The question of rent is often approached instinctively: one looks at what the neighbor is doing, adds a few dozen euros, and hopes that the market will follow. However, setting one's rent is neither a matter of chance nor a simple quick comparison. It is a true balancing act between attractiveness, legal framework, and rental profitability, whether in unfurnished rental or furnished rental. In 2024, in a context of tension in the real estate market and rising mortgage rates, a poorly positioned rent can be enough to shift a real estate investment into the loss column. Conversely, a methodically adjusted rent can significantly improve rental yield while securing income from property.
The method for setting your rent at the right price
Comparing with local market rents
The first step in setting your rent is to carefully observe the local market. Not at the city-wide level, but at the neighborhood level, or even the street level when relevant. Two identical apartments can show a difference of 15 to 25% simply because one is located 300 meters from a subway station and the other is not.
Data from real estate platforms gives a first indication, but one must go further: analyze the properties that have actually been rented, not those that are stagnant. In a real estate market more selective than in 2021, the average gap between the advertised rent and the rent finally signed reaches nearly 4% in France, and sometimes exceeds 6% in certain metropolitan areas. This differential reflects increased negotiation, particularly in long-term rentals.
Specifically, to set your rent appropriately within the framework of a rental investment, compare at least five to ten similar properties in living space, condition, floor, energy performance, and amenities. This logic applies to both furnished and unfurnished rentals. If your property is at the high end of the local market, you will need to justify this difference with an objective advantage: balcony, parking, recent renovation, or complete equipment in the case of a furnished rental.
Analyzing actual rental demand
A rent that looks good on paper may turn out to be disconnected from the reality of demand. This is where many real estate investors make a strategic mistake: they reason only in terms of gross yield without integrating the actual pressure in the sector.
In reality, not all cities are equal. In tight zones, rental pressure remains strong, with sometimes more than 5 to 10 applications for a well-positioned property. Conversely, in some medium-sized cities, vacancies are increasing. The national vacancy rate still exceeds 8%, with peaks over 10% in certain municipalities outside tight zones.
To smartly set your rent, observe the average rental time. A property rented in less than two weeks indicates a dynamic market. Beyond a month, one should question. Each month of vacancy represents a direct loss of about 8.3% on a year of rental income. This data directly impacts the gross rental yield and the overall gross yield of your operation.
Publishing a test ad also helps measure demand. The volume and quality of contacts immediately indicate whether the rental amount is in line with the local market.
Calculating the property's break-even threshold
Setting your rent cannot be limited to observing the real estate market; you must incorporate your financial constraints and your tax regime. The break-even point corresponds to the minimum annual rent necessary to cover all expenses: monthly mortgage payment, property tax, non-recoverable condominium fees, insurance, property management fees, and provision for vacancy.
In 2024, with mortgage rates around 4% over 20 years, the burden of financing weighs more heavily on investors. For a purchase of €200,000, the rate variation can represent over €250 in monthly differences, which significantly alters gross profitability.
Let's take an example: an apartment generating €900 in gross monthly rent produces €10,800 in annual rent. If the total charges reach €9,000 per year (including the loan), the net rental yield becomes very sensitive to the slightest unforeseen event. By factoring in 5% vacancy and occasional renovation work, the margin quickly shrinks.
This calculation is even more strategic for furnished rentals under the LMNP status in the real regime, where depreciation can improve taxation, but does not compensate for a structurally undervalued rent. If the break-even threshold exceeds local market rents, the problem often lies with the purchase price, not the rent amount.
Property management can be time-consuming and a real burden for a landlord. Feel free to delegate your property management to us for more agility!
The legal rules governing rent
Setting the rent is not solely based on an economic calculation related to rental yield or gross profitability. The French legal framework strongly structures the determination of the rent amount, particularly under the influence of the ALUR law (2014) and then the ELAN law (2018). These texts have profoundly altered the applicable rules in tense areas and reinforced the rent cap in certain major metropolitan areas.
Ignoring these rules can lead to a forced reduction in rent, a refund to the tenant, or even an administrative fine. For an investor in real estate, the impact can be immediate on the annual rental income.
Areas subject to rent control
In several major French cities, the rent control system imposes a reference rent set by prefectural order. This mechanism provides for:
a reference rent
a reduced reference rent (-30%)
a higher reference rent (+20%)
The landlord cannot exceed the higher ceiling, except for justifying an exceptional additional rent (remarkable view, services significantly above the local market standard). In 2024, in certain central districts, the ceiling may exceed €35/m² for a new apartment. For a living space of 40 m², this represents a ceiling of €1,400 per month.
Non-compliance with the rent cap can lead to:
a request for reduction by the tenant
retroactive reimbursement
a fine that can reach €5,000 for a private landlord
This constraint applies to both unfurnished and furnished long-term rentals. For a rental investment in a tense area with active control, the rental profitability strategy must therefore be considered from the acquisition stage.
Rent capping in tense areas
Even in the absence of strict controls, municipalities classified as tense areas (more than 1,100 in France) apply a capping mechanism when re-letting. Specifically, if a tenant leaves the accommodation, the new rent cannot exceed the previous one, except for exceptions:
renovation work representing at least 6 months of rent
obviously undervalued rent
vacancy exceeding 18 months
This mechanism significantly limits the ability to adjust an undervalued rent amount. An initial error can therefore permanently penalize the gross rental yield.
Example:
A property rented for €750 while the local market is at €820 loses €70 per month, amounting to €840 in annual rental income. Over 10 years, this difference exceeds €8,400, excluding indexing. In a long-term real estate investment context, this regulatory rigidity must be factored into the calculation of gross profitability.
Annual revision according to the reference index
The Reference Rent Index (IRL) allows for indexing the rent once a year, provided that a clause is included in the lease.
In 2023, the IRL reached a growth rate close to 3.5%, before slowing to around 2 to 3% in 2024. On an annual rent of €12,000, a 3% revaluation represents an additional €360 per year. Over 5 years, the accumulated difference can exceed €1,800. Without applying the IRL, rental profitability erodes mechanically under the effect of inflation and rising costs (property tax, insurance, rental management).
Note: the revision is not retroactive if not requested within the year. For a landlord under the real regime in furnished rental under the LMNP status, indexing remains strategic to preserve gross yield despite tax optimization.
Constraints in the case of re-letting
Re-letting is often the key moment to adjust the rent amount to the level of the real estate market. In non-tense areas, the freedom is almost total. In tense areas, the cap applies. In areas with control, the higher ceiling remains the limit. Since 2023, energy performance adds a major constraint. Properties rated G exceeding 450 kWh/m²/year are gradually prohibited from being rented. Starting in 2025, all properties rated G will be affected, followed by those rated F in 2028.
An energy-intensive property can have its rent frozen. Conversely, energy renovation work improving the DPE rating can justify a better positioning in the local market. According to ADEME, a property improved by two energy classes can see its rental value increase by 5 to 15% depending on the region. In a long-term rental investment strategy, incorporating these regulatory parameters protects future rental profitability.
The features of the property that influence the rent
The location and attractiveness of the neighborhood
The location largely determines the performance of a real estate investment. A dynamic neighborhood, close to transportation and employment hubs, supports the demand for long-term rentals as well as furnished rentals.
Differences of €4 to €5/m² are common between two areas in the same city. For 50 m², this represents up to €3,000 in additional rental income per year, which significantly improves the rental yield.
The local market remains the final arbiter.
The size, condition, and energy performance
Smaller units often have a higher gross yield. A studio can generate a gross rental yield that is 20 to 30% higher than a large apartment, although the risk of rental turnover is greater.
The condition of the property directly influences the amount of rent. Well-targeted renovation work can justify an increase of 8 to 12%, but should be analyzed in terms of return on investment.
Energy performance is now central. A property rated D consumes half as much as a property rated F. Tenants are sensitive to this, as the energy bill impacts their overall budget.
The impacts of a poorly set rent on profitability
The determination of the rent amount directly influences the rental yield, but also the stability of income from real estate and the overall strength of the rental investment.
A gap of 5 to 10% may seem marginal. In reality, its consequences accumulate over several years.
The risk of vacancy with an overvalued rent
A rent positioned above the local market decreases the number of applications and extends the time to rent. According to various observations of the real estate market, a property listed 8% above the average can remain vacant twice as long as a properly priced property. A single month of vacancy represents a loss of 8.3% of the annual rental income. Two months lead to a decrease of 16.6%.
Example:
For a theoretical annual rent of €14,400, two months of vacancy bring the real income down to €12,000. If the purchase price is €280,000, the gross yield plummets from 5.14% to 4.28%.
In a context of more expensive mortgage credit, this difference can absorb the entire cash flow. Setting the rent too high directly undermines the gross profitability.
The loss of yield with an undervalued rent
Conversely, a rent that is too low immediately reduces rental yield. A gap of €80 per month represents €960 per year. Over 15 years, this exceeds €14,000, excluding indexing via the Rent Reference Index. In tense zones, rent caps limit the ability to correct this error when re-renting. The impact can therefore become structural.
Even in furnished rentals under the real regime or LMNP status, tax optimization does not compensate for a structurally undervalued rent. The rental income remains mechanically lower.
The balance between yield and rental stability
True optimization is not about aiming for the theoretical maximum, but about securing a sustainable balance between gross yield, stability, and controlled property management. A rent slightly positioned below the maximum allowable ceiling can attract a more stable rental profile. However, each change of tenant generates:
rehabilitation costs
potential renovation work
vacancy
time for property management
It is generally estimated that a turnover represents the equivalent of half to a full month of rent. Over a period of 10 years, reducing the number of turnovers can improve overall rental profitability as much as a one-time increase in the rent amount.
What to remember
Setting your rent is one of the most decisive levers in the success of a real estate investment. This choice directly influences the gross rental yield, the stability of rental income, and the robustness of gross profitability over the long term. Between a careful analysis of the local market, compliance with rent caps in tense areas, integration of mortgage credit, consideration of property tax, and the balance between bare rental and furnished rental under the LMNP status in the real regime, determining the rent amount is a true strategy.
An overvalued rent generates vacancy and erodes yield. An undervalued rent sustainably penalizes annual rental income. Only a methodical, quantified approach adapted to the real estate market can truly optimize rental profitability. Setting your rent is not just a simple operational parameter: it’s the key to a high-performing and sustainable rental investment.
Also discover
