Real Estate Investing: Strategies, Returns & Risks

Looking for a simpler way to prepare properly for retirement? Want a new source of income on top of your salary? Several options are open to you. Among them, the safest and simplest is real estate investing. In this guide you will find everything you need to succeed with your investment in the property market.

Real Estate Investing – What Is It?

The concept of real estate investing – This is the type of investment that consists in buying a property for a variety of reasons. You may want to rent the property out or to build up an estate with it. The property can be a house, land or commercial buildings, a villa or a studio.

The concept of rental property investing – This is the purchase of a property with the aim of renting it out.

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Real Estate Investing – Is It a Good Idea?

• A less affected sector – It is true that the onset of the crisis had a major impact on many sectors of the economy. Even so, real estate remains one of the sectors least affected by that health crisis. Whatever the consequences of the pandemic, the property market continues to offer investors plenty of investment opportunities.
• Lower interest rates – The arrival of the pandemic considerably slowed transactions in the real estate sector. Despite that, many investors took advantage of the situation to reorganize or to set up their real estate projects for the new year. This, with the goal of changing their living environment and moving to quieter areas with more comfortable interior spaces. Setting up those projects helped keep market prices steady despite the pandemic.

In fact, prices had already started to climb back up. So if you want to buy a property or to invest in real estate, this is the best time, since interest rates are still very low. In France, for example, banks have cut their interest rates, which now range from 0,78% to 1,16% depending on the repayment period you set.

How to Start Investing in Real Estate – The Key Steps

• Set up an investment strategy
• Estimate your real estate returns
• Find the financing you need to invest
• Choose a tax option
• Invest in real estate

Whatever sector you decide to invest in, it is important to have a better investment strategy. In the real estate sector, you have several options when you want to invest. You can choose between acquiring:

• A building
• A residential property dedicated to tenants
• A commercial building

Whichever option you choose, you must determine the budget you need to acquire the properties. It is also essential to define the type of real estate investment you want to make. It can be a rental-yield investment or a wealth-building investment. On top of these options, you can also invest through SCPIs – Sociétés Civiles de Placement Immobilier, France’s collective property funds. Often nicknamed the « paper stone » market (pierre-papier), they are the closest thing the French market offers to REIT investing.

That said, if you want to succeed in rental property investing, it is advisable to choose cities with a dense population. That makes it much easier for investors to find tenants.

Estimating Real Estate Returns

Having a good strategy matters just as much as calculating the rental yield. This calculation lets you assess the different options that are offered to you so you can make a more rewarding choice.

Rental returns vary depending on rental demand, vacancy periods, service charges and the value of your property.

In regions where rental demand is very high, returns can reach 7%, while in large metropolitan areas they range between 3 and 4%. In addition, you can get reductions on your taxes depending on the scheme you choose. Schemes include the Pinel, Censi-Bouvard and Malraux tax regimes.

Finding the Financing to Invest

This is generally the most complicated step if you decide to invest in real estate. Finding a financial institution to take out a loan often involves far too many procedures. Even so, most real estate investors do it because of their lack of capital.

In fact, two conditions must be met if you want better financing. They are:

• The ability to borrow over a longer period
• Keeping the investor’s down payment to a minimum

However, it is also possible to put banks in competition with each other to get the best financing. You must take out a loan over a minimum period of 15 years. Even if the rate set by the bank is very high, you have nothing to worry about, since the profits generated by your investment will be greater.

Real Estate Investing in France – Choosing a Tax Option

The amount of tax you have to pay often varies depending on the property you invest in. You must therefore choose according to your goals and the rate of tax set on each type of investment.

You can also get reductions on your taxes by signing up to the Pinel law, which allows a reduction of 12, 18 or 28% on your taxes depending on your rental period.

There is also the Censi-Bouvard law, which gives you an 11% reduction on your taxes. The choice is yours.

Once the tax scheme has been chosen, all you have to do is invest in the property of your choice.

Enjoying a Profitable Investment

Real estate investing carries fewer risks than other investment sectors. Unlike stock market placements, investing in real estate is less influenced by stock market swings. With the exception of a few problems linked to the deterioration of buildings, it is rare to see a property perish in a short period. In the real estate vs stocks debate, this resilience is one of property’s strongest arguments.

Optimizing the Budget Assigned to Your Main Home

Investing in real estate gives you the choice of becoming the owner of your home. You can choose to pay a monthly amount for the property. That sum will in a way increase or create your estate. Buying your home this way, or investing in real estate, also removes housing tax completely. That will help lighten your bill at the end.

Building Lasting Wealth

Real estate investing is your best option if you want to build lasting wealth, and that, even without a very high income. It is always a good idea to start by buying your main home, then buying other properties to rent out. Why not a second home if you have the chance.

Preparing for Retirement by Investing in Real Estate

Generally, income drops considerably once you retire. By an average of 25%. And worse still, expenses linked to health problems increase. Indeed, for a more peaceful life without financial worries after retirement, investing in real estate is the ideal option. Even if it happens that you are still not a homeowner after retirement, you can always take out a property loan to invest in real estate, whatever your age.

Investing in Real Estate and Protecting Your Family

Renting out a property can also allow you both to build your estate and to put your family in pleasant living conditions. Real estate is a safe haven that is not really affected by swings in the economy. That means that as the years go by, the property must gain value. Investing in real estate protects your family in the sense that even after your death, the heirs of the investment will not have any potential debt to repay on the property. And this is because all financial institutions require investors to take out loan insurance. That insurance takes care of repaying any potential debt in the event of death.

To Reduce Your Taxes

If so many people invest in real estate today, it is because it allows a tax reduction on monthly income. That allows investors to make substantial savings. As an example, the Pinel scheme allows a tax reduction of 21% for 12 years when you make a rental investment in a new-build development. The Censi-Bouvard law, for its part, allows you to make 11% in gains on the price of a property furnished in serviced residences.

Real Estate Investing – Tax Relief Schemes and How to Use Them

• The Pinel scheme
• The Censi-Bouvard law
• Loueur en Meublé Professionnel (LMP) status – professional furnished landlord
• Loueur en Meublé Non Professionnel (LMNP) status – non-professional furnished landlord

The Pinel Scheme

Extended until 2025, the Pinel scheme has been in place since 2014. It offers investors who want to buy new properties to rent out the possibility of benefiting from a tax reduction. This reduction goes up to 21% over a 12-year period. However, to benefit from this reduction when you want to invest in real estate, certain conditions must be met. These conditions relate to:

• The properties covered – When it was first set up, only new-build properties or properties still under construction benefited from the advantages of the Pinel scheme.

Some time later, certain older homes began to benefit from it as well, provided they were not only fully renovated to as-new condition but also sold with 20% VAT applied. Apart from the condition of the property, the latter must also reach a certain energy performance level before being eligible for Pinel. The required energy performance level varies depending on the condition of the building that is the subject of your real estate investment.

• The location of the property – If you want to take advantage of the benefits of the Pinel scheme, the property you want must be located in an area where many people are looking for housing and cannot find it. Zones A, A bis or B1.
• Eligibility for the scheme – Properties whose tenants have an annual taxable income that does not exceed a certain ceiling are eligible for the Pinel scheme. That ceiling varies depending on the zone where the property is located and the number of people living in it.
• Maximum rent – the rent set by any investor wanting to benefit from the advantages of Pinel must not exceed the ceiling set by law. This rent must normally be 10 to 20% lower on average than the rental price in cities where there is more rental demand than supply (high-tension property market zones). This reduction in rent is offset by the gains made on the reduction in taxes.
• Rental period of the property – Any rental property investor will only benefit from the tax reduction if they offer the property for rent for a minimum period of 6 years. It is possible to extend this period up to a limit of 12 years if possible.

Key Features and Benefits of the Pinel Scheme

The tax reduction when you invest in real estate depends on the period during which you will rent your property out:

• For a 6-year rental period, the reduction is 12%
• For 9 years, the reduction is 18%
• For 12 years; the reduction is 21%.

To invest in real estate and benefit from the tax advantages of Pinel, the cap on the amount to invest is 300 000 € per person and 5 500 € per square metre of living space.

Here is a table presenting your yearly tax reductions depending on the length of time your property is rented out, with a cap of 300 000 €:

With an investment of 300 000 €, when you apply the Pinel law to your property over periods of 6 years, 9 years and 12 years, you will get tax reductions of 36 000 €, 54 000 € and 63 000 € respectively.

Finally, in the event that the investor fails to meet the rental conditions of the property, they will have no other choice but to repay the tax reductions of the last three years. However, in the event of death, or of a category 2 disability, the heirs of the property do not repay any tax reduction.

LMP and LMNP Statuses

You can also benefit from several advantages thanks to the Loueur en Meublé Non Professionnel (LMNP) and Loueur en Meublé Professionnel (LMP) statuses when you decide to invest in real estate.

LMP – If an investor does not earn more than 23 000 € in income each year and the total rent they receive does not exceed 50% of the tax they pay, they are considered LMNP. That allows them to choose a tax regime between the Micro-Bic regime and the real regime.

LMNP – The investor is necessarily subject to the real regime and can deduct the property deficit (déficit foncier) from their overall income with no cap.

The Censi-Bouvard Scheme

In place since 2009, the Censi-Bouvard scheme offers investors an 11% tax reduction on the invested ceiling and the recovery of 20% of the VAT. This reduction is offered only in the case of investments in a new-build property, and to investors who have not signed up to LMP status and who invest in serviced residences.

Unlike the Pinel law, the Censi-Bouvard law does not necessarily require properties to be located in a high-tension property market zone or the tenant’s income not to exceed a maximum. However, the conditions relating to the rental period and the type of property remain the same.

Indeed, the property must be located in a serviced residence such as establishments:

• Welcoming the elderly, students or people with disabilities
• Housing people who need care

As for the rental period, to benefit from the tax advantages of the Censi-Buvard law, a minimum rental period of 9 years is required. Any investor who does not meet this condition will have to repay the tax reductions already received.

Key Features and Benefits of the Censi-Buvard Scheme

On an investment of 300 000 € in a property, the investor will receive a tax reduction of 33 000 € over the 9 years. That is a reduction of 3 630 € per year.

It is also possible for Censi-Buvard investors to recover the VAT when the rents are themselves subject to VAT. The Censi-Buvard law prohibits renting the property to members of the investor’s family. But the latter offers other advantages such as:

• The possibility of entrusting the management of the property to a manager
• High profitability

Bourse Immobilier : Today, one of the most effective ways to make your money grow is to invest in real estate. It means acquiring a property with the aim of turning it into a steady source of income in order to profit from it. However, it is essential to take certain factors into consideration in order to invest well in the property stock market. Discover here how to invest well in the property stock market.

Bourse Immobilière – What Is It?

To help you determine what to invest in this year, here are a few explanations about the Bourse Immobilière.

• Bourse Immobilière : The Bourse Immobilière is a French platform specializing in the management of real estate business. It was created in 1980 in Bordeaux with the aim of supporting private individuals who want to invest in property through the stock market. To foster closeness with its clients, it has several centres in the different départements of France (French administrative districts). In fact, the Bourse de l’Immobilier came into being thanks to an association of independent professionals, agencies and companies working in the sector.
• The services of the Bourse Immobilière : In its desire to meet the various needs of its target clientele, the Bourse Immobilière has introduced a whole range of innovative offers. These include, among others, a set of customer services grouped into a pro mandate, and many others besides. For example, the catalogue of new services in the real estate sector. Beyond that, the group also offers online platforms and applications providing access to important stock market information in real time. Not to mention the many offices the Bourse Immobilière has to let you invest in property online more easily.

Why Invest in Property Through the Stock Market?

• Building tangible wealth – Many arguments justify investing in property. Indeed, investing in real estate through the stock market allows you to build tangible wealth in your name over the long term, since the asset acquired is an estate you can keep. What is more, its value is likely to increase over time if you have taken into account everything needed to make a good investment.
• Rental property investing – The advantages of rental property investing are many. Indeed, it allows you to finance your property in order to increase its perceived value on the Paris stock market. This, with the aim of using it as your main home later on. It is an advantage that investors keen to acquire and maintain a large property over the long term cannot ignore. It should also be noted that the real estate sector goes through bull traps, a system that works out very well for the investor.
• A simple way to save money – You want to put your money somewhere safe in critical periods but you do not know how to go about it. Investing in the property stock market can be an excellent way to achieve your goal. Indeed, it allows you to preserve your capital without taking risks in the face of the uncertainty of the financial markets.

Tips for Investing in Real Estate – Bourse Immobilier

• Investing in real estate through stocks
• Investing in real estate with ETFs
• Rental property investing
• Bourse Immobilier
• Investing in real estate abroad
• Discover where to invest in property with no down payment
• Investing small amounts in the stock market.

Rental Property Investing Without a Down Payment

When it comes to investing in real estate, the most obvious option is rental property investing. Indeed, it allows you not only to keep your money, but you also have the possibility of building tangible, lasting wealth. In addition, it offers you the possibility of generating passive income over the long term.

Since the property you buy is rental, you have the possibility of offering it to third parties and collecting monthly rent. Thus, the advantages of this type of stock market investment in real estate or on the European stock market are many and guarantee you substantial profits. Let us remind you, however, that you must think carefully before making a stock market investment in order to guarantee its profitability.

Investing in New-Build Property

Instead of rental property investing, you can also invest in new-build property. Indeed, this solution is every bit as advantageous, in that it allows you to shelter part of your purchase from tax. Let us remind you that it is also possible to combine the two investment methods. That is to say that for your rental project, you acquire a new-build property. That allows you to benefit from a double advantage by capturing the positive points of rental investment and those of new-build investment.

Moreover, with new-build property, you benefit from a tax deduction of 12 to 21 % of the value of your property. This is possible thanks to the Pinel law, extended until 31 December 2025, which allows you to invest in real estate without a down payment. And this, for a rental period of 6 to 12 years. The Censi-Bouvard law also offers an advantage for furnished properties and non-professional furnished landlords. It is a reduction of 11 % of the purchase price on the taxes to be paid over nine years of rental.

Investing in Real Estate Abroad

Today, more and more French people are attracted by investing in real estate abroad. Indeed, some countries or locations represent veritable tax havens for investors. That is to say that in these countries, the capital invested in real estate is not taxable. The same goes for the profits you draw from your investment. However, according to the laws in force in France, certain conditions must be met before accessing this privilege. As a general rule, your tax household as well as the major part of your economic activity must be established in France.

Where to Invest in Real Estate in France?

Some cities are more profitable than others, with high capital-gain potential and very attractive prices. Thus, if you are looking for an advantageous place to invest in property, you can turn to these regions. In France, for example, we can cite cities such as Rouen, Lille, Paris, Villeurbanne, Grenoble, Toulouse, Nantes, Montpellier, Rennes, Reims, Lyon, and Marseille.

Moreover, if you want to invest in the stock market directly abroad, we recommend attractive cities such as Lisbon in Portugal. The cities of London, Berlin, Madrid and Frankfurt are also an excellent choice in terms of property investment.

When to Invest in Real Estate?

In general, it is advisable to start your financial investment very early. In other words, you must start investing in real estate young. This method means starting your investment between the ages of 20 and 30. That gives you the opportunity to take out a long-term property loan for your project. Thus, you can start repaying earlier at a low rate. Investing in property young also allows you to benefit from your asset over the long term. With time, you will be able to increase your estate by buying new properties.

Also read: The Best Passive Investments to combine with your real estate investing strategy

Should You Invest in Real Estate?

Yes! Based on the results already recorded among private individuals and on the global stock markets, real estate investing is an excellent investment. Indeed, it allows you to build tangible, lasting wealth in your name, and property tax will be calculated on the tax basis . In addition, it combines profitability, security and tax advantages, in that it involves less risk than other investment methods. Not to mention the fact that it allows you to create a source of extra income while benefiting from tax advantages. Finally, there are advantageous offers today that make real estate investing accessible to everyone.