All reasons are good for making a rental investment:
wanting to diversify your investments compared to a Livret A with 3% gross interest;
taking advantage of soaring price per square meter;
planning to accommodate your family;
wanting to boost your retirement;
aiming for financial independence to no longer rely solely on your job;
being attached to a neighborhood;
wanting to benefit from current exceptional financing conditions…
Ultimately, it's the only way to get rich while sleeping… all while benefiting from an investment capacity multiplied by the leverage effect of bank loans.
Let's review the absolutely unique advantages of investing in rental properties, compared to any other type of investments.
Advantage #1: generating income in ways other than through work
The first reason to make a rental real estate investment is not insignificant: while earning money is generally obtained in exchange for one's time and energy according to the most classic compensation model: work, rental real estate completely changes the rules of the game.
Indeed, the asset (your home) works for you! It generates income or rents, day and night, for minimal effort, namely, finding tenants and possibly dealing with the hassles related to renting, if you do not go through a property management agency. Nevertheless, not every real estate asset is necessarily profitable; that would be too simple!
Discover our profitable investment projects: Our experts select, visit, and verify projects so that you don’t have to do it. All our recent rental projects here - Check them out before investing in rental properties!
Benefit No. 2: take advantage of bank leverage
The second element that makes investing in rental properties exceptional is the use of credit. It is no secret, and unlike investing in stocks, startups, or even SCPI, real estate is rarely financed with money available in your account.
On the contrary: on average, banks require a minimum contribution, typically around 10% of the property's price. In other words, you multiply at least every euro you take out of your pocket by 10. So you are playing with money that the bank lends you!
Now, it's a matter of determining the amount the bank can grant you based on your profile (family situation, other income, assets)... In this quest, the tool below could help you! 👇🏻 Simulate your financing capacity: Are you looking to know how much you can borrow to invest in rental properties, for how long, and at what rate? How much of a down payment would you need to invest in rental properties? Simulate your borrowing capacity for rental investment in 5 minutes to know your budget! The verdict is clear: investing in rental properties is the fastest and most accessible way to increase your wealth, even to change your socio-professional category.
Advantage #3: multiply your investment opportunities
Over time, as you pay off your monthly payments after investing in rental properties and as your property increases in value, your net real estate wealth grows.
Net real estate wealth = market value of your properties - associated debt
With each passing month, you increase the guarantees that a bank can take in exchange for a new loan. This is how you can build, in just a few years, a real estate empire starting from nothing.
Advantage #4: combining two (to three) returns
Before going into detail, let us remind that the theoretical net rental yield of an investment can be calculated objectively using the following formula:
[(Rent including charges) * 12 - Condominium fees - Property tax] / (price of the property + agency fees + notary fees + renovation costs)
Economic theory in real estate suggests that this ratio should be around 5%. However, in recent years, the price per square meter has tended to rise faster than rents, dragging down the yield. In theory, the more reliable a real estate asset is, the lower its yield will be. Let's not kid ourselves, buying property in Paris carries less risk of not finding a tenant or seeing the property's value decline over the long term than investing in the suburbs of Saint-Etienne.
In any case, the net rental yield in France hovers around 4%. But to this rental yield, one must add the yield related to the annual increase in the price of your property, of about 3% per year in France. These two sources of yield make this investment a completely unique placement since the sum of the two (4% + 3% = 7%) far exceeds inflation (the rate at which your money devalues if not invested) and mortgage interest rates.
Finally, although it is not strictly a yield, there are significant tax advantages associated with certain investment schemes: Pinel Law, Censi-Bouvard...
Advantage #5: anticipate and stabilize the return on investment
Finally, an essential point is that you can control many parameters in terms of rental real estate investment. Obviously, when investing in rentals, we are never safe from unpleasant surprises (changes in law, occurrence of unpaid rents, necessary repairs). But this risk is minor compared to the profitability and visibility associated with it. It is the role of your notary (or your real estate agent if they are honest!) to guarantee you, at the time of signing, that there are no real risks to take into account.
Once you have purchased, you know roughly what to expect: rent, rental charges, taxes and duties, interest rates... and even to some extent the increase in property value in the long term (hence the interest in investing in stable places like Paris).
Real estate is not as explosive an investment as the stock market (although the last 3 years have seen exceptional increases in real estate prices) or startups, but it has the advantage of being much more stable. Unless there is an unprecedented economic catastrophe, your property should not lose value over 20 years. And keep in mind that if an economic catastrophe were to occur, real estate would likely be the last asset affected!
If after reading this article you still have some questions about the relevance of investing in rental properties, we will be happy to answer your questions and guide you in creating your project.
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