Investors are increasingly interested in rental property, which is considered to be a safe and profitable investment. Over the past 35 years, market prices have risen by an average of 5% per year: attracted by the idea of a capital gain on resale, buyers can also rely on the leverage effect of financing… Not to mention the monthly rent contribution, which further optimizes the investment. But to ensure that the operation offers the best returns, make no mistake about it! Our advice to carry out your project with more guarantees!
You certainly plan to use the rents to reimburse part of your loan each month. But to collect this money, you need to find occupants quickly: that’s why the choice of location deserves mature reflexion. While the most attractive cities remain Luxembourg and Esch-sur-Alzette, other municipalities have strong potential. Always favour neighbourhoods close to employment areas, well served by public transport and a few steps from amenities (shops, services, schools, etc.). Among the most popular places in the Grand Duchy are Hesperange, Frisange, Leudelange and Capellen.
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Budget and performance
Depending on your objectives, you will not position yourself on the same type of investment: to prepare for your retirement by obtaining additional income or an increase in value upon resale. Depending on the case, you will focus on security or efficiency. Indeed, the higher your equity contribution is, the lower the rental return, but the risk is also reduced.
With a contribution covering 30 to 50% of the cost price, make sure that your rents represent almost all the monthly loan payments. In this way, the operation will not impact your purchasing power. It will allow you to better anticipate the reduction of income due to the termination of your professional activity, for example.
On the other hand, if you aim for higher and faster returns, you will increase your loan to increase your investment volume.
In all cases of species, it is useful to ensure that you diversify your assets: several types of housing, in different geographical areas.
To know the return on your investment, you must know that you will be taxed on your rent income. However, you will be able to deduct interest from your income, as well as maintenance and trustee fees. In addition, if you choose a new home, you can apply an amortisation of 6% of the cost of the construction cost – the land is not subject to depreciation – of the property to calculate your taxes for 6 years, which allows you to optimize your taxes during the first years following your purchase.
“Depending on the circumstances, a good investment can generate returns of 6 to 10%.”
The form of the investment
Real estate investment in the form of CRE civil real estate companies, offers advantages in some cases. For example, this alternative simplifies inheritance transfers (especially in the presence of several heirs). At the tax level, the income (rents) of the CRE are not taxed in respect of the company, but to the natural individuals who compose it. Taxable income is divided between each partner in proportion to its share in the CRE
All real estate investments must be considered from the purchaser’s own perspective. Indeed, the project is shaped according to the objectives pursued, so that it gives access to the desired returns and the most attractive tax conditions. To make sure you don’t make a mistake in this operation, ask your trusted real estate agent for advice, who can assist you throughout the investment.