Rental profitability with long-term rentals
We told you about it in a previous article, rental profitability is one of the terms to know when you want to invest in real estate to rent out. We therefore offer you a reminder of what rental profitability is as well as an update on the latter with long-term rentals.
Reminder: what is rental profitability?
When a person invests in real estate in order to rent, they ask themselves the question of rental profitability. The latter is in fact the relationship between the investment made and the rents received annually. It is calculated as follows: (Monthly rent X 12 months) X 100/purchase price of the property. A raw result (percentage) is then obtained. We can also talk about profitability net of expenses. It is then a question of carrying out the previous calculation by subtracting property tax, management fees and non-recoverable charges from the tenant. Net profitability, for its part, is obtained by taking the profitability net of expenses to which we subtract “taxes based on taxable rent”. We also speak of net-net profitability, that is to say the profitability net of expenses to which tax benefits are added. Attention, rental profitability must be distinguished from the return on investment (ROI — return on investment). It is also expressed as a percentage, but it is a question of calculating the money earned/lost with the investment minus the cost of the investment divided by this same cost. But what do you need to know about rental profitability with long-term rentals? This is what we invite you to discover.
Long-term rentals and rental profitability
Buying a property to rent it out for a long term? This is what a number of investors want to do. If you are one of them, you have the choice between furnished and unfurnished rentals. The first is to be preferred.
Investing to rent furnished
When you decide to invest in real estate to rent, you can choose between renting furnished or renting unfurnished. In Paris, furnished rentals that comply with the law of July 6, 1989 — a lease for a period of one year or nine months for students — are not subject to the same rules as furnished tourist accommodation. You therefore do not have to take any steps with the city. But why choose this version of the rental? Because it offers a variety of benefits. The first advantage to note is this: who says furnished accommodation says rent premium and the possibility of circumventing the rent control in a completely legal way since the supplement is justified. The second advantage is that of the delay in getting your property back. With a classic rental, it is every three years with six months' notice before the expiry of these three years. With a furnished rental, you have the possibility of recovering your property every year by warning your tenant (s) three months before the expiry date of the lease. The third and final benefit to take into account is that of taxation. This is more advantageous than with an empty rental. For higher rental profitability, it is therefore better to turn to furnished rentals and their various advantages. But this is not enough; you should also take into account various tips as follows.
Rental profitability and long-term rentals: a few tips to remember
Do you want to invest in real estate to rent for a long term? Be realistic about your rental profitability goals. In Paris, for example, 4.5% gross profitability may be normal in some sectors while in others it is a high percentage. To put all the chances on your side and obtain the best possible rental profitability, invest in the right district/in the right street, offer an irreproachable property, carry out work if necessary with reliable and qualified companies and decorate the property in a neutral way in order to trigger a crush on potential tenants. Rent at the right price, i.e. not too low (this can arouse suspicion, make tenants wonder what is wrong...), not too high (you will have trouble finding a tenant). No rental profitability without rents... So choose your tenants carefully by asking them for all the necessary supporting documents and being certain that they will be able to pay the rent. Carefully study all the files of people interested in renting your property. This way you will avoid unpleasant surprises and unpaid bills. Finally, comply with all laws (check the most recent ones) and don't forget the incoming and outgoing inventory. All these precautions will allow you to benefit from the highest possible rental profitability by allowing you to rent at the best possible price while avoiding unpaid rents and other damages to be repaired that are synonymous with more or less significant expenses.
In short
If you want to invest in real estate and offer long-term rentals, it is better to opt for a furnished property. You can increase the rent — and if this is justified — but also benefit from multiple tax and other advantages. If you want to invest in the Paris region, study the market carefully in order to know the neighborhoods where rental profitability is the most interesting. And make sure you don't have goals that are difficult or even impossible to achieve, but realistic. Finally, if you are looking for a property, do not hesitate to use the services of a HOME SELECT real estate hunter.
