Real estate: why investing in a city with high rental income is not always a good idea?

Investing in real estate that offers high rates of return is also the most risky. A study published on Tuesday by Bevouac, a company that specializes in turnkey rental investments, shows that the most attractive rental incomes are in municipalities where vacancy rates are well above the national average. Therefore, finding tenants in the most profitable cities can be difficult.

To arrive at this observation, Beauvoir observed the share of vacant housing in France’s 100 largest cities to compare these figures with the gross profitability figures observed in the same municipalities. Thus, in Beziers, Perpignan and Mulhouse, three cities with a high vacancy rate (around 16%), gross profit is particularly interesting (over 9%). This is due to the relatively low purchase price combined with the rent, which remains advantageous for the owners. But the opposite is that finding tenants to fill housing is difficult due to the lack of attractiveness of these municipalities.

Conversely, attractive cities such as Cannes, Ajaccio or Merignac, which have a low vacancy rate (2 to 4%), offer less attractive rental income (2 to 5%). “Investors tend to focus only on profitability, but that’s a mistake,” warns Martin Menes, president of Bevouac. It is important to take into account the dynamism of the city to avoid unpleasant surprises.

Stand out from the competition

If you still intend to invest in an unattractive city to hope for high returns, it is important to take care of your property planning to hopefully attract tenants. “The higher the level of vacant housing in the municipality, the fiercer the competition between landlords,” said Martin Menes. Investors’ real estate should stand out from the rest of the market, even if it means increasing the work budget. ” In a city where demand for rent is low, choosing an attractive location is also important. Prefer areas adjacent to universities that are well served by public transport.

If the gross rate of return is an important indicator for the choice of municipality in which to invest, we must not ignore an equally important factor: the evolution of prices in the municipality. In cities that offer impressive yields, purchase prices tend to stagnate or even fall in the long run. Therefore, it is very difficult to get a significant increase in capital to make the investment as profitable as possible. Conversely, you can get very good capital gains in municipalities where rental income may seem relatively low.

The Merignac case is the best example. In this city in the south-west of France, rental income is far from impressive (approximately 3.3%), but purchase prices have jumped 55% over the last 10 years. Therefore, a person who would have invested in Merignac in 2013 would have had a low return, but the operation would still have been very profitable. Before you start investing in rent, it is best to predict a net profit for several years, taking into account all the costs associated with the investment, as well as changes in purchase prices.