Real Estate: How to Choose Between Pinel Law and LMNP for Future Rental Investments

Do you want to invest in real estate to develop your assets? Pinel’s law or LMNP, what you need to know to choose the right device.

Introduced in 2014 to restore the rental market in troubled and tense areas, the Pinel system is a law that allows you to invest in new real estate while reducing its taxation. The government favors taxpayers who purchase real estate from VEFA to use it for investment leasing.

The tax reduction varies depending on the lease term

Under the Pinel law, rental investments allow you to receive tax benefits of up to 21% of the value invested in new real estate. For real estate professionals and advertisers, this is exactly the tax incentive to make this tax law attractive and effective for taxpayers.

Depending on the purchase price and the number of years of commitment to rent a new home, you will be granted a tax deduction from income tax. The longer the commitment period, the greater the tax benefit:

  • 12% for 6-year maintenance and rent
  • 18% for a 9-year storage and lease obligation
  • 21% for 12-year maintenance and rent

The legislature then set an annual acquisition limit of € 300,000 for this tax increase. If you meet different criteria to benefit from it, you can reduce your taxes to 63,000 euros over the period.

Develop your real estate assets at a lower cost

The Pinel Act gives you access to investment in new real estate (VEFA). This system allows you to create an inheritance, while receiving rental income. In addition, the owner receives a significant advantage: tax reduction.

If you decide to invest in Pinel, the selected property will be financed mainly by rental income and tax benefits. Then your savings efforts are limited to creating assets that can be transferred to your heirs.

Then several large French cities will be eligible to participate. Investing in Strasbourg under Pinel’s law or in Greater Paris can be a learning opportunity. One of these cities is the capital of Europe and the other is the capital of France.

Rent non-professional furniture to exempt your rent from taxes

For investors who choose the status of “Non-professional furnished rental” (LMNP) to invest in rent, the tax authorities do not provide tax benefits, but more favorable taxation. There are several options for you. Then you can invest in either new or old housing, or in stand-alone real estate, or in a so-called business residence (EHPAD – student residence – senior residence – tourist residence – business residence). When your annual rental income is less than € 23,000 per year, you receive the tax benefits provided by LMNP.

For real estate professionals, the main advantage of the status of a non-professional furnished landlord is his ability to earn additional income while avoiding rent taxation. This is possible due to the accounting depreciation of property and its furniture. This mechanism avoids rental income tax for a long period of time. In addition, when you buy real estate in a business residence, the income received from this lease is guaranteed under a commercial lease, and the management of the lease is fully assumed by the manager. Commercial lease is an agreement signed between the homeowner and the manager of the service residence. This document is the cornerstone of investing in a place of residence.

How to choose between Pinel’s law and LMNP?

Although these two options for investing in rental real estate have their advantages, each form has its own characteristics. Depending on your goal and your wealth strategy, you have to choose between these two systems.

Identify your future tenants quickly and easily

Less restrictive than Pinel’s law, the status of a non-professional tenant with furniture remains easier for investors to understand. Without zoning, rental ceilings or resources for the tenant, the landlord has complete freedom to adjust their real estate investment. New or old, anything is possible. Therefore, it is easier to sign a lease agreement. Then it will be considered a commercial lease. Therefore, the landlord should not check or impose on its tenant any restrictions on eligibility.

However, depending on the selected device, the type of tenant may differ between the Pinel law and non-professional furniture rental. The bare rent, offered under Pinel’s law, attracts people who want to settle in the long run. For example, families, single or married couples prefer new homes. Therefore, the Pinel system is a good way to rent for these categories of tenants. Many cities offer new housing adapted to Pinel’s law.

Exemption from taxes due to the Pinel law

If your goal is to reduce taxation in the short term, investing in Pinel Law remains one of the best solutions. Indeed, tax benefits are valid from the first year of the lease. The tax reduction will begin from the moment of delivery of the goods. At the end of the tax period, ie as soon as the blocking obligation expires, you are free to dispose of the acquired assets. After that, the owner has several options: either to extend the lease, or sell it, or take it as a primary or secondary residence.

Diversify your income

However, if your rental investment project is to earn extra income that does not burden your taxes, you may be more interested in investing in non-professional furniture rental. This option is often chosen by real estate investors who are looking to prepare and supplement their future retirement. Investing in the rental of non-professional furniture offers the investor a discounted ticket for the purchase of about 90,000 euros excluding tax for a student studio, for example.

The return on investment under the Pinel Act rarely exceeds 3% based on the purchase price of the new property and the rental ceiling, depending on the area where the property is located. On the other hand, if the average rent for furnished apartments is higher by 20-30%, the profit from renting non-professional furniture in Greater Paris, for example, can reach 4-5%. Therefore, this solution is an advantage to get more income and available to as many people as possible.

Housing for sale

In any investment, the prospect of resale and appreciation is of great importance. In the status of a non-professional tenant with furniture, taxation of these capital gains is almost non-existent. Therefore, it can be a great purchase of real estate. On the other hand, reselling real estate located in a service residence is often difficult.