Why invest in real estate , and especially rental investment.
And even if we love stone in France, real estate has pitfalls and requires a lot of research before getting started.
But all this work has an advantage: the rental investment can be very interesting.
In particular because it has many strengths, which I will detail in this article.
Here are some of the top reasons to invest in real estate .
1.To take advantage of leverage
One of the big advantages of real estate investment? You can take advantage of what is called “leverage” of credit.
Leverage is the act of using debt (especially money you have borrowed from the bank via credit) to invest. The result is that leverage can multiply a project’s potential returns .
But at the same time, leverage will also multiply the risk if the investment ultimately performs poorly.
By borrowing, you can buy more real estate than you could afford if you decided to pay “cash”.
And this leverage effect is all the more interesting if you want to make rental investment.
Why ? Quite simply because the monthly payments you pay to repay your credit can be partially (or in some cases, totally) reimbursed by the rents you collect.
This is an advantage of real estate, because taking advantage of the leverage effect on the stock market is very complicated .
You can technically borrow money to invest in the stock market , but experts tend to advise against it because it’s a particularly risky technique.
And while it is now possible to invest in the stock market from a few cents , you will not be able to buy real estate for so little.
This is also where leverage becomes interesting. And it is also what can allow some to invest in young real estate.
But beware: again, this is not a winning strategy every time . If your property does not rent properly, or if your income drops (or disappears), you will still have a loan to repay every month.
You should of course first ask yourself whether or not using leverage is suitable for your situation. Discuss it with your advisor for personalized advice.
2.To have a smaller savings effort to make
As we said just before, making a rental property investment has another big advantage:
Rents can cover part (or all for some) of the monthly payments you pay to repay your property.
Your property is therefore partly financed by your tenants.
Even if you have a savings effort to make (and expenses such as unforeseen work, housing tax, etc.), this effort may be less important than investing a sum every month in the markets finance, for example.
3.For its “security” aspect
I would like to preface what will follow by the fact that I do not think that real estate is a “safe investment” , despite what we hear everywhere.
Overall, it’s true: real estate tends to appreciate (appreciate) more than depreciate (lose).
And your objective in investing in real estate, of course, is to invest in properties that will not lose value over time, but rather increase in value.
However, as with any investment, a real estate investment is not necessarily profitable .
You can invest in a property that will ultimately gain little or no value over time. Or have far too high unforeseen costs. Or not planning the tax aspect correctly. Or be impacted by extended rental holidays and/or damage.
On the other hand, you can reduce the chances of making a bad investment by doing thorough research before you start, whether on:
- The neighborhood in which you are investing
- The tax regime you will choose (bare rental, LMNP , etc.)
- Appreciation history in the area you are targeting,
Do not hesitate to be accompanied by professionals who can guide you and answer your questions.
I still hear very (too 🤭) often say that real estate is a “better” investment than the stock market because you don’t “need to know about it”.
If you want to make a good investment, you will need to educate yourself a little .
The worst thing you can do is invest in something you don’t understand – whether it’s the stock market or real estate.
5.To provide you with additional retirement income
Depending on the age at which you invest, it is possible that the credit for your rental investment will be repaid before you retire.
The advantage is that you can then:
- Either live in the accommodation without having to pay rent
- Either leave it for rent to receive additional income every month in addition to your retirement
Other savings products also make it possible to generate additional income in retirement ( such as the PER , for example), but this is also a point to note for real estate.
6.To take advantage of tax benefits
Here too, we must move forward with tweezers.
Because in real estate, there are many tax exemption schemes that seem very attractive from the outside…
… but which are not necessarily of good quality when you really dig.
In theory, the Pinel has everything to please since it brings together two French national sports: real estate investment, and seeking to pay less tax .
But in practice, the Pinel also has serious drawbacks, which often make it an investment that can easily be unprofitable.
The problem is that many people get into it attracted by the tax carrot 🥕, without realizing that without studying your project thoroughly, you can come out a loser after investing in Pinel.
Or at least much less winning than doing another type of editing.
However, you probably hear about Pinel everywhere. And that’s largely because those who promote them get very good commissions for offering them.
That’s not to say that all Pinels are bad, but it’s not the “miracle” solution that many make people believe.
On the other hand, there are also certain statutes that are very interesting for tax purposes for investing in rental real estate.
6.For an easier transfer of wealth
Rental real estate can also be interesting with a view to passing it on to one’s children.
This is particularly true because it is possible to prepare and optimize one’s succession using several strategies (for example, the creation of a family real estate civil society ).
Of course, real estate is far from being the only solution for an interesting transmission.
We can also, for example, take the case of life insurance, which makes it possible to transmit up to more than €152,000 to its beneficiaries without paying inheritance tax.
7.To diversify your investments
By definition, real estate investment is not necessarily the most diversified . We generally buy a single property to start with, for a large amount, in a single geographical area.
But as a complement to other types of investing (for example, investing in the stock market ), adding real estate boosts your diversification .
As we said, the French already tend to be well exposed to real estate, but it all depends on your personal situation and your own investments. It’s all about not putting all your eggs in one basket.
Everything will also depend on your ability to take risks and/or your investment horizon, for example. You (or your financial adviser) will therefore be able to determine an allowance that is right for you.
You should also know that there are also other ways to invest in real estate than buying a property to rent ( like SCPIs , for example).
8.To generate “cashflow”
As we have said several times in this article (I tend to ramble) , it is sometimes possible that by making a rental investment, the rents cover more than the expenses related to the repayment of our credit and the expenses related to our accommodation.
So you have a cash flow every month.
This is called being cash flow positive .
Of course, finding a property that gives you a positive cash flow takes a lot of research, calculations and considerations.
But it is an advantage compared to other types of investment. In the stock market, generating regular income is more complicated (although not impossible).
Some companies pay dividends, but the operation is a little different, and you will often need a good amount invested to receive attractive dividends.
9.For forced savings
Many people think of real estate as what is called forced savings .
That is to say that by investing in real estate by borrowing, whether for your main residence or your rental investment, you will necessarily have to repay your credit.
And it’s sometimes easier to stick to it than to decide to save every month to place in your Equity Savings Plan , for example.
Here too (as with everything), it all depends on your own circumstances and how easy or not you are to set aside.
10.Because real estate is tangible
This is not necessarily a point that is important to me, but I know it is for many: the “tangible” aspect of real estate.
Investing in assets such as stocks or bonds may seem a little “fuzzy” to some. You only see what you own – and what you earn – virtually in your investment account.
Real estate investing is buying a physical asset, which you can see and touch. And there is always the possibility of living in it if necessary.
Of course, the downside is that since it’s tangible (and literally real estate – you can’t move it), selling it will take longer than most stocks on the stock exchange, for example , which you can often resell in just one click.