Furnished rental investment
Investing in furnished rentals is a rather attractive and profitable activity especially in big cities and student towns. For lessors, renting furnished real estate is considered to be very advantageous from a tax point of view. Indeed, by opting for the status of non-professional furnished lessor (LMNP), the investor can benefit from many advantages.
The advantages of renting furnished real estate
In general, furnished rentals involve frequent changes of tenants and a significant investment in furniture. However, the significant advantages of this type of rental make it more attractive than a naked rental.
Compared to a bare rental, the equipped rental property investment offers a better return with the same property, but rented empty. Moreover, with the 2-month deposit and the reduced rental periods, the losses linked to non-payment can be kept under control. For this reason, furnished rental is a rather profitable option for a rental investment.
A tax advantageous furnished rental
In the case of a furnished rental investment, rents are not taxed on property income. They are taxed as commercial industrial profits or BIC. Being taxed as industrial and commercial profits allows you to take advantage of significant tax benefits and depreciation to reduce your taxable rental income. In addition, it will be possible to deduct expenses from one's expenses. On the other hand, the micro-BIC offers the lessor the possibility of benefiting from a 50% allowance on its gross rental income.
Compared to the rental of a bare property, the equipped rental brings varied opportunities. This option makes it possible to find a tenant more quickly, as the offer is often less important than for a traditional rental. This type of investment also makes it possible to make a seasonal rental. This, whether it is for an overnight or weekend rental. This activity would be even more profitable if the property is located close to tourist sites.
Taxation of LMNP status
Furnished rental is particularly well known for the tax advantages it offers to lessors. Indeed, the LMNP status allows for significant tax savings on rents. This is possible thanks to the depreciation and capital gains tax regimes. Here is a video to find out more about furnished rentals: LMNP réel : what are the DEDUCTIBLE CHARGES ? It is important to know that the rental income from a furnished rental must be declared in the Trade and Companies Register or RCS.
The rental of equipped real estate is considered a taxable business activity in the BIC commercial industrial profits category. However, two modes of taxation are available to LMNP.
Taxation of the micro-BIC scheme
It does not allow his charges to be deducted. On the other hand, it offers simplified accounting as compensation and the landlord can have a 50% discount on the rent received. In order to benefit from taxation under the micro BIC scheme, there is a certain rent ceiling during the year that must not be exceeded. Previously, this annual rent ceiling was set at 33,200 euros. As this ceiling increased significantly in 2018, it has now reached 70,000 euros.
Taxation of the actual regime in LMNP
It is mandatory for all LMNP lessors whose annual rent ceiling exceeds the sum of 70,000 euros. Its main advantage is that it allows expenses to be deducted from taxable income. These expenses can include loan interest, property tax, works, but also the depreciation costs of the LMNP furnished rental. For its part, the censi bouvard law also grants a tax reduction. On the other hand, this LMNP censi bouvard is only accessible if the lessor invests in a new serviced residence. The censi bouvard scheme offers a tax reduction of 11% on the purchase price of the property excluding VAT.
It is important to specify that investment in LMNP may entitle the lessor to a refund of 20% of the VAT that was paid at the time of purchase of the property. But for this, there are a few conditions to be met. The investor must buy new real estate in a service residence. The property must be placed under management with an operator for 9 years and the owner must not resell the property for at least 20 years.
Which status to choose for a furnished rental?
Renters of furnished real estate have the possibility to choose between two statuses to declare their income. They can opt for LMP or LMNP. Both have their own advantages and disadvantages.
Advantages of the status of professional furnished rental company (LMP)
The allocation of deficits
Compared to LMP, the main advantage of choosing it is particularly tax-related. Indeed, with regard to the allocation of deficits, the investor has the possibility to carry these deficits over to the overall tax revenues. This is not possible for LMNP. For the non-professional furnished lessor, the deficit caused by the rental can be deducted only from the income from his furnished rentals.
Professional capital gains
In case the investor in LMP would have capital gains on the sale of real estate rented as furnished, he will not be taxed according to the law of private capital gains. This is not the case for an investment in LMNP. For this regime, the lessor will be taxed according to the professional capital gains regime. Consequently, the LMP allows for advantageous taxation under this capital gains regime.
The advantages of the status of non-professional furnished rental company (LMNP)
Compared to LMNP, the main disadvantages of LMP are both social and fiscal.
Social security contributions (RSI)
Since 1 January 2012, the LMP has been subject to professional social charges. This allows investors to benefit from health coverage as well as old-age insurance. On the other hand, taxation is rather high. It should be noted that the net income of the LMP is taxed at 20.15% to 43.20%. This is the case regardless of whether the lessor is in deficit or not. In addition, short-term capital gains realized by members of the social security scheme for the self-employed (RSI) subject to the LMP are subject to RSI social security contributions. However, it should be pointed out that these capital gains are tax-exempt.
No tax reductions in LMPs
The LMP status can in no case benefit from tax reduction. On the other hand, by making an investment eligible for the Censi Bouvard scheme, the non-professional furnished landlord can benefit from a tax reduction.
The profitability of a furnished rental investment
An investor's main concern is the profitability of his investment. Opting to invest in real estate for rental purposes is a completely sustainable investment. This is why many private individuals as well as personalities such as P. Chevillard or Damien E. invest in rental property. In general, an investment in rental real estate provides a net return of between 2% and 7%, or even more in some cases. However, performance can vary depending on various factors, including the type of housing. In other words, small properties are more profitable than large ones.
Indeed, for a studio or a T1 apartment, renting these small areas per square meter yields a higher return than large areas. The only constraint is that the tenant can often change, but a high return can compensate for the significant risks. On the other hand, for large apartments and houses, per square metre, these large surfaces offer the lessor little benefit. But despite this, they offer stable tenants, as it is often families who occupy these dwellings.
In which city to invest in furnished rentals in France?
Furnished rentals are particularly popular with certain categories of customers, including 40% of students and more than 45% of working people in professional mobility. As the situation of these individuals is not completely stable, they represent a practical need to be able to move quickly and without any constraints. This is why furnished rentals have become an unavoidable option for these tenants. Also, for investors looking for property to rent, why not target student cities? In this way, the profitability of their investment will be guaranteed.
Lyon, Toulouse, Montpellier, the main student cities in France
According to the L'Etudiant prize list, these three cities were elected the best French student cities in 2019. In addition to this, Lille is also very much appreciated by students. Thus, these cities are ideal for student furnished rentals. Indeed, with students who are passing through, the latter prefer to opt directly for a furnished rental equipped. It is important to know that student leases only last 9 months and they are only reserved for a furnished rental. However, it is always possible to rent furnished for a period of one year or for periods of 1 to 10 months.
With the parental deposit or Visale coverage, student tenants offer a secure guarantee to the owners of a furnished apartment. Moreover, investing in a property located near these student towns allows you to avoid rental holidays.
Bordeaux and Marseille, cities with constantly rising rents
Bordeaux and Marseille are among the favourite cities of the French. For this reason, the arrival of new inhabitants is constantly increasing. As a result, the demand for rental property is far greater than the supply. This explains why rents in these cities are changing in a really fast way. On the other hand, this high rental demand represents an excellent opportunity for rental investment.
For a better return on your real estate investment in furnished rentals, it is advisable to favour studios and two-room apartments located in the city centre. Equipped real estate in the city centre is much more appreciated by customers.
Nantes and Grenoble
In Grenoble, small apartments are very popular. This is due to the fact that customers in this city are often students, singles or couples. On the other hand, in Nantes, family rental accommodation is really rare. As a result, medium-sized properties are very popular with families. This pushes landlords to invest in medium sized furnished rentals.
Paris, a real attraction for furnished rentals
Considered as the city of light, art of living and good taste, many people dream of living in Paris. This city is particularly attractive. For this reason, there is no shortage of candidates for furnished rentals in this French capital. Often living alone, for a short period of time, Parisian tenants prefer to rent small furnished spaces. This city offers a better profitability for a rental investment. Moreover, for an investor in furnished rental, he will not fail to find tenants for his real estate in Paris.
Rental investment: List of essential furniture for a furnished rental
In order to guarantee the comfort of the apartment and not to lose time in furnishing, the tenant often prefers furnished rental. It should be noted that renting furnished does not only consist in equipping the apartment with a bed, a sofa or a wardrobe. According to the definition created by article 8 of the Alur law of March 24, 2014, "a furnished dwelling is defined as a decent dwelling equipped with furniture in sufficient number and quality to allow the tenant to live, eat and sleep properly with regard to the requirements of everyday life".
Furthermore, since 1 September 2015, it has been noted that a fully equipped rental for use as a principal residence must contain at least eleven items of furniture and miscellaneous equipment. These mandatory equipments are :
- Bedding with duvet or blanket
- A device for concealing windows in bedrooms
- A cooking plate
- An oven or microwave
- A refrigerator-freezer
- A table and seats
- Kitchen utensils
- The dishes
- Storage shelves
- Lighting fixtures
- Housekeeping equipment
To increase the chances of renting out your property and making the investment more profitable, it is possible to add other elements such as a desk, a stylish dresser, a television or a Wi-fi connection. At each tenant renewal, it is important to ensure the maintenance and renewal of this equipment. On the other hand, in order to guarantee any deterioration and prevent theft, the investor must make an accurate inventory in the presence of the client upon entering and leaving the premises.
The different types of furnished rentals
An investor has the possibility to rent his real estate in different forms.
Furnished rental as a principal residence: the furnished property is occupied by the lessee as a principal residence. In this case, the duration of the lease will be at least one year and can be tacitly renewed under the same conditions.
Vacant furnished real estate rental: this refers to the rental of an equipped and furnished dwelling that is unoccupied as a principal residence. For this reason, the lessor and the tenant are free to set the rent and renewal conditions as they wish.
Student housing: real estate is considered as the student's main residence even if the student continues to live with his or her parents. The minimum lease term for student housing is reduced to 9 months without automatic renewal at the end of the commercial lease.
Seasonal furnished rentals: this concerns properties rented for a maximum of 90 days. This type of rental is taxed in the commercial industrial profits category.
Furnished tourist accommodation and bed and breakfast: these accommodations are subject to seasonal rental and are subject to a specific legal regime. As a result, their declaration is compulsory. It should be noted that renting guest rooms to people passing through is subject to an exemption of 760 euros per year for the owner. On the other hand, the excess fraction will be subject to tax under the BIC regime.
Factors to consider for a furnished rental investment
The main objective of rental property investment is to have a high return on its real estate. However, even if the furnished rental investment is a particularly long-lasting one, it is essential to take precautions before embarking on this project. Hence the importance of being informed and thinking seriously about your rental objectives. Moreover, this avoids unpleasant surprises once the project is completed. Indeed, the furnished rental investment is not so far from the various constraints such as the difficulty to rent, a drop in rent leading to a loss of profitability. In this context, it is better to be accompanied by an asset management consultant or Cgp via a Cga.
Define your objectives and expectations
Before embarking on a rental investment, it is first important to define your objectives. In this case, the idea is to know what you really intend to do with this investment. Is the objective to rent a property to build up an estate, to collect long-term rents, to house your children during their studies, to supplement your retirement or to sell it later? The choice of accommodation, taxation, the type of tenants, the setting of the rent and the financing will depend on these different factors.
The choice of the location of the building is an important factor in making the investment project profitable. A furnished apartment located in the city centre or in a pleasant and well-serviced area would surely be the most sought-after. For a furnished rental, the proximity of university centres would be a real asset. It is also important to choose a city where the rental market is very buoyant, i.e. where there is a real demand for rentals.
Investing in new or old real estate?
Two large families of properties are available on the market, new and old. New buildings are generally 20 to 30% more expensive than older properties. Moreover, in terms of rents, these new properties pay less than the old ones.
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