HOW TO INVEST IN REAL ESTATE AND START BUILDING WEALTH?

Are you thinking about investing in real estate and starting to build wealth? 

You are quite right! Investing in property is one of the safest investments. 

It is a reliable and low-volatility investment with an upward trend.

Instead, take a look at this graph showing the evolution of real estate prices around the world, and in France.

Real estate investment is currently booming. Despite the health context, there were more than a million real estate sales between March 2023 and March 2024. 

Whether for :

  • build up assets;
  • benefit from additional income ;
  • grow your savings ;
  • pay less taxes…

…There are a thousand reasons to invest in real estate.

So, of course, this tempts you.

The only problem is that you are self-employed. You (maybe) have a good income, but you cannot guarantee the stability of your business to your banker. 

And it’s true that it’s more difficult to buy real estate if you don’t have the holy grail of working life, the permanent employment contract. 

But rest assured, it is not impossible. You just need to be well prepared, and not to jump in blindly. This is what we want to teach you in our personal finance training .

Speaking of investing, we have other articles on this subject, such as on crowdlending .

This complete guide aims to give you all the keys to:

  • calculate your budget for your real estate investment;
  • identify cities where it is good to invest;
  • obtain bank financing as a self-employed person;
  • avoid unpleasant surprises linked to your real estate purchase;
  • and make your rental investment project a success;

Good reading !

Note: Of course, these tips also apply to you if you are an employee!

INVESTING IN REAL ESTATE: THE PREREQUISITES 

WHEN TO INVEST IN REAL ESTATE?

When your income is stable. 

If you are on a permanent contract, the question does not really arise. Once your trial period is over, you have some stability. There is little reason for your remuneration to decrease. 

But if you’re an entrepreneur, it’s a little more complicated. Your income can be changeable, especially when you’re starting out. 

In this case, we advise you to wait until your business stabilizes before embarking on real estate investment.  

Remember, a loan is a long-term commitment and must be repaid. Every month. No matter how hard you are. 

CAN I REALLY INVEST IN REAL ESTATE AS AN ENTREPRENEUR? 

Of course. 

But you will have a little less facilities than someone on a permanent contract. 

Generally, the difficult stage is that of bank credit. Banks are more reluctant to grant a real estate loan to an entrepreneur.  

However, there are good practices and tips to put all the chances on your side. We devote an entire paragraph to this in this guide. 

WHAT TYPE OF REAL ESTATE SHOULD I BUY?

New or old? Apartment or house? Or even parking space…?

It all depends on your budget and your project! 

If you have a rental investment project , you will not have the same criteria as if you are buying a property to live in.

For rental, you will rely on very practical criteria. 

For example, if you are renting to a student, you will tend to look at properties such as studios, or large apartments for shared accommodation.

If you want to live in your property, other, more subjective criteria will tip the scales. Do I feel good in this accommodation? Do I want a garden? etc.. .

SHOULD I ABSOLUTELY BET ON RENTAL INVESTMENT?

It’s true that we hear a lot about rental investment. And for good reason, it’s a very profitable strategy. 

What is rental investment?

It is quite simply a matter of buying a property to rent it. 

If all goes well, your property pays for itself. In other words, the rent paid by your tenant covers the monthly payments of your loan. And with the right tax arrangements (we talk about it at the end of the article), you pay very little tax on your property income.

As a reminder, property income is the income you earn from rentals.  

However, buying a property to live in is also interesting. Indeed, every month you pay rent. And unfortunately, it is wasted money. 

So, no, you don’t absolutely have to bet on rental investment. It’s up to you to decide which strategy best suits your situation and your desires.

STEP 1: CALCULATE YOUR BUDGET FOR YOUR REAL ESTATE INVESTMENT

CALCULATE YOUR BORROWING CAPACITY

In the vast majority of cases, you do not pay cash for your property. You are going to take out a loan.

To calculate your budget, you must therefore calculate your borrowing capacity.

To do this, you can simply ask your usual bank.

Your advisor will base their decision on very specific criteria such as your financial situation, your age and your state of health. 

A thorny subject for independents, we return to it in more detail in a dedicated paragraph, a little further down. 

Be aware that there are online mortgage loan simulators to calculate your borrowing capacity. I recommend the Preto simulation tool which is very well done. 

Let’s say you earn €2,500 net per month, and you want to repay a maximum of €400 each month. Here are the borrowing options available to you:

Of course, this type of simulation should always be taken with a pinch of salt, and nothing beats the advice of your bank. Ultimately, it is your bank that will end up granting you, or not, your loan. 

But this allows you to have a good estimate of your borrowing capacity.

DO NOT OVERESTIMATE YOUR REPAYMENT CAPACITY

One of the biggest pitfalls when calculating your budget is overestimating your repayment capacity. 

Of course, it is possible to tighten one’s belt in the short term, over a few weeks or even a few months.

But is this really feasible over several years?

Remember that the average duration of a home loan is 20 years. You’re not going to be able to restrict yourself for that long.

Please remember that your monthly expenses and charges are likely to change over time. 

For example, your child enters higher education, your car breaks down and you take out another loan to buy a new one…

In short, the key is anticipation. You must always keep a safety net. Ultimately, it is better to underestimate your repayment capacity than the opposite! 

This advice also applies if you are investing in rental real estate. 

Of course, the best thing is the white operation. Your property is self-financing: the rents cover (or exceed!) the entire monthly payments of your mortgage.

For example, you rent your apartment for €800 and you repay €800 every month. 

Here, you can say to yourself: “ whatever the amount of my monthly loan payments is, in the end, it’s my tenant who pays it ”. 

Yes, in theory. But, in real life, things are rarely linear. A rental vacancy of a few months, a defaulting tenant… it can unfortunately happen! So, you must be able to repay your loan in all circumstances.

ANTICIPATE ADDITIONAL COSTS.

“This apartment costs €100,000, so I will have to pay a total of €100,000.”

Well no. Unfortunately. 

There are a whole bunch of additional costs to plan for when buying an apartment or a house. 

Your budget must therefore be adjusted accordingly. 

Here are the additional costs you need to anticipate when buying real estate:

  • notary fees, i.e. 7% of the total price for an old property or 2% for a new property. 

On our 100,000 euro apartment, that still represents an additional €7,000…

  • intermediary costs , if you use a real estate agent for example. Here you have to count between 1 to 7% of the sale price.
  • any development work . They are more or less significant depending on the condition of the property, but at the very least, you will at least buy furniture and give it a coat of paint.
  • the interest rates of your mortgage loan . The current interest rate (2021) for a 20-year mortgage loan is around 1%, which remains very attractive. 

Finally, if you take out a loan, keep in mind that your bank will ask you to provide a personal contribution. In general, it amounts to 10% of the total amount borrowed. 

To buy our apartment for €100,000, you will need to plan for a deposit of around €10,000, which is not insignificant if you don’t have much savings. 

And that’s not all ! You must also take into account the recurring costs generated by the purchase of real estate.

I am thinking, in particular, of:

  • property tax;
  • the housing tax if your property is not rented;
  • co-ownership charges.

And if you are investing in rental property, you will need to add:

  • taxes on your rental income;
  • rental and agency fees, if you use a professional.

In short, with all this, we are far from the €100,000 purchase price… 

STEP 2: IDENTIFY CITIES WHERE IT IS GOOD TO INVEST IN REAL ESTATE

Follow a precise methodology to identify dynamic cities

“I just watched a video on YouTube from a real estate expert, and Marcilly-en-Gault is the new city where you absolutely have to invest in 2021! I have to find out more as soon as possible before I miss the boat!”

Ouch. Bad strategy! 

If there are any readers who live in Marcilly-en-Gault, don’t take it personally. I don’t know this town, but I’m sure it has many attractions!

But, in all cases, you should never choose the location of your future investment on a whim, after reading a brochure, watching a video, having a brief chat with a friend, etc.

That’s the best way to make a mistake. 

The choice of the city should not be taken lightly. It must be the subject of careful consideration and in-depth analysis. 

To do this, you have to proceed in stages, in a funnel. 

  • Start by making a list of cities that you like and find interesting. Very often, these are places that you know, because you have been there before, because you have family or loved ones there.
  • Among them, identify attractive and dynamic cities. For example, student towns, tourist towns, towns which concentrate a lot of economic activities…
  • At this point, your list is much smaller. Now take each city one by one, and distinguish the popular neighborhoods and those that will increase in value . Go further and find out about market developments in the short or medium term. Will there be new infrastructure, a new metro or TGV line to a big city?
  • What are the average prices? Will these prices change? Does this fit into your budget?
  • If you are in the process of rental investment, identify the types of popular housing . For example, in Lille, shared accommodation is on the rise… It is also the time to study the average prices charged for an empty and furnished rental. 

Maybe Marcilly-en-Gault will be your favorite city, you never know! But at least you have made your choice after taking the time to study the different possibilities. 

Seek advice from real estate professionals

Nothing beats the expertise of local brokers, local agencies, who know the market best. They will give you all the information to allow you to make an informed decision.

You can also do research on the Internet, consult real estate sites to get an idea of ​​the prices of the real estate and rental market. 

Some experts offer real estate market studies by location. 

I am thinking in particular of Bevouac which carries out very nice analyzes on certain cities like Rennes, Le Havre and even Lille. 

An example with the Rennes real estate market:

They even offer in-depth studies by neighborhood

With estimates of prices per m2, rental prices, and the advantages and disadvantages of each location…

Very cool, right?

LEARN ABOUT MARKET LIQUIDITY

“Why is it important to find out about market liquidity? My real estate purchase is a long-term investment, and I do not intend to sell my property in the coming years.”

Of course, you are right. Real estate is an investment for the long term, ideally. Ideally… 

But let’s say that tomorrow everything collapses around you. You lose your job, you have an accident, you get divorced… I don’t wish it on you, of course, but these are events that can (unfortunately) happen. 

In this case, can you cope financially? Concretely, can you resell your property easily at a fair price? Is the market liquid?

At LiveMentor, we are used to being optimistic! But, we also think it is important to plan ahead. And these are questions you need to ask yourself to limit the damage in the event of a problem. 

STEP 3: FIND THE PROPERTY OF YOUR DREAMS.

SKIM THE REAL ESTATE LISTING SITES 

Nothing beats real estate listing sites to find the home of your dreams. Of course, you can go to an agency. But the offer will be much smaller.

Finally, remember to monitor advertisement sites between individuals (le bon coin, PAP). By purchasing this way, you do not have agency costs to add to the sale price. Remember that intermediary fees still amount to 1 to 7% of the total sale price. Going through an individual can allow you to make real savings.

BE HYPER-REACTIVE WHEN SEARCHING

You are not the only one who wants to invest in real estate… And very often, interesting properties are very popular. It is not uncommon for an owner to receive several dozen calls within an hour of posting their ad. 

The trick? Schedule an alert for each new ad that meets your criteria. Most sites offer this feature. 

On the Le Bon Coin website, simply click on the “save search” bell at the bottom right of your search. 

Once you have identified a property that interests you, you need to contact the seller or the real estate agency.

If you go through a peer-to-peer site, simply contact the seller directly. 

On the other hand, if you have spotted the property on an agency website, the agency will be your contact. Make a note of the property reference to save time during your exchange. 

In both cases, the telephone number appears (almost) systematically on the property advertisement. Always prefer calls to emails. It’s more instantaneous and you have a better chance of getting a visit this way.

STEP 4: VISIT PROPERTIES IN A USEFUL AND EFFICIENT WAY

Now comes the visit stage… Some tips to avoid wasting time and avoiding unpleasant surprises.

BE UNCOMPROMISING ON LOCATION AND QUALITY OF CONSTRUCTION 

We have seen it: the location of the building is not to be taken lightly. So I insist, be careful when choosing your neighborhood. Find out about future developments that may increase or decrease the value of your property. Feel free to visit the surrounding area if you are not familiar with the area. 

Second point: the quality of the construction. Again, be attentive during your visit. Check the health of the property (and common areas), the insulation, the condition of the sanitary facilities, the electrical installations, etc. 

Do not hesitate to ask for a copy of the property diagnostics at the time of your visit. This document summarizes all the important information, such as:

  • the level of energy performance;
  • the condition of the internal gas installation;
  • the condition of the internal electricity installation;
  • the state of the non-collective sanitation installation;
  • the possible presence of asbestos, lead, termites. 

In any case, never buy a property without consulting the diagnostics!

REQUEST A COPY OF THE CONDOMINIUM REGULATIONS

You may not know it, but some co-ownerships prohibit:

  • do furnished rentals;
  • do seasonal rental;
  • subletting;
  • carry out certain professional activities within the accommodation. 

These prohibitions could well disrupt your real estate investment project.

So, find out as early as possible – ideally, during your visit, to avoid any unpleasant surprises.

STEP 5: OBTAIN BANK FINANCING (AS A SELF-EMPLOYED PERSON)

Recently, we asked the community what they thought were the urgent actions that needed to be put in place for the self-employed…

And the answers were unanimous:

And it’s true that it’s not easy to get a bank loan as a self-employed person… Very often, it’s an obstacle course. Banks are reluctant to grant you a loan if you don’t have a permanent contract… even if you have a very good income. 

Some people even prefer to postpone their business project to be able to invest in real estate…

Today, there are no real solutions (yet)… However, taking out a loan as a self-employed person is difficult… but not impossible! 

PREPARE A SOLID CASE

More than ever, you must put all the chances on your side and prepare a solid case.

To give you an idea, here are the criteria that will tip the scales in your favor:

  • the stability of your income;
  • your seniority (generally, banks require at least three years of seniority);
  • your sector of activity (it’s unfair, but certain professions – notably liberal professions – are more appreciated by banks…). 

In all cases, you must build a complete file with an identity document, proof of address, your last two tax notices, your bank statements and the details of your project. 

Feel free to add additional pieces, like 

  • an estimate of the rent for your future property , ideally made by two different real estate agents, in the case of a rental investment;
  • a 5-year market projection and city analysis .

These small details will be very appreciated by your banker because they show your seriousness. 

BUILD UP A COMFORTABLE PERSONAL CONTRIBUTION

Most banks require a personal deposit. In general, it amounts to 5% of the total price of the property for a new property, and 10% for an old property. 

For example, if you take out a loan of €50,000 to buy an apartment, you will be asked for a deposit of €5,000.

Don’t hesitate to offer a slightly larger personal contribution, if you are able. There is no need to go up to 20% of the total price… Very often, an increase of a few hundred euros is enough to prove your motivation. 

PROMOTING REGIONAL BANKS

Ideally, opt for a regional bank . These banks have delegation power at agency level, when the amount of loans is not too large. 

In this case, it is your advisor who will have the decision-making power . So, play the relationship card. Explain your project in detail. Show him your motivation and your seriousness. In short, be convincing! Very often, a face-to-face exchange is much more fruitful than a file sent by email. 

STEP 6: FINALIZE THE ADMINISTRATIVE PROCEDURES FOR INVESTING IN REAL ESTATE

Have you visited a property that you like? Do you have any good leads for getting a bank loan? Great! 

Just a few more steps… and the property will soon be yours!

THE PURCHASE OFFER

First, you must make an offer to purchase. This offer must be sent to the seller in writing. 

You have fallen in love with a property, but there are several of you in the same boat? I have a little tip for you (tested and approved). 

Do not hesitate to make an offer very slightly above the sale price. For example, if you buy a studio for €80,000, offer €80,200. 

It’s not much, but the gesture will be greatly appreciated by the seller and will often make all the difference. 

THE SALES AGREEMENT 

Once your purchase offer has been accepted by the seller, the sales agreement stage comes.

The sales agreement is an act by which the buyer and the seller agree to conclude the sale at the price determined by both parties. 

From the date of signature, you have 10 days to withdraw.

SIGNING THE FINAL DEED OF SALE. 

The signing of the final act of sale takes place 2 to 3 months after the sales agreement. 

This contract seals the real estate sale. 

This is also when you pay the entire sale price and receive the keys to your new property. 

BONUS: SOME TIPS FOR MAKING YOUR RENTAL REAL ESTATE INVESTMENT PROJECT A SUCCESS

Are you looking to invest in rental property? These few tips will help you optimize your strategy.

ANTICIPATE DEADLINES

Investing in real estate is a time-consuming process. And for good reason, you must:

  • define your project and calculate your budget;
  • carry out research and find the property of your dreams;
  • formulate your purchase offer;
  • sign the sales agreement;
  • get and sign your bank loan;
  • sign the final deed of sale.  

On average, all these stages take place over 4 or 5 months. 

If you find your property very quickly, and everything goes smoothly, it takes at least 2 months to become an owner. 

Keep this deadline in mind when you buy, especially if you have a rental investment strategy.

You need to pay attention to seasonality. The market and rental demand are not the same in January, April and September, especially if you are targeting students.

If you buy a studio in April, you will certainly have to prepare yourself to have the property empty for a few months, before the start of the university year. This means that you will have to pay your first monthly payments yourself. 

RENTING OUT YOUR FURNISHED PROPERTY

At first glance, furnished rentals seem more restrictive. Buying a bed and a table is not enough. There is a whole series of equipment to be provided … with duvet, dishes and everything else. The tenant just has to pack his bags. 

In the short term, this is a significant cost (to be added to the already long list of additional costs!). 

However, renting furnished is much more interesting than renting unfurnished.

On the one hand, you will be able to increase the price of your rent by an average of 10 to 20%. 

And above all, you benefit from a much more advantageous tax regime. 

You gain access to the status of non-professional furnished rental (LMNP) and can opt for: 

  • The micro-BIC regime;
  • The real regime. 

Don’t worry, we’re not going to go into the complexity of these two regimes. 

Just remember that the micro-BIC regime allows you to benefit from a 50% reduction on your rental income (compared to 30% for empty rentals). In other words, you only pay taxes on half of your rental income. 

The real system allows you to deduct from your property income the exact amount of your charges such as notary fees, agency fees, works, furniture, etc. Thanks to this mechanism, you do not pay (or very little) taxes on the first years.

THINKING ABOUT ROOMMATE

If you are looking to invest in rental properties and are targeting large apartments…you should consider shared accommodation!

In fact, shared rooms compete with studios, with more or less similar prices. 

This way, you will be able to rent a large apartment with several bedrooms for a higher price. 

Obviously, this advice only applies if you want to make a real estate investment in a student city. 

Also keep in mind that shared accommodation also involves more turnover, and therefore more risk of rental vacancies, and more additional paperwork (creation of lease contract, more recurring inventory of fixtures on entry and exit, etc.). 

It’s up to you to see if the game is worth it! But in most cases, you will get a much better return with this type of strategy.

AND YOU ?

Have you ever taken the plunge and purchased a property? What difficulties did you encounter in your purchasing journey? 

And if not, is this a project you want to do soon? Do you have any particular fears? 

Please feel free to share your answers in the comments section.

If you are interested in other types of investment, we have an article dedicated to investing in the stock market and more specifically on: how to invest on eToro .

Do you want to learn how to better manage your personal finances  ? Good news: we are currently putting together a dedicated training course for you, in collaboration with one of the best experts on the subject, Yoann Lopez . 

To avoid missing its launch, don’t forget to sign up for the waiting list. Registrations are limited in time.

If you found this article interesting, we have written others on investment. For example, find out how to invest well in a start-up .

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