Despite an improvement in the conditions for accessing real estate credit, investors are hesitant to put more property into their portfolios. However, “on average in mid-July, interest rates on loans were hovering around 3.65% over twenty years and they should reach 3.3% by the end of the year”, says Caroline Arnould, CEO of the credit broker Cafpi.
Even if the economic situation is still shaky, this asset retains its advantages in a diversified portfolio because it ensures interesting returns and a certain stability. Three alternative avenues to explore at the moment.
Temporary dismembered real estate
If your tax burden remains high and you are also liable for property wealth tax (IFI), it is not wise to add real estate to your assets. Unless you bet on temporarily dismembered real estate! Technically, it involves buying the bare ownership of a property, namely the walls, while its usufruct – the right to rent it – is transferred to a social organization that will offer it to modest tenants and collect the rent. During the dismemberment period, generally planned for fifteen to twenty years, you do not receive any income and do not incur any charges (work, IFI, property taxes, etc.), since the usufructuary pays them. At the end of the dismemberment, the usufruct is automatically extinguished and you recover, free of charge, the full ownership of the empty accommodation restored by the social operator. Additional advantage: at the time of acquisition you benefit from a discount, since on average the bare ownership is worth between 50 and 65% of the value of the full ownership.
If you are interested, go through an operator specialized in this type of acquisition (Fidexi, Monetivia, Perl, etc.). Most offer new or renovated turnkey old programs. Good to know: this type of investment aims for long-term added value and not immediate profitability. Before you start, be careful about the location of the property and local rental demand. Only invest in dynamic urban areas that will develop in the long term. Finally, find out about market rates so as not to overpay for your bare ownership.
The advice in addition. For a shorter-term investment, look at the secondary market, i.e. properties whose bare ownership is resold by investors before the maturity date. The discount will be less steep, since it essentially depends on the residual duration of the transaction, but you will benefit from the same advantages as if you had invested from the outset of the temporary dismemberment.
The free life annuity
For about ten years, this type of investment has been developing throughout France and allows a seller – called a creditor – to transfer a property that he does not occupy. If a tenant is already in the premises, as a buyer you will have to continue the lease under the same conditions; if the accommodation is empty, you can rent it out. In both cases, you collect the rent in place of the creditor until the end of the transaction.
Additional advantage: you will pay less when you buy, because after being appraised in the traditional way, the free life annuity property benefits from a discount. “It mainly depends on the age of the seller and whether the annuity is paid to an individual or a couple,” explains Sophie Richard, founder of Viagimmo. From this reduced price, the owner determines the amount of the “bouquet”, generally 25 to 40% of the discounted value, which is the sum he will receive in one go when signing the life annuity contract. Then, “the difference between the discounted price and the bouquet is transformed into an annuity, the latter being paid each month to the annuitant until the latter dies,” explains Sophie Richard. Technically, the larger the bouquet, the lower the annuity, and vice versa. Note that the rent must be lower than the life annuity paid. Finally, be aware that upon the death of the annuitant, you will recover full ownership of the property without costs or taxes.
Be careful, although it has many advantages, a free life annuity transaction also has two major drawbacks. First, it requires that you have sufficient cash to pay the life annuity until the end of the transaction, because otherwise it would be called into question. You must also assume certain costs (repairs, property tax, etc.). Then, the rental property cannot be sold while the annuitant is alive, which therefore commits you for an indefinite period.
The advice in addition. The “occupied” life annuity, which implies that the annuitant remains in the premises until his death, also offers great opportunities. The operations are more numerous, the discount is greater and the costs are lower, since only major works remain your responsibility, the routine maintenance being that of the seller.
Multiple tenants
For your rental investment, do not buy studios, whose price per square meter is 10 to 20% higher than the average. If you have the necessary capital, opt for a family apartment in a large city. Since there are more areas of more than 80 square meters for sale, you can easily negotiate its price. “Since spring, the prices of four-room apartments and more have fallen more than the rest of the market, confirms Capucine Brun, director of Nestenn-Le Pré Saint-Gervais (Seine-Saint-Denis). We sometimes find prices from 2016!”
Then offer them as shared accommodation or high-end coliving. The difference between the two? In the first case, the roommates sign a single lease and are jointly responsible for the overall payment of the rent; in the second, you sign a lease per occupant which concerns their room and everyone shares a common space. To attract the best applications, renovate your property from top to bottom. In coliving, each room must have a private shower room and the rent must include all subscriptions (Internet, electricity, etc.) and insurance. Don’t skimp on the equipment and install quality equipment as well as all the usual household appliances. With all these services included, each room will earn you as much as a studio rented in the high range of the city. In shared accommodation, the tenants’ criteria are generally a little lower, so the rent will be a little lower. In both cases, you will still benefit from a profitability that can be almost twice as high as that of a traditional rental.
The downside is that “when a home is rented to several occupants, the day-to-day management is more onerous and the costs are higher,” stresses Maud Velter, co-founder of the site. Ideclaremyfurniture.com. Turnover is also higher. So choose your location carefully, because while shared accommodation is popular with students in university towns, some suffer from an oversupply of this type of property. For coliving, aim for business districts or areas close to transport (especially train stations), because your tenants will mainly be executives on assignment.
The advice in addition. In the Parisian suburbs, in cities near the Swiss border or in Nice and Lyon, opt for the high end. Set your sights on a house with a poor energy label and renovate it from top to bottom. Create a large living room with an open kitchen and connected areas for teleworking. Make the attic habitable, arrange the garden with a terrace with a barbecue and install sports equipment in the basement. All these amenities will attract the best tenants and reduce rental vacancies.
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