Apartment building

How to invest in an investment property? All the information and advice you need to choose your investment property. To be read before investing.

Investors looking for a high return and full ownership may logically look for a building for sale. The choice of investing in a building has some interesting advantages, but also some disadvantages that should be taken into account from the start of the project. to be taken into account from the start of the project. The investment amounts are naturally higher for a building than for a condominium, for the same geographical area. All the more reason to be vigilant. You should also be careful to make the right choices from the start of your investment project. In this article you will discover the important elements to take into account if you wish to invest in an investment property and the things to avoid when investing in an investment property.

My name is Michael Zonta, and I am the Director of the consultancy company Investissement Locatif. I studied finance at a top business school I studied finance at a top business school (EDHEC) before turning to rental property after graduating in 2011. Since then, I have been helping investors with their real estate projects, and I also invest on a personal basis. I have always been attracted to real estate and rental properties are the grail for any real estate investor.
Firstly because a building is a whole building with a history. Secondly, because the financial envelope of such a project is always higher than a single flat. It is like buying real estate in bulk, which means that you are building up but even faster. Finally, because full ownership has clear financial advantages over condominiums. The advice and analysis you will find in this article are based on my personal experience. My team of twenty employees assists investors with their investment property projects in the Paris region. We also have the opportunity to manage buildings with all the responsibility that this represents. I hope you enjoy reading this article and please do not hesitate to contact me if you have any questions about specific points or an investment project in an investment property.

Investment property, definition

The investment property can also be called the rental property. It is a special project when it comes to real estate investment, and with good reason. It is a building consisting of several flats and is designed as an investment by the owner-investor. Thus, the owner can This means that the owner-investor can choose a building where the flats are already rented, or a building where the flats are empty, or a building with rented and empty flats. rented and others empty. The advantage of having an empty building is to carry out work if necessary, in order to make the most of the flats, possibly modify the layout to optimise the rental space according to local demand. This is an option to be favoured if you wish to increase the rental yield. Be careful, however, as work cannot be improvised and even less so on a building... you must be accompanied by an architect if you are not a professional. On the other hand, the banks that will finance the operation may appreciate the fact that the building is rented out in the building is rented in part or in full. This is reassuring because leases have already been drawn up, which reduces uncertainty about the rental part: your banker knows directly at what level of rent the building is rented.

Where to invest in an investment property?

Whether you are buying a studette or an entire building, the first criterion to consider is location. This is even truer for apartment buildings as you will not be looking for one, but several tenants. Because of the high of a building in large cities, investors may be tempted to invest in the countryside. It also seems easier to find: with the desertification of the countryside, many buildings are for sale. But beware: depending on the location, there is a real risk of ending up with a building impossible to rent, because of low rental demand, or impossible to sell.

The city, the street, the rental demand, are important points in your search, to be analysed from the beginning of the project. If you buy an empty building, you will have to rent it out to pay back your loan, but if the rental demand is how will you find tenants? This can turn into a real trap with monthly mortgage payments and no rent to pay.

Finding an investment property for sale that has all the characteristics of a quality rental investment is not a simple matter. The investors who call on our services are demanding investors: they are looking for a quality property according to precise quality property according to precise criteria. Here are some tips on how to make the right choice when buying a property.

Firstly, as with any property, location is the primary criterion. Owning a building in the depths of the Creuse is flattering. But if no one wants to rent it out, then the investment becomes a pure burden and can cost you a lot of money.

To make the right choice, research the city where you live. What is the trend in the geographical area? What type of population will your property be aimed at and are the prices appropriate? If you want to rent to students, for example, check beforehand that the demand is there.

Financing the purchase of an investment property

The profitability of an investment property is generally higher than that of a diffuse lot. As we have seen, this is due to the fact that the investor buys in bulk and avoids the costs of the syndicate. The amount of the project is more The amount of the project is larger than for the purchase of a diffuse lot, but the banks finance this type of project very well.

When you choose to invest in a building, keep in mind that the work can be significant. For example, unlike a condominium, you will have to pay for the entire roof or façade in the event of work on the building. The surface areas to be renovated are also much larger than for a detached flat. This must be taken into account from the outset. This means that a cash flow fund is needed to avoid unpleasant surprises. During the financing process, ask for a cash flow gap by allowing for the time of the work with an additional security of at least 3 months (the work will be completed in the next three months). of at least 3 months (the work always holds surprises).

The duration of the financing depends on your investment strategy. A long term will favour immediate cash flow, since the monthly payment can be lower than the rental income. A shorter term will allow you to repay the loan more quickly A shorter term will allow you to repay the loan more quickly and therefore to have the totality of the rents at your disposal more quickly... and therefore an income which can be considerable depending on the size of the project.

As far as the loan is concerned, do not hesitate to consult several banks or to go through a specialised broker. As part of our services, Investissement Locatif has solid partners for the financing aspect. If you wish, we can put you in contact with specialists in the field. Finally, you should know that some banks agree to defer the start of monthly payments for twelve to thirty-six months. This can help you build up a cash fund to secure your investment as much as possible.

Buying a building: SCI or own name?

Experienced investors will have the choice of several regimes for setting up the project: furnished rental under the LMP or LMNP scheme, SCI (real estate investment company) subject to income tax, or SCI (real estate investment company) subject to corporation tax, SARL (limited liability company) or SAS (simplified joint stock company). Each system has its advantages and disadvantages, and we will advise you on the tax aspects and possible tax arrangements.

It should be noted that the most commonly used regime for investment in an investment property - which we generally recommend - is the purchase of a building. - is the purchase of a building through a SCI (non-trading property company) subject to corporation tax. This allows the investor to develop his capital while limiting the tax impact on a personal basis. tax impact on a personal basis. The SCI also allows profits to be reinvested in other properties without going through the personal taxation. It is an ideal system if you wish to develop a significant property portfolio quickly. Thus your profit will be taxed at IS, which is rather favourable, especially if you are in the 15% bracket (corporation tax is 38,120 of profits from the SCI income tax), and you can reinvest it directly in other property projects within the SCI. property projects within the SCI.

Finally, experienced investors can set up a holding company to manage various SCIs. The advantage of this is that it allows the cash flow to to circulate between the different SCIs, to benefit several times from the reduced corporate tax rate (15%). These tax issues are fascinating but complex, and are developed in other articles and content on the subject.

Old or new building?

Building a building is a fabulous project. Anyone who has ever built a building, either their own house or a block of flats, will understand the intellectual interest of such a project. of such a project. Choosing everything according to your taste, working with different trades, seeing the building come to life before your eyes, having a come to life before your eyes, having a new building at your disposal...

But the problem is that it is very complex, and very expensive. The various standards that have been piled up over the last 25 years have driven up the costs. years have driven up the cost of construction. You will find that even if you already have a piece of land by inheritance, for example, the cost of building is now so high that it is often more interesting to sell your land on one side and to buy a house on the other. to sell your land on the one hand, and then buy an existing building with a lower price.

As always, this depends on the geographical area. But if you are planning to build, make sure you choose the right partners and But if it is your project to build, be careful to choose the right partners and to cost everything in detail beforehand, taking a safety margin of 10 to 15%.

Sale of an investment property

Owning and creating income is good. But there comes a time when you may want to sell the building. Every investor has many reasons for wanting to sell: financing a new project, selling for family reasons, to get cash for retirement. The fact is that selling a building can be complicated. So if buying in bulk (several lots at once) is a real advantage compared to buying diffuse lots, it becomes a disadvantage for the sale. Since the amount is large, the number of interested (and financeable) people is reduced. You therefore have fewer potential buyers. potential buyers. In particular, you cut yourself off from buyers who are looking to buy to live in, and from first-time buyers.

It's supply and demand, and depending on where you are, it can be complicated. As an investor, you must take into account the lack of liquidity of this product (compared to a more traditional flat) and be wary of purchases in the open country, which are unsaleable.

Once again, even for a building, it will be easier to find buyers in Paris or the Paris region than in the depths of the Corrèze.

Rented building or building free of any occupation

When you buy a building, it may be vacant or already rented. There are several opposing schools of thought: the vacant property will allow you to carry out works to optimise rents, and to choose the tenants. On the other hand, a property that is already rented will represent less of an effort to rent, and will reassure the bank. It is up to you to weigh up the pros and cons. If you choose the option of a building with existing tenants, pay attention to their profiles.

Are there any outstanding payments? Are the tenants creditworthy? What are the terms of the various leases?

These are all questions that you should ask yourself before the project begins so that you can buy with full knowledge of the facts and limit the risk as much as possible.

Rental yield of an investment property

One of the interests of the investment property is... the rental income. Thus, if an investment property generally delivers a higher return than the purchase of an apartment the purchase of a flat, this can be explained by the fact that buying in bulk (several lots at once) allows for interesting savings. Another advantage is the absence of a trustee for freehold ownership. This avoids trustee fees and therefore eliminates a cost item.

Returns vary according to location and demand. It may seem paradoxical, but buildings in Paris generally offer very low returns. The reason is simple: demand is very high. The buyers are the pension funds and property dealers who have large funds and see the City of Light as an investment. Buying a building in the Paris suburbs is often much more interesting, with rental yields more interesting, with rental yields that can reach 10%.

As you can see, investing in an investment property is an excellent option if you wish to invest a larger sum than an apartment and have immediate access to the property. than a flat, and have a higher immediate rental income. Finally, this choice will give you a better return. We work with investors on building projects in the Paris region, with yields of up to 10%. Do you have a project? Please contact us.