Real estate investing can be exceptionally profitable today, provided you make the right choices before investing.
Should you buy a home on credit or cash?
Even if you have the means to pay cash, it is not necessarily the most advantageous solution for you.
Rental investors deduct, as we know, the interest on their property income. The more they are taxable, the more they are interested in getting into debt. Ultimately, the actual cost of borrowing can be reduced by half when the marginal tax is at 50%, which can sometimes be the case when social security contributions are taken into account.
On the other hand, if nominal borrowing rates are low, their actual cost is not negligible because of the low level of inflation.
Fixed-rate or variable rate?
Nominal rates are low even though their real cost is relatively high. They are unlikely to fall below current levels, like inflation elsewhere. Better to go into debt at a fixed rate: you will know precisely the amount of your deadlines, and you will be the winner if inflation starts again.
Small or large surfaces?
The question arises only for rental investors seeking the best profitability.
Small areas are priced proportionately more expensive: their rental yield is higher.
In some “expensive” cities, small areas are more easily accessible to small investors. In case of a real estate crisis, they better resist the price and sell more quickly—tenants “spin” faster, allowing for more frequent rent adjustments.
But this fast rotation often results in frequent reclamation costs, especially since these types of tenants are generally less careful and sometimes subject to financial difficulties, synonymous with unpaid rents.
Prospects for real estate gains are also less critical for small businesses. Generally, high returns go hand in hand with poor capital gains.
Go through an intermediary?
Transactions between individuals save the commission of the intermediary.
The intervention of a professional (real estate agent or notary) guarantees additional security. The preliminary contract will be written, and you will be able to question its responsibility if some problems arise after that (easements of neighborhood, etc.).
You can also call on him to check particular data (surfaces, the condition of the building, etc.).
Also, professionals have an interest in selling quickly. The goods they market are often evaluated at the right price, while homeowners sometimes overvalue their property.
New or old?
The new is more favored than the old in terms of taxation.
The new property is generally more functional, better insulated thermally and acoustically, and almost always has parking. Fees and transfer fees are also reduced: about 2% in a new property versus 6-7% in an old one.
Finally, the ten-year guarantee and the condition of a new property exclude any risk of important work in the short term.
On the other hand, the new one remains much more expensive than the old one with a surcharge that can go from 20% to 30%. Therefore, the rental yield is lower even if a new home is generally rented at a higher monthly rate. In the same way, the perspectives of capital gains are less critical and less rapid. They are almost zero in the first years.
In some new buildings, the operating costs are high (green spaces, equipment, etc.) even if short-term maintenance is reduced. This is unlike the older properties, where renovation may be required sooner rather than later.
Other advantages of an old building: the choice is much broader, the situation is often more favorable, and you know what you are buying up front.
Finally, pay attention to the quality of construction of a new building. No one knows what our modern materials can withstand over the next thirty years.
Beautiful neighborhoods?
Some investors do not have the means to access “beautiful neighborhoods,” whether to buy a principal residence or rental property.
Those who can choose must favor the right places. This is where the prospects for capital gains are the fastest and the most important.
The rental yield is, however, higher in average or unfavorable locations.
Also, it is possible to select developing neighborhoods that will value the arrival of public transport or new businesses.
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