An old apartment in a good location, purchased at the right price, can become a money pit if the energy performance diagnosis (DPE) is rated G and the rental ban comes into effect before the end of the renovation work. In 2024, this situation affects a growing number of properties for sale, and it is often the first trap investors stumble into when they want to start in rental real estate investment.
DPE and rental ban: the filter to apply before any purchase
Before looking at the yield or location, we start with the energy performance diagnosis. The regulatory trajectory provides for the gradual prohibition of renting out the most energy-intensive homes. Properties rated G are already affected, and classes E and F will follow in the coming years.
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In practical terms, buying a property rated F or G without having accurately estimated the cost of energy renovation is like gambling. We have seen investors halt their projects for more than a year due to a lack of available craftsmen or because the renovation budget far exceeded the initial estimate. An unfavorable DPE that is not anticipated can nullify all rental profitability.
The ground-level reflex: request the DPE before the first visit, not after the preliminary agreement. And have the insulation work estimated by a professional, not by the real estate agent.
Further reading : New Real Estate Solutions to Facilitate Your Buying or Renting Projects
For those who wish to invest with ALO Immobilier, this type of pre-check is part of the support offered, which avoids discovering the problem once the deed is signed.
End of Pinel and alternative tax schemes for rental investment
The Pinel law is set to end on December 31, 2024. This scheduled phase-out has led to a surge in purchases of new properties by investors who wanted to secure the tax advantage before the deadline.
However, rushing into a new program just to capture a tax reduction, without analyzing the actual price per square meter and the rental levels in the neighborhood, remains a common mistake. The tax benefit does not compensate for an overvalued purchase in an area where rental demand is low.
Denormandie and Malraux: two concrete options in the old sector
At the same time, two schemes are gaining momentum for 2024:
- The Denormandie scheme targets investment in old properties with renovation work, in eligible municipalities. It requires that the renovation work represents a significant portion of the total cost of the operation.
- The Malraux scheme concerns the restoration of remarkable buildings, with tax reductions of up to 33% of the eligible renovation costs. The entry ticket and administrative complexity are higher.
- In both cases, the quality of the location and the actual rental levels in the area remain the true indicators of profitability, not the tax reduction rate displayed in the marketing brochure.
It is noted that many investors compare the schemes solely based on the percentage of tax reduction. The net rental yield is calculated after renovations, charges, and actual taxation, not based on an optimistic simulation provided by a developer.
Calculating rental yield: the items that are systematically underestimated
The gross yield (annual rent divided by purchase price) gives a first indication but masks the reality on the ground. Here are the items that are often underestimated in most simulations:
- Rental vacancy: even in a tight city, planning for at least one month without rent per year remains prudent. Between two tenants, there is the time for repairs, publishing the listing, and selecting the application.
- Non-recoverable condominium fees: facade renovation, replacement of the collective boiler, bringing the elevator up to standard. These calls for funds come unexpectedly and weigh on profitability for several years.
- Delegated rental management: if management is entrusted to an agency, expect to pay between 6 and 10% of the rent depending on the services. This cost mechanically reduces the net yield.
- Property tax, which has significantly increased in many municipalities in recent years.
A gross yield advertised at 7% can drop below 3% net after taxes. Running a realistic simulation with all these items before signing is the only way to know if the project holds up.
Rental management and lease choice: furnished or unfurnished, the impact on your income
The choice between furnished and unfurnished rental is not just a question of taxation. On the ground, feedback varies on this point, but some constants emerge.
Furnished rental (LMNP status) allows for depreciation of the property and furniture, which significantly reduces taxation on the rent received. In return, turnover is more frequent, especially in small units rented to students or mobile professionals. Each change of tenant involves refurbishing the furniture and a risk of vacancy.
Unfurnished rental generally offers longer leases (minimum three years) and more stable management. Rents are subject to the regime of property income, with often less favorable taxation than furnished rentals, except in cases of significant deductible renovations.
Mobility lease: a format to know
For properties located in university towns or near major construction sites, the mobility lease (duration of one to ten months, non-renewable) can meet a specific need. It does not require a security deposit, which attracts certain types of tenants. The mobility lease is suitable for furnished properties in areas with high temporary demand.
A common pitfall: choosing furnished rental solely for the tax advantage, without checking that local demand corresponds to this type of rental. In some medium-sized cities, tenants primarily seek empty homes on long leases.
Before launching a real estate investment project, it saves time to check three points in this order: the DPE of the property, the real net yield (not gross), and the alignment between the chosen lease type and local demand. The rest, including the tax scheme, comes afterward.