How to choose your rental property investment ?

Rudolphe ABENRudolphe ABEN - NEXTIMMO.LU

Rudolphe ABEN

How to choose your rental property investment ?

Rental property is highly sought after by financiers because of its reputation as a reliable source of income. In addition to the leverage effect of financing, buyers are attracted to the prospect of a capital gain upon resale, which has contributed to a 35-year trend of annual price increases of 5%. Furthermore, the investment is optimized by the monthly rental income. But if you want to maximize your profits from the venture, avoid making poor real estate investments. In order to ensure the success of your project, we recommend taking extra precautions.

The place

In all likelihood, you plan to apply a portion of each month's rental income toward principal. However, in order to gain access to this cash flow, you need to quickly find tenants, making location selection a crucial decision. Although Luxembourg and Esch-sur-Alzette are the most popular destinations, many smaller cities also offer fantastic opportunities. Communities with easy access to public transportation, proximity to places of employment, and convenient proximity to shopping, dining, and other amenities should be prioritized (stores, services, schools, etc.). Hesperange, Frisange, Leudelange, and Capellen are some of the most visited places in the Grand Duchy.

“The location should be carefully considered”.

Rental Property Expenses and Profits

To save for retirement by generating extra income or to make a profit upon resale—these are two distinct but related goals that will influence how you position yourself with respect to a given investment. It all comes down to whether or not you value safety and stability more than profit. Your rental yield will be lower, but your risk will be lower, if you put more of your own money into the deal.

It's important to make sure that your rents will cover almost all of the monthly payments of the loan if you're only contributing 30-50% of the cost price. In this way, the procedure won't have any effect on your ability to make purchases. You'll be better prepared for the drop in income that comes with, say, retiring.

However, if you want to maximize your returns as quickly as possible, you'll take out a larger loan to make more investments.

Never forget the importance of spreading your wealth around by purchasing a variety of properties in various locations.

You need to know how much of your rental income will be taxed in order to calculate your return on investment. In contrast, expenses like interest and property management fees can be deducted from your earnings. In addition, if you buy a brand-new house, you can deduct 6% of the cost of the building itself (but not the land) from your taxable income for the first six years after you move in. This will help you minimize your tax bill in the early years after you buy.

"Returns on a good investment can range from 6% to 10%, depending on the specifics."

Investment in rental property takes the form

When the conditions are right, investing in real estate through a SCI, a non-trading real estate company, can be beneficial. This alternative, for instance, streamlines the process of passing on property (particularly in the presence of several heirs). The SCI's rental income is taxed not to the company, but to its members, who are treated as sole proprietors for tax purposes. Each partner receives a share of the taxable income equal to his or her percentage ownership in the SCI.

The prospective investor must take into account all relevant factors when making a real estate purchase. The project is tailored to meet the goals, allowing investors to earn the expected profit under the best possible tax regulations. Seek the counsel of a reliable real estate agent who can accompany you throughout the investment process to ensure that no mistakes are made.