Real estate is a worthwhile investment because it enables a buyer to build up their personal (or household) capital, earn additional revenue, and benefit from tax advantages. But how do you get started? Find out how in our article dedicated to first-time investors.
The first step is defining your objectives
Before getting a real estate project underway, answering the right questions and defining a specific objective are essential. Why invest in property? What requirement will the property need to meet? Will it be your main residence, will it provide accommodation for a family member? Or is it a buy-to-let investment?
According to a survey by Crédit Foncier last year, 27% of real estate investors buy a property with the aim of renting it out, and to have an asset to sell in the hope of making capital gains. And 45% opt for investing in property for the additional revenue it generates during their retirement.
The next step is preparing for financing the property
To stack all the odds in your favour, think ahead and prepare everything you will need for financing the property in advance! Obviously, once you have found the property of your dreams, having all the documents ready will make the whole process quicker and easier.
But what preparations for financing the property will you need to make? Firstly you need to go and see a financing structure, in most cases a bank, to assess your financing capacity and put together an application for a mortgage.
A list of documents you will need to provide including proof of ID, marital/family status and place of residence, wage slips, and documents indicating the amount you can put down towards the price of the property, are required to put your application together. Other documents such as a statement of any existing credits, or your investments, are optional.
Define the zone you would like to invest in
Depending on the nature of their real estate project, investors may prefer a certain region or a certain city. Cities where My Expat is present are Paris, Bordeaux and Lyon. Dynamic economies, good employment rates, rising populations and high numbers of students mean real estate investments there are sound and profitable.
Lyon attracts 6,000 new inhabitants every year. By 2025, there will be 185,000 students in the city of Lyon alone. Alexandre Schmidt, President of the Fnaim in the Rhône tells us that rental yield in the city is very good. The same is true for the city of Bordeaux, where numerous development projects are being examined. The city has many advantages in the eyes of investors, especially the high number of students, the fact the city is booming and its dynamic nature.
The choice of city to invest in is intrinsically linked to the aim of your real estate project. In the context of a buy-to-rent investment, it is important to take into consideration the rent you may be earning. The level of rent should be higher than the monthly repayments on your mortgage.
Remember to find out about your tax situation
The tax situation with your real estate project plays an important part in the yield of your investment, since it can lighten your tax burden on rental income. Sometimes it will even determine the type of investment and the objective of the investment.
When the property is let out empty, certain charges are deductible, especially works or the interest on your mortgage. If those charges are very high, higher than the rent you receive, this is known as a real estate deficit. If that is your case, you pay less tax.
If you furnish your apartment before renting it out and acquire the status of “LMNP” (non-professional lessor of furnished real estate), your charges will be lower. Even better, only 50% of your rental income will be subject to tax (up to a limit of €33,100).
For your own comfort, make sure you get help from the most competent sources
The first steps towards a real estate project can seem complicated if you do not have the right guidance. To give you confidence every step of the way, it is important to have trustworthy partners you can rely on, especially when you are undertaking the transaction from a different country.
Finding a bank to back your project up that proposes solutions which are well-suited to your circumstances will make it easier for you to put together what you need to finance your project. Without which, it will be difficult to get a real estate investment underway. It is also essential for an expat to work with a trusted partner to transfer money and manage documents for administrative purposes.