Our 9 tips for your rental investment

Looking to invest your money in a secure project? Rental investment is for you! Profitable and sustainable, it allows you to generate additional income while building your wealth—provided you ask yourself the right questions! Discover our tips for a successful rental investment.

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1. Calculate your actual borrowing capacity

Like most buyers, you will need to take out a mortgage to finance your project. You must therefore have a precise idea of your borrowing capacity, as this determines the budget you can allocate to your project.

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To determine your borrowing capacity, the bank primarily looks at your repayment capacity. It will carefully study all your sources of income and bank statements to determine your debt-to-income ratio and the maximum monthly payments you can handle. The bank's goal is to minimize the risk of non-repayment: it will not grant you a loan that you would struggle to pay back. Consequently, your debt-to-income ratio, including monthly payments, cannot exceed 35% of your income. You will under no circumstances be able to exceed this threshold, even with a purchase self-financed by the rent you expect to receive.

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To calculate your actual borrowing capacity, the best approach is to use a mortgage simulator that takes into account all the data banks analyze. Run a simulation: https://www.pretto.fr/simulation-pret-immobilier/.

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2. Create a profile of your ideal tenant

The other determining factor in defining your project is the type of tenant you want to have. A family with children, a young couple, or a student will not be looking to rent the same type of property!

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Likewise, these different profiles do not necessarily have the same expectations: it is up to you to decide whether you offer short-term rentals for a family, or a medium- or long-term contract for a student or professional...

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Defining your ideal tenant in advance will help you better focus your property search, as well as choose the type of rental you want to offer.

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3. Choose the location based on the project

Location is a crucial issue for a successful real estate investment, both in terms of rental demand and potential capital gains upon resale.

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In any case, it is advisable to target a medium-sized or large city that has strong appeal and significant rental demand. From there, the property's location varies depending on the type of rental you are looking to set up. For student housing, the ideal is to choose a location near universities that is well-served by public transport. On the other hand, a family with children will be more willing to move away from the city center, provided they are in a neighborhood close to all amenities, especially shops and schools. If you want to offer short-term furnished rentals, aim for the city center and tourist districts.

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4. Study the tax implications

Rental investment can, in some cases, allow you to benefit from tax advantages such as tax deductions.

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If you are making your rental investment with this in mind, you must acquire a property that meets the criteria defined by the various tax optimization schemes put in place by the government (Pinel, Normandie). Above all, you must ensure that your tax and financial situation points you toward a specific scheme to make your investment as profitable as possible.

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Also, be aware that your rental income will not be treated the same way if you offer unfurnished rentals (property income) or furnished rentals (non-commercial profits)! You must therefore research these issues thoroughly to make the choice best suited to your situation.

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5. Learn about landlord obligations

Your obligations toward your tenants will vary depending on the type of rental you offer. As a landlord, you must:

• provide a decent home in good condition have your property inspections up to date and compliant with current laws regularly maintain the property (floors, walls) maintain and replace unusable equipment cover any major repairs

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Your property must meet these mandatory criteria to be rented out:

• be equipped with mandatory comfort facilities (heating, drinking water, kitchen or kitchenette, sanitary facilities, electricity, and lighting).
• have a minimum surface area of 9 m² with a ceiling height of at least 2.20 m.

To offer a seasonal rental, you are required to register with the town hall and obtain a registration number. Since travelers stay for short periods, remember to provide necessary comfort amenities such as an Internet connection.

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6. Plan for property management

Managing your rental property can be time-consuming, both before and after a tenant moves in. Of course, managing the property yourself allows you to maximize the profitability of your investment.

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However, if you don't have much free time, it may be worth entrusting the management of your property to a professional. While there is a cost, don't be mistaken: managing a rental property can be very time-consuming and stressful. Between viewings, move-in inspections, lease drafting, and day-to-day management, it also requires a certain level of expertise that isn't developed in just a few weeks. Entrusting your property to an agency will slightly reduce your profitability (between 4.8% and 9.6% of collected rents) but will provide you with greater peace of mind.

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7. Enhance your loan application with a mortgage broker

To make the best possible investment, you need to secure the best loan offer! To optimize your application, the ideal approach is to work with a mortgage broker.

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In addition to helping you put together your application, a mortgage broker helps you compare banks to secure the best financing, with the best interest rates and the most favorable borrowing terms possible.

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Likewise, you can benefit from their expertise to best guide your rental investment project, whether in terms of property type, location, or tax optimization.

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8. Aim for reasonable profitability

Some rental investments offer better profitability than others, such as short-term rentals, which can yield up to 8%. However, these require more management and involve a higher risk of vacancy.

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Rather than aiming for high profitability, it is in your best interest to focus on a property that is easier to manage, with a reasonable return of 3% or 4%. Remember that in any case, a rental investment will earn you more than any savings product!

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9. Take out rental income insurance

To secure your rental income, there is nothing like rental income insurance. This policy protects you in the event of one or more missed rent payments by requiring the insurer to reimburse you for the uncollected amounts.

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This insurance is particularly useful for long-term rentals if you rely heavily on the rent received to pay off your monthly mortgage installments. It will cost you between 2.5% and 5% of the annual rent. Be sure to compare offers from different insurers before signing up!