.
On the side of the promoter who sells the property, check his notoriety, if he respects the standards in force as well as the rate of mixed residences (the rule of 3/3 with 1/3 of the housing offered for investment, 1 /3 in social housing and the remaining third in main residences).
Put your rental investment under management
Rental management is a service that falls within the competence of real estate agencies, notaries, or trustees. It can be defined as all the activities that aim to optimize the economic return of a property portfolio. An agency will relieve you of the worries, and the steps and will ensure much more efficiently than you, the recovery of possible debts. Benefits that largely compensate for the fees it will ask you: 5 to 10% of the rent, charges included. Moreover, these fees are deductible from your property income.
Buy a guarantee
The Garantie Locative is an insurance that guarantees you the payment of the rent of your property. You are thus assured of a return on your investment.
You must take out a Rental Guarantee for each accommodation you wish to insure. You can opt for classic unpaid rent insurance or the new universal rental risk guarantee (capable of covering debts up to €70,000 per dwelling, and damage up to €7,700). Go to an insurance company and plan to spend 1.5 to 2.5% of your rent on it.
Rental investment is an important step in the development of heritage. However, care must be taken to ensure that the right choices are made throughout the process to guarantee its profitability. Thus, the rental investment will be for you an additional guaranteed income.