In 2021, the French were very interested in investing in property: nearly 1 in 6 French people said they had a real estate project within 12 months. There are two reasons for this: first, it is cultural. By comparison, in 2021 in Canada, there were approximately 600,000 real estate transactions compared to 1.17 million in France, the same year. The second reason is simplicity: you buy, you own. And finally, the icing on the cake: real estate is the only investment that has a double leverage effect, since you can earn on what you buy and what you borrow (when rates are low, for example).
But in order to make a successful rental investment, you need to rent your property at the right price! How to estimate the rental value of a property? Don't panic: let's see how to make your rental investment a success!
What is profitability?
We estimate the rental value of a property in particular by looking at its profitability. But what is it exactly? Let us take an example.
Let us imagine that you have a property acquired for 200 000€. You rent this apartment for 900€ per month gross, that is 10 800€ per year. This is what we call the gross yield. Five years later, you decide to sell this apartment with a capital gain of 5,000€, or 205,000€. The gross return is then the total amount of your return, i.e. €10,800 per year for five years, plus the capital gain on the resale. At the end of the operation, the profitability of your property is therefore 59 000€!
To summarize, the return is the profit you will be able to make from your investment object, i.e. from the rents. It is what it produced. While the profitability is what you will earn at the end of the operation, thanks to the final capital gain and the return generated during the whole period of detention.
How to know the net yield of my property ?
As you can see, when we want to know the rental value of a property, we are interested in its yield. Be careful, however: remember to make a distinction between your gross yield and your net yield. As we mentioned earlier, the gross yield is the rent you receive over a year. If the rent of the rented property is 900€, then it brings you 10 800€ per year. But as you can imagine, this is not the exact amount you will receive. And to know what exactly you will collect, you must calculate your net return.
The net yield of your property is the rental income that it produces from which you must subtract the various charges related to the rental investment of the property. These different charges can be the property tax and garbage tax, your management fees, whether direct, i.e. yourself or via a property manager, your insurance, your work, your taxes, social security contributions, etc.
In order to get a better idea of your investment and its net return, don't hesitate to make a precise assessment of your tax burden: what is your tax level? Are your assets subject to property wealth tax? Do your assets generate income from property or BIC ... ?
The more precise you are in the evaluation of your expenses to be subtracted from your gross yield, the more you will be able to apprehend your financial situation during your rental investment operation.
Let's go back to the example given earlier and the 10,800€ gross income from your rented property. Once the charges are deducted, we estimate that the net yield of this property is 4500€. So there is a real difference! To avoid unpleasant surprises, it is always better to calculate your net yield.
Moreover, the yield is always calculated with respect to the price of the property updated, hence the importance of having an up-to-date valuation!
How to evaluate the rental value of a property ?
When you want to know the rental value of a property, you must first look at the value of the property itself. And for that, you can for example make estimate your good by taking into account the geographical sector and its typology.
The estimation of a property, especially in terms of rent, can be difficult, especially in large cities like Paris. To do so, you can use certain tools and methods, but you can also take an interest in the rent control in Paris.
Once your estimate is done, it will be possible to determine what type of rental you can offer and at what price. For example, if your property is a T4 located in a small village in the Creuse, it will not be relevant to propose a furnished apartment to your future tenants! On the contrary, if you own a T2 in Paris, furnished accommodation may be an option to consider! You can also decide on the duration of the lease you wish to offer.
How can I optimize the profitability of my property with a furnished rental?
Furnished rentals are THE superstar of rentals! Indeed, furnished rentals are making a tremendous comeback in the rental industry after the health crisis of 2020.
But first, let's be clear about what is meant by "furnished housing": it is a housing composed of a minimum of movable services in which the tenant can move in immediately. You therefore commit to provide at least the essentials for your tenant to sleep (bedding, comforter or blanket), cook and eat (hotplates, oven or microwave oven, refrigerator, freezer, kitchen utensils and dishes, table and chairs), or even clean (cleaning equipment). You should also provide comfortable living quarters by offering ruffles or curtains in the bedrooms, light fixtures and storage shelves. If you want to know more, you can easily find the exhaustive list of equipment for a furnished property on the public service website.
As far as management is concerned, there are two types of furnished rentals: classic furnished rentals, where you, the owner, are the manager and operator; and furnished rentals with a commercial lease, which means that the management and operation of your property are entrusted to an outside operator.
To optimize the profitability of your rental investment, you can take an interest in the energy diagnosis of your property. Pay attention to the standards in force. They evolve regularly and tend to become stricter. For example, you have until January 1, 2028 to carry out work to bring your property up to standard if its energy performance is below F. And this is not a recommendation, but a law that you must respect!
In conclusion
The estimation of the rental value of your property is therefore essential! It will allow you to define your investment strategy to optimize its profitability. By defining an informed investment strategy, which takes into consideration your investment objectives but also your situation and the situation of your property, it is essential to make a "good" investment.
One last piece of advice: don't hesitate to get information and to keep yourself informed about the current legislation regarding rental. This will allow you to make your choice but also and especially to secure your investment!