A new rental investment is, at the beginning, more expensive than an investment in the old one, but it seduces many candidates eager to invest in a more personalized quality property. The operation must be well prepared if one wants to take advantage of its benefits in terms of profitability and/or to enhance one's real estate assets. Ever Invest examines for you this type ofrental investment.
How to invest in new real estate
Investing in a new home is a project that sometimes requires more preparation than investing in an old home, because in most cases, the walls are not yet there. We will
Therefore, it is important to build a house, often by choosing a VEFA (sale in future state of completion) through a developer and a real estate program. Then, as for any rental investment, it is important to plan the financing, the profitability ratios and the right tax package.
Choosing a new rental property
If it is done on plan, this offers the advantage of having a choice between different surfaces, according to one's budget and according to one's preferences in terms of targeted tenants. Another advantage of buying a new property is that it is easy to personalize and can be easily optimized with custom-made equipment and small details such as wall, floor or partition coverings.
If one expects more personalization from a property, it should never be done without a good study of the location. It is important to choose a neighborhood with potential, i.e. a shopping area, close to schools and facilities such as transportation and sports and cultural facilities. It is even recommended to look further ahead, i.e. to foresee the future evolution of the area by consulting the local PLU. If the urban fabric is bound to change, with the construction of various facilities, the real estate is bound to increase in value, which is a good point to secure the investment. Investing in a new property allows you to hope for a capital gain on resale and to avoid the risk of rental vacancy.
To know more
A real estate program in a dynamic area will often be accompanied by an increase in the value of the neighborhood, which will hopefully improve the rental market, with the possibility of increasing the rent. Investing in a new property allows you to foresee a nice increase in value of your property. The only drawback is that you must respect the rent ceiling if you have used the Pinel scheme.
To invest in a new home, you need a mortgage. The leverage effect of the credit, indeed, plays in the new as in the old. The only difference is that in the new housing market, loans and properties are currently rarer. To grant them, banks have become even more careful about the resources of households. The new measures announced by the State in mid-December 2020, provide that it is no longer based on a maximum household debt ratio of 33%, but 35. For even more security, they will include the cost of credit insurance in the household's expenses each month. Nevertheless, to encourage access to credit for the most modest households, the State also plans to increase the maximum loan repayment period from 25 to 27 years, which will be of great interest to purchasers of new housing, particularly in VEFA.
Focus on the PTZ
Do not be mistaken! The PTZ, the zero rate loan, is a measure extended by the authorities in 2021, but it does not concern real estate investors, but only first-time buyers wishing to finance their primary residence.
The profitability of new real estate
It is known that the cost of a new home is more expensive per square meter than that of a home in the old. What's more, in the context of the current health crisis, as prices in new housing are soaring, following the halt of many construction sites in the spring of 2020 and the drop in building permits issued. The profitability of new real estate is therefore destined to fall, while it is already traditionally lower than in the old (count an average of between 2 and 3%, against 5 to 8%). To find the right property, it is advisable to choose the best compromise between cost, location and surface area. Consider that a studio apartment will be a good source of profitability if you have a small budget. Chosen in the heart of a student city or one populated by young professionals, renting it will not pose any problem. On the other hand, a lower profitability is observed for large surfaces, but they generate good capital gains on resale.
Taxation of new buildings
Several possibilities are offered at the fiscal level to invest in new real estate. Not all of them are equivalent and must therefore be carefully studied according to the specificity of each project. We will examine here the most interesting and most used ones, that is to say the LMNP status and the tax exemption schemes.
This status allows you to benefit from certain tax advantages through a rental investment in new buildings. It has the particularity of subjecting the rental income to the industrial and commercial profits regime. The LMNP also allows you to deduct the rental charges from your income, according to a fixed rate of 50% if you use the micro Bic system, or in full, plus depreciation if you opt for the real system. A rather favorable system, therefore, for investing in new property, even if it obliges you to turn to furnished rental.
The Censi Bouvard system
A tax reduction called "Censi Bouvard" also applies to non-professional furnished tenants who choose to invest in rental real estate in service residences, with housing located in EPHAD or in university residences. The tax reduction is 11% per year calculated on the purchase price of the property, up to a limit of 300,000 euros. However, the property must be rented for a minimum of 9 years, and furnished.
The Pinel device
This is the most highly touted scheme for stimulating rental investment in new property. In fact, the Pinel law, which this year's finance law extended until December 31, 2022, is particularly appreciated by those who turn to new real estate for tax exemption purposes. It offers attractive tax benefits in the form of an annual tax reduction proportional to the price of the property. It allows you to benefit from reductions ranging from 12 to 18%, depending on the length of time the property is rented out, i.e. 6 or 9 years, which can be extended to 12 years. The overall amount of the maximum tax reduction is 300,000 euros.
Very popular, the Pinel device has some constraints to balance with the expected tax reduction.
- If it allows bare rental, unlike the LMNP, the law limits it only to areas where the rental tension is strong. These zones are for 2021, the zones A, A bis and B1.
- The Pinel law also provides for rent control, with price ceilings
per square meter varying according to the zone concerned. The resources of the tenants are also capped, as well as the number of authorized investments, limited to 2 per year.
- The energy performance of a Pinel property must meet certain criteria set out inarticle 46 AZA octies-0 Adeof Annex 3 of the General Tax Code.
- A Pinel investment must be rented as a principal residence. Unlike the LNMP, it excludes certain types of highly profitable rentals, such as seasonal rentals.
Tips to know
Investing in a new property under the Pinel scheme is often chosen to defiscalize income for a few years with the intention of reselling the property afterwards. Nevertheless, some investors opt for a middle ground and switch their property to furnished rental under the LMNP status at the end of the tax exemption period.
Investing in a new home: pros and cons
Investing in new rental property rather than old is a choice that can be made. In addition to tax incentives, there are other good reasons why some people prefer new construction to the charm of the old.
Advantages of investing in a new home
The public authorities are not content to encourage rental investment in new buildings with tax reductions. Other reductions come on top of these advantages:
- Reduced notary fees, with transfer duties of between 2% and 3%, compared with 7% to 8% in the old building.
- Exemption from property tax during the 2 years following the purchase of the property. This period allows you to collect rent and start repaying your loan without paying property tax.
- Another advantage of a new property is the quality of its energy performance, thanks to the implementation since January 2021 of the RE 2020 standard. This standard calls for the use of bio-sourced materials to reduce greenhouse gas emissions from buildings. Healthier, the buildings also become less energy intensive, with priority given to "clean" heat sources. The result? Greener housing in line with the concerns of younger generations. An opportunity when renting these homes to attract quality tenants who will appreciate this "plus" of housing and will therefore be less inclined to move.
- Among the other advantages of this type of rental investment, we should also mention that new homes require little or no renovation work. In addition, they benefit from the builder's after-sales guarantees: two-year warranty, ten-year warranty, builder's warranty, etc. This is a real guarantee of peace of mind for new owners, who can move straight on to renting once the work has been completed. They forget about the worries caused by hidden defects: cracked walls, water leaks, etc. (these imponderables coming too often, unfortunately, to sabotage the calculations of profitability scaffolded at the time of the acquisition of the property).
The disadvantages of investing in a new home
- Before making an investment in a new home, it is often necessary to be patient, because a home purchased off-plan takes an average of 2 years to be built and delivered.
- Beware of the profitability of a rental investment in the new. The purchase price per square meter is higher (currently around 4,200 euros per square meter in the regions, compared to 5,500 in the Paris region).
- You must also beware of the mirages of tax exemption, especially with regard to a real estate investment under the Pinel law. Many traps exist.
The most common is to avoid the question of profitability by being dazzled by the advantage of tax reductions. The risk is to invest in a debt, which will drag negative cash flows every month, and will not even be repaid once the period of tax gifts is over. We know that today, only 50% of the investments under the Pinel law are profitable at the end of the period, which is logical if we consider the ceiling on rents (these new homes are rented on average 20% less).
- Add to that the fact that some real estate programs can be dishonest, offering sale prices far above market prices, presenting themselves as "all-inclusive", with very poorly negotiated rates for loan insurance (loan insurance and disability-death insurance).
- The choice of the real estate program is also a sensitive issue, because a real estate project that does not succeed can become a real nightmare for the investor. To avoid this risk, it is advisable at the outset to take particular care in choosing the developer. Some basic precautions are necessary by verifying its professional reputation, its financial solidity as well as by inquiring about its previous achievements. A good practice is to go and see the quality of their services on site.
To conclude, it is important to know that in new real estate, one can expect less profitable investments, but more prudent, in particular to build up a real estate portfolio with a view to passing it on. We also expect this investment to be sustainable, with buildings that will benefit from optimal energy performance and good quality of construction.
Despite a relative shortage of property that is likely to continue until 2022, it is still wise to think about investing in new housing. But the greatest care must be taken in the choice of the developer and the construction, and the advantages of a tempting tax exemption must not make one forget, also, the imperatives of profitability and the prospect of a resale.