Rental investment: definition
Rental real estate is a sector that is attracting more and more investors. This activity consists of acquiring a property in order to put it up for rent for an indefinite period of time. If this activity is also favoured by many investors, it is because of the various significant advantages that it represents. To build up an estate, to benefit from a tax reduction or to receive additional income, the objectives of a rental investment are numerous. However, like any investment, real estate can represent certain risks. But to ensure the profitability of this investment, various solutions can be used to protect against these risks.
What is the rental investment?
The rental investment consists of buying a property with a view to renting it. In this context, the investment does not only concern the rental of a house or apartment. In rental investment, it is also possible to invest in an investment property, commercial premises, a car park or offices. There are many reasons for making an investment decision. The objective of the rental investment can change according to the different periods crossed during a lifetime.
Receive additional income
By investing in rental real estate, each investor has his or her own objectives. The latter may decide to make a rental investment in order to increase their income. Between the tax exemption and the rental yield of such an investment, it will be possible, depending on the calculation and location of the property, to ensure a substantial monthly income. This real estate investment will also help to maintain its purchasing power. In addition, this additional income will offer better prospects for the future. The rental investment also makes it possible to ensure one's retirement capital, in a few years' time, which will make it possible to supplement one's otherwise diminished income.
Take advantage of a real estate tax exemption
A private individual as well as a professional investor can opt for a rental investment in order to benefit from real estate tax exemption as proposed by the numerous laws that have followed one another: Scellier law, Duflot law, LMNP in the old one to name only the most recent ones. Indeed, depending on the type of housing purchased, it is possible to benefit from a more or less substantial tax reduction during the entire rental period.
Diversify your heritage
Investment in rental property is a solution that allows you to build up your assets at a lower cost. Namely, it is possible to take advantage of the leverage effect of credit to acquire the property. Indeed, real estate is the only type of investment that can be financed from a loan. Moreover, the transfer of assets, whether to a spouse or children, should not be neglected to help them in their lives and guarantee them a capital that the investor has been able to protect. Especially since the capital gain on this type of property can be very interesting if the choice of location has been intelligently thought out. Finally, one should not forget the possibility of living in the property in old age or at the end of the compulsory rental period.
For the State, rental investment is a means of making up the national housing deficit and boosting the economy. That is why the government is promoting this process by proposing particularly interesting tax reductions.
The advantages of rental investment
If rental property investment is so popular with many French people, it is because of the many advantages it offers. First of all, it is the safest type of investment compared to other financial investments such as the stock market for example. Indeed, by investing in this type of investment, it is possible to benefit from a better return in view of the risks involved and the historically low interest rates on loans. The choice of location is an essential criterion for a high return.
Investing in rental real estate is also a means of building up a portfolio that is almost entirely financed by credit. Moreover, it is not necessary to have significant savings for the repayment of monthly loan instalments as part of the amount of rents received can be dedicated to this purpose. The rents collected can be used to finance a new loan for the acquisition of other housing.
One should not forget the possibility of allocating housing to relatives to enable them to find suitable accommodation with an attractive rent price. Moreover, once the compulsory rental period is over, the landlord can live in the accommodation which was paid for when he built up his assets so that he no longer has to pay rent. The income insurance due to the rental investment can still be used to supplement his retirement.
The main advantage of investing in rental real estate is also the attractive tax reduction it represents. It is important to know that the acquisition, repair and renovation work allows the loan interest to be deducted from your taxes. On the other hand, the furnished rental offers the possibility to benefit from the land deficit.
It should not be forgotten that rental investment is a solution to meet ongoing housing needs. Rental real estate is also a means of boosting the national economy. Namely, the real estate sector is the source of 9% of the annual wealth created. It is also the 6th largest employer in France.
Rental property risks and solutions
Certain risks exist in rental property investment. However, they are not inevitable and there are various ways to avoid them. Moreover, despite all that can happen, rental real estate remains one of the safest values on the financial market. The return on investment is almost guaranteed.
Thus, there is the risk of vacancies in rent, for example, which can be prevented with specific insurance. Investing in rental property therefore requires a well thought-out, well prepared investment, which is certainly the most productive investment.
Risks associated with the property
One of the main risks associated with rental investment is the property and its location. It is important to know that even if the house or apartment is of good quality, if the property is not in a good location, the owner will always have difficulty finding a tenant. In order to remedy this, it is important to take the time to study the most tense areas from a rental point of view. It is best to buy properties close to schools, shops and public transport. It is also necessary to know the urbanization projects in the area where you want to invest. The type of property can also represent a significant risk. As a result, the supply of housing proposed must be in line with the rental demand in the sector in which you are going to invest.
The risk of rental vacations
The risk of rental vacancies is also a point that often worries rental property investors. That is, having an empty home for several months can jeopardize the investor's financial situation. Therefore, in order to avoid being confronted with this situation, it is important to know the area where to buy your property. The property must be located in an area where there is a high demand for rental accommodation. In order to fill the gap due to rental vacancies, seasonal rental is also an effective alternative. Currently, this type of rental is developing more and more and attracts many tourists. In this case, the location will no longer be a constraint to this short-term rental.
This is often the most common risk faced by investors in rental real estate. Moreover, unpaid rents can have serious consequences on rental management. In this case, the best solution to prevent this situation is to choose the right tenant. To do this, it is important to study the file and the case of the tenant as well as his guarantors. This simple initiative can save you from a bad situation. However, this option will not be sufficient to protect against the risk of non-payment. Thus, the landlord can ask for different types of guarantees that will enable him to cover himself against the risk of unpaid rent.
Very often, the majority of rental purchases are made in the old one. Thus, it is possible that some units may require refurbishment or repairs for optimal comfort. Admittedly, it can happen that everything does not always go as planned. Indeed, there may be a price overrun on the budget or a delay in the work. So, to protect yourself from these risks and avoid paying an exorbitant amount for your work, you need to have a good grasp of the subject. In this case, the help of a professional can be indispensable, whether it is for the establishment of an estimate or the realization of the work. The investor can also entrust the management of his property to a professional.
Given that all these problems have their own solutions, we can say that the risk in rental investment is close to zero. The real estate investment remains a sure value and makes it possible to benefit from a profitable property on the long term.
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