Investment property: all you need to know before buying a property!

The apartment building: a real good plan? This is the question that my clients or investors often ask me at seminars. "What about you, Michael, do you invest in investment properties on a personal basis? In what cities?"

Investing in a building is a dream come true for many people. And I'm the first. I started by buying a 14 m2 studio in Paris. Since then I have bought more than ten apartments for myself and several hundred for my clients through my company Investissement Locatif. But buying an entire building has always fascinated me.

First, because I love real estate, and every building has a story. Owning an entire building, and dedicating each lot of that building to housing as part of the rental is an incredible experience. I remember the feeling of excitement when I visited my first building. The salespeople explaining to me that the building stretches "from there to there". Huge. My partner and I were like children with a new toy.

But buying investment properties can be very technical. And if you make a mistake, the risk is higher than buying diffuse lots. 

Je suis Mickael Zonta, serial-investisseur et directeur de la société Investissement Locatif.
Dans cet article vous découvrirez des conseils pour acheter un immeuble de rapport ou une maison de rapport. Ces conseils sont issus de mon expérience d'investisseur, et de mon activité de conseil en investissement immobilier. Je dirige une équipe de 200 personnes et nous avons réaliser plus de 2000 projets d'investissement.

Report building definition

The investment property or rental property is a rental product. It is an entire building, an entire building dedicated to generating rental income. The word "report" means that the owner of the building is waiting for (and gets) a rental report.

It is a building divided into several lots, which are leased by one or more owners to tenants. It is generally held by a single owner-lessor, which has the advantage of avoiding the status of co-ownership (and therefore the trustee's fees).

The definition of investment property is quite simple, and I often explain to my clients that they will have two main advantages: first, they will have a larger amount of money invested in a single operation. This is the equivalent of a bulk purchase.

Second, the rental yield of investment properties is higher, and owning freehold property will also save trustee fees.

What I found out about the apartment buildings...

If you have read my biography and my career as a real estate investor, you know that I started in Paris intra-muros.

My first project was carried out in the 19th arrondissement, then I successively invested in the north and east of Paris. At that time, I swore by intramural Paris. Why was that? Because the city's strong demand ensures excellent liquidity in the event of resale, and a very low (or even non-existent) rental vacancy rate. The property tax is also very low, and Paris does not have a land reserve.

The fact that on the one hand no building land is available, and on the other hand the city is an economic and international centre has confirmed my choice and I have personally invested in more than a dozen apartments.

But I discovered the investment properties...

With the support of my team, we accompany clients in turnkey projects for investment properties. Same logic as for the other operations we carry out: my team finds buildings with potential, we restructure and renovate, before renting out quality properties.

My clients have understood that the interest is different, and that this investment strategy - investing in an investment property - is complementary to Parisian investments. Less liquidity in the event of resale, a higher rental vacancy rate, significantly higher property tax. And yet, these are real advantages that have personally led me to turn to this type of product.

 

Investing in a building: the 3 advantages that make the difference

Advantage n°1 : Buying in bulk allows you to negotiate the price... even in real estate.

Buying an investment property to rent has several advantages. First of all concerning the acquisition: you buy a whole building, therefore several apartments... all at once. If you've already bought something in bulk, you understand that it's easier to negotiate with the seller when you buy more than one product. Here I'm talking about real estate, but it's exactly the same. Buying a property will therefore allow you to benefit from a lower price per m2 (compared to smaller properties in the same geographical area). Attention: as in any rule there are exceptions, and I tell you about them at the end of the article.

Price negotiation is also the result of buying pressure. It's simple: the higher the amount, the fewer potential buyers. Unfortunately the French with few means are more numerous than the rich French. Buyers are therefore in a position of strength.

 

 

Advantage n°2: Investing in a building means making a larger amount of money work, therefore getting richer faster!

I know, you're thinking I'm kicking a door open. But this notion of putting more money to work is paramount. Imagine if you could borrow €2 million... as some of my clients do. How long would it take to invest this sum and therefore start capitalizing, looking for studios at 50,000€?

The answer is obvious: you would have to buy 40 studios. If you're looking for 40 isolated lots and you go through the financing, notary and other steps 40 times, it would take a lot of time.

As a rental investment advisor, I often have this question: "Mickael, what is the ideal product to invest in? Is it the car park, the studio, the T2, the shared flat or the investment building? »

The answer is a normand answer: it depends on the investor and his situation.

I edited a video on investment properties and warned about buying a rental property that is very isolated or located in areas with a rapidly shrinking population. Disaster areas. Some investors who appreciate and invest in these areas have reacted virulently.

Warning: I never said that investing in a building in the middle of the countryside, at 90.000€ for 400M2 is necessarily a bad deal. But it is necessary to be doubly suspicious and to have an excellent knowledge of the market.

Personally, I try to favour properties in the Paris region (because I know the area), and because the investment tickets are relatively high. If I leave Paris and turn to this type of product, it's to make larger sums of money work: from €600K on the areas I invest in.

For smaller amounts I would tend to turn to condominium properties. Why would I do that? Because for the same rent, you won't have to pay for the whole facade, the roof or a high property tax.

 

Avantage n°3 : Le rendement locatif des immeubles de rapport

Les investisseurs apprécient les immeubles ou maison de rapport parce qu’ils délivrent des rendements locatifs plus élevés. Logique, vous avez acheté moins cher, parce qu’en gros (avantage n°1) mais vous louez les appartements un par un… donc au prix de marché. Cela permet de booster la rentabilité d’un immeuble de rapport.

Vous êtes propriétaire de tout le bâtiment, donc en pleine propriété, à l’opposé de la copropriété. Cela vous permet d’éviter les frais de syndic, donc de booster encore le rendement net de l’opération. En plus de l’avantage financier, j’apprécie également d’être chez moi dans mes immeubles, donc de pouvoir décider seul des travaux et de l’entretien. C’est plus simple et un vrai gain de temps.

Of course, as in any rental investment, it is generally more interesting to look for a business in the advertisements for the sale of a building to renovate. But I deal with the advantages of renovation (capital gain, valuation, tax advantages) in other articles, which I invite you to discover on my site.

 

 

Where to buy an investment property, and for how much?

There's no right answer. I regularly meet with investors who own buildings all over France. As with the purchase of a lot within a co-ownership, the purchase of a building for investment differs on the financial aspect depending on the location of the investment. Some areas are more profitable than others, and I advise you to know what you are looking for.

Take stock of your true investor goals. Here are 3 questions whose answers will guide you in choosing the investment location for your next building:
1 - What budget do I want to invest?

2 - What risk am I willing to take? (This answer will guide the return)

3 - Once the first 2 have been defined, are you more precisely interested in the market: how many similar offers are available in the area? What is the demographic evolution? Does the area have strong companies? Any attractiveness?

Investing in an isolated building, with a value of 50.000€ and a return of 15% is not necessarily a bad option. It depends on your objectives. But it must be done with a clear conscience and be an informed choice. Does having a 15% return instead of 12% in a more dynamic area change your project? Is the fact that the property is very illiquid so that resale may take months or even years a problem for you? Is there any vacancy in the rental property? Simply ask yourself the right questions beforehand so that you don't find yourself in complicated situations.

Personally, I accompany investors on investment property projects in the Paris region between €600K and €2M with returns between 8% and 10% (turnkey including my fees and a complete renovation) and in attractive areas.

Buying an investment property in Lille, or an investment property in the Ile de France region, for example, seems to be an interesting option. Because they combine high rental yields with the attractiveness of the market. I can also mention Bordeaux, Paris and Lyon, which remain very attractive cities, provided they have the means to achieve their ambitions.
 

 

Anomalies in the property market

In the course of my work, I have accompanied hundreds of investors. And I discovered a market anomaly...

In some areas, investment properties are MORE EXPENSIVE in price per m2 than individual properties. The first time, I fell in love with a 700m2 building in the 19th arrondissement of Paris. In 2 buildings, the project was magical. That's what's great when you visit a building. Personally, I always marvel at the discovery of the different apartments. I can imagine the families who will be able to live there. I imagine them living in it. Because real estate is above all where people live, and that's what I find absolutely magical.

Let's go back to the 19th district, and to this empty 700m2 building...

J’étais convaincu au sujet du produit, et je disposais d’un pull d’investisseurs qui voulait investir avec moi. Oui mais… Lors de la présentation du prix, l’agent m’annonce que le bien est à 8.500€ le m2. Pour la vente d’un immeuble à rénover. J’explique à l’agent que dans ce quartier et pour des biens à rénover, j’achète autour de 6.500€ max / m2. Je fais une offre en conséquence… et la vente ne se fait pas.

In reality, business (and real estate is business) is only a matter of supply and demand. And for investment properties, it's the same thing. With investment tickets that can exceed several million euros, buyers are no longer the same. You will be confronted with investment funds, or wealthy buyers who are not looking for returns at all costs.

They understood that it is better to make a higher amount of money work with a lower return.

For me, this discovery came as a shock. It's the same thing in Lyon, which has a lot of merchants. I don't know the reasons for this concentration, but Lyon has proportionally far more property owners and professional merchants than Paris. And that clearly weighs on property prices.

Today, you who read me, you might want to invest in a building at 80.000€ or even 1.000.000€. But if (and if you are reading me I am convinced that this will be the case) you have a real estate fortune, then it is unlikely that you will continue to look for buildings at 100.000€...

Perhaps you too will be interested in a lower return, but with a larger amount invested.

To sum up, investing in a building can be very interesting if you want to make a higher amount of money work. If you turn to buildings for the rental return they offer, be careful to diversify your assets, with for example very liquid (easy to resell) projects in the city centre. This may be necessary if you need liquidity to help a member of your family, to carry out a personal project or in the event of an accident in life.

Keep in mind that buildings require a great deal of technical expertise. The cost of the work is proportional to the surface area of the property, not the purchase price. Whether your 300m2 building is worth 80,000€ in the countryside, or 800,000€ in the Paris region, a roof is a roof. The work can be expensive and you must anticipate and be very careful when buying. I advise you to seek the advice of a professional such as an architect.

The benefits are real if the operation is under control: high return, full ownership and a high investment envelope. I recommend this type of investment product if you want to accelerate the development of your assets and build a real estate empire.

 

Personally, beyond the financial criteria, I find investing in buildings magical. You're going to house several people or family. In addition to being an investment product, I feel a sense of pride and admiration when I visit my buildings. These buildings are full of history, and they're places to live and it's fabulous.

Are you interested in buying a profitable building? Take advantage of my team's expertise and delegate the entire project. Contact me.