Investing in rental property would be a more reliable and profitable source for property investors.
Saving your money in a box (yes, that still exists), putting it in a savings account or deciding to invest it on the stock market is not the way to ensure its long-term future.
So we need to define what rental property investment is, and explain its fundamentals, advantages and risks.
What is rental property investment?
An investment in rental property is the act of acquiring a property with the aim of generating rental income or reselling it at a profit.
The property involved in a rental property investment may be acquired by :
- an individual investor,
- a company.
Rental investment can be a short or long-term project, and very often involves buying and selling. This involves carrying out renovations or work to resell a property and increase its commercial value.
This is known as property dealing.
How does property investment work?
Property investment refers to rental investment properties whose purpose is not to invest in a principal residence.
As a result, they can generate :
- income
- dividends
- interest
outside the owner’s day-to-day activity.
A prudent property investor will carry out market research or benefit from the support of an experienced customer adviser to create a solid financing package.
Investing in a flat in a residential building is therefore a matter of determining the estimated net annual rate of return to create financial assets.
Under the participative shareholding scheme created by SIPA crowd immo, investors are not jointly and severally liable for the amount of the mortgage. The participative investment company buys buildings and condominiums with its own funds and the partnership of its mortgage providers, in the form of a limited company (S.A).
What are the advantages of investing in rental property?
As we have already discussed, investing in rental property can be a way of investing in an investment property, which has a number of advantages:
- Generate additional income, i.e. benefit from attractive returns linked to the property’s rental income.
- Building up a property portfolio, i.e. realising a capital gain on your investment at a lower cost.
- Benefit from property tax relief, i.e. take advantage of a tax reduction depending on the location of the property and the regulations of the municipality concerned.
What are the risks of investing in rental property?
There are certain risks involved, and although they are not inevitable, it is important to identify them so that you can anticipate them and guarantee a return on your investment.
The risks of investing in rental property include vacancy, location, non-payment and unforeseen repair costs.
Location of the property
If the flat or house is not in a good location, tenants will be reluctant to invest.
To avoid this, it is advisable to carry out a thorough study of properties in rental areas.
To do this, it’s best to look for properties close to available amenities, such as schools, shops and public transport. You should also find out about any plans for urban development in the desired location.
What’s more, you need to make sure that the supply of housing matches the demand for rental accommodation.
The risk of rental vacancy
Property investors are often worried about this. It’s true that having an empty home for several months means feeling insecure and having to bear the cost of a property temporarily.
That’s why it’s important to know all the information you need to locate your property.
To draw a parallel with shared ownership, the investor sees the risk of rental vacancy reduced by the principle of ownership by floor. In this way, each investor becomes the owner of a parcel of all the flats in a residential building or condominium.
The risk of unpaid rent
Unpaid rent can have serious consequences for rental management.
That’s why it’s important to check the file of the future tenant and any possible guarantors. However, this initiative does not entirely protect against this risk.
An alternative is for the landlord to ask for a deposit.
Repair work
Many rental property investments are made in older buildings. It’s easy to see why some flats need repair work.
Ensuring that future tenants are as comfortable as possible can lead to budget overruns or delays in delivery.
Investing in rental property is a sound investment strategy, offering the opportunity to generate additional income and build up a lasting property portfolio. However, it is crucial to take into account risks such as vacancy, location, non-payment and repair costs.
If you are looking for an alternative to these risks, SIPA crowd immo‘s participative shareholding is an option worth considering.
Don’t hesitate to explore this option to diversify your property investment portfolio.
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