Is it worth investing in already leased real estate?

Real estate is already being launched: market anomaly in favor of investors

Owners of property that has already been leased are often reluctant to put their property up for sale, even if they want to sell before the lease expires. There are three main reasons for this:

  1. The sale price of already leased property depends on the price nextthat is, it is usually sold at a price below the market price. This discount is not insignificant, on average 10 and 15% of the pricewhich is a real opportunity for investors, as we will explain in detail later;
  2. in time the method of selling is superior to the method of selling other goods
  3. There are bigger ones limitation associated with the difficulty of changing tenants and alienation of property. In fact, to return an already leased property, subject to 6 months’ notice, you must wait at least 2 years from the date of purchase (if the end of the current lease is less than 2 years after purchase) or wait until the end of the current lease (if the current lease expires). lease more than 2 years after purchase).

So we can talk about a “mandatory” situation (according to the online broker Pretto) for owners of already leased real estate. This leads to a certain reluctance of landlords to put up these properties, which are often waiting for the end of the lease, and the relative lack of this type of property on the market: Particulier à Particulier indicates that .

However, investing in real estate that has already been leased out is a lot benefits for investors in real estate for rent:

  • Attractive purchase price real estate that is already rented: a discount on prices allows you to buy below the usual market, and at the next sale there will be no discount (housing can be sold empty!). Indeed, if the market remains stable or moving up (which is almost always the case), this discount will not apply to the sale of real estate. To this is added the savings in rental costs: monthly rent and any repairs.
  • Save time and optimize rental profitability : You can save time searching for a tenant, as the existing tenant remains the same, so you do not need to search. There are also time savings between buying a property and renting, as renting takes place immediately (compared to free space for rent, which can usually last up to three months)
  • Known profitability in advance: The amount of rent remains the same, which gives better visibility for the investor and better forecast of the return on his investment.
  • Reduced risk of default : The financial situation of the tenant is known in advance, and its origin can be learned from the former owner. Therefore, it is easy to predict whether he will be a good payer.
  • Ease of getting a loan real estate: investment risks are more limited. As we have seen, we already know the amount of rent, charges, the position of the tenant, and, moreover, the receipt of money is instantaneous (for example, no work). Thus, banks can better lend money at better rates.

What is the discount on already leased real estate?

The main specialized sites agree that the average discount applies
has from 10 to 15% (Pretto, LOCservice) or even from 10 to 30% (Le Revenu / notaries) market prices.

Specifically, the discount depends on several parameters that need to be considered:

  • The Lease term it remains to be seen: the longer the term, the greater the discount, as the new owner cannot dispose of the property as he wishes until the end of the lease. As a sign, the discount is from 5 to 10% for rent that expires in 12 months (LeRevenu).
  • in tenant profile Resident: Under the 2014 Alur Act, a tenant is considered protected if he or she is 65 years of age on the day the lease expires and has modest resources. If the tenant meets these conditions, the discount increases.
  • Character empty / furnished rent: empty rent entails a discount, usually about 10 to 15%, while rental with furniture provides almost no discounts (PAP), because the lease term is then short – usually one year.
  • The surface real estate: a small area is associated with greater ease of rent, therefore, the discount – no more than 5-10% (PAP), while in the case of a large apartment (Capital) it is 10-30%.
  • L ‘Location real estate: 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 rent), the discount will be minimal. The law of supply and demand is enough to explain this phenomenon: the more popular the area, the more potential tenants, and the easier and faster to find a tenant. In addition, as competition from potential tenants intensifies, rent increases (other than supervision) can be practiced.
  • in rent : The lower the rent, the bigger the discount. In fact, low rents reduce the return on investment, making real estate less attractive to investors, and this is reflected in lower prices. The key point here is, let us remind you that the buyer of already leased property does not have the opportunity to change the rent charged by the previous owner before the end of the lease. On the other hand, it may be an opportunity for the investor if the discount is significant and he can increase the rent.
  • in type of lease : For rents that are affected by the 1948 law (buildings built before 1948), the discount can reach 40, even 50% (Pretto, PAP) of the market price. This is especially due to the fact that with this type of rent the rent is very low, and the possibility of returning housing is very limited. In addition, as the buildings in question are often obsolete, major renovations (including energy upgrades) are usually required after the tenant leaves the apartment. Opportunity only for informed investors!

A specific example on the ImmoLevier platform

Take the example of a city near Paris, which is attractive for investment in rent. The studio costs 67,000 euros and brings in 450 euros for rent per month with reasonable payment. If this studio is sold when it is already occupied, with an initial contribution of 10%, the property is self-financed for 20 years, and the return on investment can be about 13.5%.
Whereas if the same studio was bought empty, so without discounts, and probably with some refreshments, as well as with rental costs, profitability could fall by almost 4%. ImmoLevier is a startup that offers solutions for potential buyers of already leased real estate, as well as for real estate agencies that want to sell such assets. In fact, the site is a link between owners and investors, as 100% of advertising is aimed at the latter. Specifically, each ad is offered with a complete financial analysis, but easy for non-investment professionals to understand. And on this site the offer of the occupied apartment or the house is a plus!

What to remember?

Buying a occupied property can be a real opportunity for investors through:

  • discount from 5% to 30%, which can be agreed in connection with the settlement of real estate
  • optimization of rent profitability due to lack of rental costs and rent deficit at the beginning of the investment

Provided that the origin of the tenant is verified and that the city has a good rental potential, and provided that the real estate market remains optimistic or stable, 10-15% of the proceeds from the purchase will be converted into the same capital gain at the time of sale or allow to alleviate the fall of the market.

Thus, a discount on real estate that is already leased is an immediate incentive to return, which investors need to know how to use.

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