Is it worth investing in an already rented property?

Real estate has already been leased: a market anomaly in favor of investors

Owners of properties that are already rented are often hesitant to put their property up for sale on the market, even if they would like to sell it before the end of the lease. There are three main reasons for this:

  1. The selling price of a property already rented depends on next onthat is, it is usually sold at a price below the market. This discount is not negligible, on average between 10 and 15% of the pricewhat constitutes a real opportunity for investors, as we will detail later;
  2. in time selling way is better than other products
  3. Eat more restrictions associated with the complexity of changing tenants and selling property. Indeed, in order to return a property already leased, subject to 6 months notice, you must wait at least 2 years from the date of purchase (if the current lease is less than 2 years after purchase), or wait until the end of the current lease (if the term of the current lease exceeds 2 years after purchase).

Therefore, we can talk about “binding” situation (according to the online broker Pretto) for owners of already rented real estate. This leads to a certain reluctance on the part of landlords to put these properties up for sale, which often wait until the end of the lease, and the relative absence of this type of property on the market: the Particulier à Particulier website states that “notify the tenant and sell the vacant property” is most often “the preference of the owners “.

However, investing in property that is already rented out comes with many benefits for investors for property rental:

  • Attractive purchase price properties already rented out: the discount on prices allows you to buy below the normal market prices, while there will be no discount on the next sale (home can be sold empty!). Indeed, if the market remains stable or moves up (which almost always happens), then this discount does not apply when selling real estate. Added to this are savings on rent: one month’s rent and any repairs.
  • Save time and optimize rental profitability : Saves time looking for a tenant because the existing tenant remains the same so no search is needed. There is also time savings between buying a property and renting, as the rent is immediate (compared to a rental vacancy, which can typically last up to three months).
  • Known profitability in advance: the rent remains the same, which gives the investor better visibility and a better expectation of the profitability of his investment.
  • Reducing the risk of non-payment : The financial situation of the tenant is known in advance, and his past can be obtained from the former owner. Therefore, it is easy to predict whether he will be a good payer.
  • Ease of getting a loan real estate: the risks associated with investments are more limited. As we have seen, we already know the amount of rent, fees, the position of the tenant, and, in addition, cash receipts are immediate (for example, there is no work). Consequently, banks can lend money better and at better rates.

What is the discount for an already rented property?

Major specialist sites agree that the average discount applied is
located from 10 to 15% (Pretto, LOCservice) or even from 10 to 30% (Le Revenu/notaries) market prices.

In particular, the discount depends on several parameters that must be taken into account:

  • Rental period It remains to start: the longer the term, the greater the discount, because the new owner cannot dispose of the property at his own discretion until the end of the lease term. Estimated discount is 5 to 10% for rentals ending in 12 months (LeRevenu).
  • in tenant profile tenant: Under the Alur law of 2014, a tenant is considered protected if they are over 65 years old on the date the lease expires and have modest resources. If the tenant meets these conditions, the discount increases.
  • Character empty / furnished leases: empty rentals entail a discount, typically between 10 and 15%, while furnished rentals entail almost no discount (PAP) because the rental period in this case is short – usually one year.
  • surface Object: A small area correlates with greater ease of renting, hence the low discount – a maximum of 5-10% (MPA), while in the case of a large family apartment it is from 10 to 30% (Capital).
  • L’location Object: In a very attractive area, usually in the centers of provincial cities such as Lille, Rennes or Le Mans (see our list of the best cities to invest in rent), the discount will be minimal. The law of supply and demand is sufficient to explain this phenomenon: the more in demand the area, the more potential tenants, and the easier and faster it is to find a tenant. In addition, as competition from potential tenants intensifies, higher rents (other than supervision) can be practiced.
  • in rent A: The lower the rent, the greater the discount. Indeed, low rents reduce the return on rental investment, making the property in question less attractive to investors, which is also reflected in lower prices. The key point here is, let’s remember that the buyer of an already leased property does not have the option to change the rent charged by the previous owner before the end of the lease. On the other hand, this may present an opportunity for the investor if the discount is significant and he can increase the rent.
  • in type of lease : For rents covered by the 1948 law (buildings built before 1948), the discount can be up to 40, even 50% (Pretto, PAP) of the market price. In particular, this is due to the fact that with this type of lease, the rent is very low, and the possibility of returning housing is very limited. In addition, since the buildings in question are often in a state of disrepair, after the tenant moves out, major modernization works (especially power upgrades) are usually required. Opportunity for informed investors only!

A concrete example on the ImmoLevier platform

Let’s take as an example a city near Paris that is attractive for rental investment. A studio worth 67,000 euros, with a rent of 450 euros per month at a reasonable cost. If this studio is sold when it is already occupied, with a down payment of 10%, the property is self-financed for 20 years and the return on investment could be around 13.5%.
And if the same studio were bought empty, that is, without a discount and, possibly, with repairs, as well as rental costs, the yield could fall by almost 4%. ImmoLevier is a startup that definitely offers solutions for both potential buyers of already rented properties and real estate agencies that want to sell assets of this type. Indeed, the site is a link between owners and investors, as 100% of the advertising is for the latter. Specifically, each listing is offered with a complete financial analysis, but understandable to the layman, investment. And on this site the offer of a populated apartment or house is a plus!

What to remember?

Buying an already occupied property can represent a real opportunity for investors due to:

  • discount from 5% to 30%, which can be negotiated due to the occupancy of the object
  • optimization of rental yield due to no rent and rent deficit at the beginning of the investment

Provided the tenant’s history is verified and the city has good rental potential, and provided the real estate market remains bullish or stable, 10 to 15% earned on the purchase will translate into the same capital gain on the sale, or will mitigate the fall of the market.

Thus, a discount on an already rented property is an immediate profitability incentive that investors should be able to take advantage of.

Sources
https://www.pretto.fr/bien-immobilier/maison-ou-apartment/purchase-apartment-rented/
https://www.capital.fr/immobilier/achat-immobilier-quelle-decote-puis-je-esperer-si-jachete-un-bien-deja-loue-1419661
https://www.lerevenu.com/immobilier/immobilier-10-30-de-rabais-en-achatant-occupied
https://www.pap.fr/vendeur/preparer-vente/vendre-un-logement-occupied/a3281/le-prix-de-vente
https://www.gererseul.com/pendant-ma-location/vente-logement-occupied
https://blog.locservice.fr/vendre-un-logement-loue-la-marche-a-suivre-6982.html
https://edito.sloger.com/conseils-d-experts/louer/recuperer-un-logement-loue-y-habiter-article-45862.html#:~:text=Le%20d%C3%A9lai%20 %C3%A0%20respect%20later%20%20%C3%A0%20this%20date.

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