Searching for a profitable venture is one of the main goals for individuals investing in real estate. There are numerous offers in the property market, both in terms of heritage and rental properties. However, the potential returns vary depending on the geographical area, capital, and the type of property sought. Opting for a renovation project on a flat can save on expenses. Dividing the flat into multiple apartments can then become a more lucrative source of rental income. This article will serve as your guide to evaluating the profitability threshold of such an operation.
Dividing a Real Estate Asset
The revenue generated from a single real estate asset represents a significant economy for any investor. To maximize this revenue, dividing a flat could be a solution. This involves dividing a space into multiple apartments, either to rent out or to sell them separately.
Dividing a Flat into Multiple Apartments: Space Utilization
Splitting a property (apartment or house) creates value. This yields a higher return on investment than renting out the property in its original state.
In practice, real estate division offers a significant financial gain for a landlord. They can potentially earn double or even triple the rental income compared to renting out the property as a single unit. The risk of vacancy is reduced, as it's unlikely that all created apartments remain vacant simultaneously.
Planning the Flat Layout
Anticipated Service Costs
Here, the layout concerns a flat, which by definition is a large and neutral space. Unlike a "standard" apartment renovation, the flat is usually empty and lacks any installations. Indeed, it lacks water, electricity, gas, or any drainage system. Therefore, a considerable initial investment is required, despite the project's rapid profitability.
To achieve the desired result, the investor can enlist the services of a construction company. The assistance of an architect is essential for such a project (creation of meters, water connections, new electrical circuit, etc.). First, the future housing layout must be imagined. After calculation and feasibility study, the company will estimate the renovation costs and provide a quote to the owner.
For creating new meters, a minimum amount of 2,000 euros per meter should be considered. This is the price for connecting a single meter. The cost will depend on the number of apartments to be renovated. This creation requires the services of a company specialized in electrical installation.
Required Works
The profitability of this type of project depends on renovating the flat. Therefore, the works are of great importance to achieve satisfactory results.
Firstly, attention must be paid to the structural work. Carried out by a construction company, structural work involves raising walls, roofing, sanitation, and sometimes exterior carpentry. Once partition walls are raised, other installations are needed. A plumbing company should be engaged for fluid circulation in the new units. For a high-quality renovation result, engaging an architect is advisable. They can guide you in improving the housing layout.
The costs of all these interventions represent more than half of the capital. However, they can be quickly recouped through rents and good management of your finances.
You're just a few clicks away from renovating your home.
The Interest of Dividing a Flat for Rental Investment
Investing capital in real estate to achieve efficient returns becomes a highly appealing project. Purchasing a flat is among the most sought-after deals by rental property investors. Indeed, the final cost of such property is relatively low despite the necessary renovation expenses.
Various Financing Options Available
You can accumulate the initial capital through a credit loan. A conventional loan allows investors to borrow an amount from the bank. Repayment is made monthly over several years, with interest accrued on each amount borrowed.
The "in fine" loan allows you to pay a lower figure during the loan period (only interest and insurance costs). The full capital repayment is made at the final deadline. This option provides flexibility for carrying out renovation works. Subsequently, the amounts received from tenants will cover the loan by the due date.
In the real estate domain, in correlation with tax reduction schemes, the state grants aids known as "regulated or assisted loans." For example, the Zero Interest Loan (PTZ). By definition, investors can borrow an amount with a 0% interest rate.
You can also benefit from a line of credit. This offering is extended by banks to clients in need. It's granted only to those who apply for it and is capped in amount. The bank deposits the sum into clients' bank accounts, and the duration is agreed upon by both parties. Beneficiaries must sign a repayment commitment. The line of credit covers expenses related to renovation works. However, rents can offset this indebtedness.
Significant Rental Yield to Enjoy
The primary goal of any rental investment is to achieve at least the breakeven point. Finding ideal tenant profiles is a good way to reach this threshold. The idea is to maximize the returns from the property, especially in the case of a division. To achieve these goals, it's essential to have some knowledge of accounting to determine key profitability indicators. Engaging a property hunter is a prudent task at this stage.
The first indicator is gross rental yield, which is the ratio between the rent (annually) and the purchase price of the flat. With this calculation, you can estimate the potential profitability of your investment in advance. Unlike gross yield, net yield is calculated by incorporating various financial variables affecting the project (taxes, condominium fees, debt, renovation costs). Cash flow is defined as the cash generated by the landlord's activity. The calculation determines if your project can self-finance. The last indicator is IRR (Internal Rate of Return).
Dividing a real estate asset offers the following benefits :
- Reduction of its cost price (financial profitability compared to buying several separate apartments),
- Maximum profitability (a total of higher rental incomes for the same surface area and loan repayment funded by several rents),
- Increase in rental yield and price per square meter (especially for investments with large areas),
- Time savings during purchase procedures (done in one go),
- Less competition (smaller spaces are most sought after by investors),
- Significant financial gain (receipt of multiple rents, easy attainment of the breakeven point, possibility of purchase and resale with potential capital gain).
However, to enjoy these numerous benefits, it's often advisable to have good property management. This helps to mitigate risks of unpaid rents and manage renovation works between 2 rentals for each apartment resulting from a division.
L’investissement dans un projet de découpe de plateau vous offre aussi la possibilité d’acquérir le statut de Loueur meublé non professionnel (LMNP). Particulièrement intéressants, les coûts des travaux peuvent être amortis sur une période de 8 ans.
On the tax side, activities in rental real estate possess a considerable advantage. Unlike capital placement, several schemes help to lighten your taxes. You can create a property deficit by investing in a flat to be furnished. In other words, the portion of expenses exceeding your rental income is deducted from your overall income. It's worth noting that the margin of this deficit is €10,700. With unfurnished rental, the net property income is not withheld at the source. Tax calculation is done by deducting the amount of annual rents and your expenses.
Opportunity to Gradually Build Wealth (Financial and Real Estate)
Investing in rental real estate is also about acquiring long-term wealth. Indeed, the primary benefit of this investment is the assurance of a monthly income. This will constitute capital for your future ventures. Furthermore, these funds will also help secure your retirement.
Developing an efficient management strategy will enable you to quickly reach the breakeven point. You must start by choosing the option that suits you best. To do this, you need to tailor your property to your future tenants. As a landlord, increasing the yield rates of your properties resulting from a division will then create a margin on your wealth.
The project's exploitation lies mainly in the choice of tenants and their rental management. Division optimizes your turnover in the medium and long term. By having 2, 3, or 4 apartments instead of just 1, you have the opportunity to diversify your rentals. Some can be intended for year-round rental, while others for short-term rental. Obviously, each of the accommodations should offer future tenants a living environment perfectly suited to their needs.
