Who says first real estate investment, usually says acquisition of a principal residence. If this remains true for most French people, some turn first to rental investment. Between the two solutions, which one to choose?
Real estate is still a safe haven for the French. Indeed, according to a study carried out by Seloger (1), real estate as an investment acclaimed by 86% of the French ahead of the stock market (6%) and life insurance (4%). Among those interested, 29% are motivated by the desire to secure additional income, 28% are looking to build up real estate for their retirement and 21% are preparing their estate. According to another recent study, this time by Harris Interactive (2), 76% of the French indicate that it is absolutely necessary own before retirement and 44% affirm that one has not really succeeded in one’s life if one does not obtain the status of owner.
However, in certain metropolises, prices too high make it difficult to gain access to property. To get around the problem, some are now turning to rental investment before buying their main residence. We are witnessing a real explosion. Young executives want to take advantage of real estate investment but do not have the means to invest in large cities, notes Alexandre Fitussi, co-founder of the rental investment platform Beanstock. So, for a first real estate purchase: main residence or rental property?
Rent or buy your main residence?
The advantages of the main residence
Buying a main residence is a life goal for the majority of individuals. Financially, it is often more attractive to buy than to rent in many cities. Unlike renting, once the mortgage has been repaid, the property belongs to you. It is also easier to project yourself into accommodation that you can arrange as you wish.
In addition, banks are finding it easier to finance main residences even with the new constraints on the granting of mortgages since January 1, explains Manuel Ravier, general manager of Investissement-Locatif.com. A way for them to attach their customers thanks to the domiciliation of income in particular. And even if real estate rates go up, they are still very attractive.
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It all depends on the city you live in.
To make the choice between main residence or rental investment, the geographical choice is an important issue. Renting can cost you as much as buying in small towns, explains Mal Bernier, director of communications at Meilleurtaux. In this case it is certainly more judicious to acquire your principal residence in first real estate purchase. Obviously, in other major cities, this will not be the case.
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Rental investment to stay mobile
When you sign your first permanent contract, your life situation is still evolving. If you are buying your main residence, you will do so in the medium term. Between the ages of 20 and 35, people are more mobile in terms of employment, analyzes Manuel Ravier. Staying in a rental during the first years of your professional career can make it easier to move around in the event of a professional opportunity or a change in your family situation.
Moreover, the first jobs are often located in the big cities in which the prices are high or even very high. We can obviously cite Paris whose average price per m2, according to notaries, is 10,600 euros: for around 200,000 euros, you can therefore have a 20m2 apartment. An acceptable surface if you live alone, but your situation may change quickly and so will your needs. It will therefore be easier and less expensive to invest in rental accommodation to then benefit from a principal residence adapted to your living situation.
Rental investment to finance your main residence
The rental investment allows build up real estate and to generate additional income for retirement, explains Manuel Ravier. But before thinking about retirement, rental investment as a first real estate purchase can also be a good way to release a larger sum to finance the 10% contribution of your future principal residence, claimed today.
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For Manuel Ravier, the target holding period for a rental property is a minimum of 5 years. In the event of resale to finance your principal residence (if you are not already the owner of the principal residence), the capital gain realized on the sale is totally exempt from tax. We tend to postpone the rental investment because it is a mental burden. In relation to the property itself, since the owner does not directly benefit from it, but also in relation to management. But it’s financial aid on the sidelines, adds Manuel Ravier.
Beware of the new credit rules
The new rules in force concerning real estate loans can make access to property more difficult for rental accommodation. Since January 1, with some exceptions, it is no longer possible to commit to monthly loan payments that exceed 35% of monthly income and the loan cannot run beyond 25 years. In this context, henceforth, the calculation of the differential indebtedness disappears. It made it possible to take into account the rents in deduction of the monthly payment of credit. They are considered today as income. A change that has the effect of increasing the debt ratio.
It is unfair. The youngest and the most modest households risk being excluded. Rates remain low but those who do not have the possibility of putting 10% down will be forced to remain tenants, regrets Mal Bernier, director of communication and spokesperson Meilleurtaux. Banks do, however, have the option of passing waiver files. 80% of these files will relate to main residences and 20% to rental properties. However, for Mal Bernier, equivalent income, the debt capacity will be higher in rental than in main residence, since the rent reduces the weight of the borrower’s credit. It will therefore probably be easier to invest in rental property before buying your main residence than afterwards.
Some establishments are also trying to find solutions to circumvent the new credit rules. For property income taken into account, it is now up to 90% of rents collected or perceive which are retained, against 70% so far. For borrowers’ resources, such as commissions, bonuses or variable part of remuneration, 90% of their value over the last 24 months are integrated against 50% previously.
In summary
Real estate investment is always a safe value for the French. However, for your first purchase, it is not easy to choose between the principal residence and the rental investment. To make your choice, here are some elements:
- The purchase of a principal residence constitutes a life goal. It is often more attractive to buy than to rent in many cities.
- But as a young worker, rental real estate allows you to stay mobile to see his professional and personal situation evolve before settling permanently somewhere.
- Moreover, the first permanent contracts are often signed in the big cities where the prices are too high. Investing in rental in a city where demand is strong but prices are lower can allow you to generate income to feed his contribution and therefore buy a larger and better placed property as his main residence.
- However, access to rental real estate credit following the news is less simple than before and could exclude automatically certain households.
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(1) study carried out by SeLoger in collaboration with Opinion way in February 2021 among 271 future buyers with a rental investment project.
(2)Harris Interactive study for French Notaries carried out with a representative national sample of 1,637 respondents aged 18 and over