Finding a profitable business is one of the main goals of real estate investors. There are numerous options on the property market, as well as on the rental market. However, return opportunities vary depending on the geographic area, capital, and type of property sought. Opting for a flat to renovate allows you to save on the necessary expenses. Dividing tray into several apartments can then provide a more substantial source of rental income. This article will serve as a guide to assessing the profitability threshold of the operation.
The division of real estate
The revenue generated from a single property represents a real savings for any investor. In this sense, to maximize this revenue, dividing a space could be a solution. This involves dividing a space into several apartments, in order to rent or resell them separately.
Dividing tray into several apartments: exploitation of space
Dividing a property (apartment or house) allows for the creation of value. This produces a higher return than renting out the property in its original condition.
Concretely, carrying out a property division offers significant financial added value for a landlord. They can earn double or even triple the rental income they can expect from an individual property. The risk of rental vacancies is reduced, since it is rare for the apartments created to remain available for rental at the same time.
Carry out a plateau layout
The costs of services to be expected
Here, the development involves a floor plan, which by definition is a large and neutral space. Compared to a “classic” apartment renovation, the floor plan is generally empty and has no facilities. Indeed, it has no water, electricity, gas, or drainage system. Therefore, a certain margin is required to be able to carry out the project. In other words, the capital is very significant before any commitment to a project of this magnitude, even if it quickly pays for itself.
To achieve the desired result, the investor can hire the services of a construction company. The support of an architect is essential in this type of project (creation of meters, water inlets, new electrical circuit, etc.). The first step is to imagine the creation of the future housing. After calculations and a feasibility study, the company will estimate the renovation costs and provide a quote to the owner.
For the installation of new meters, a minimum cost of €2,000 is required. This is the cost for connecting a single meter. The cost will depend on the number of apartments to be installed. This installation requires the services of a company specializing in electrical installation.
The work to be carried out
The profitability of this type of project depends on the renovation of the platform. Therefore, the work is of great importance to achieve a satisfactory result.
First, you need to take care of the structural work. Carried out by a specialized construction company, structural work involves raising the walls, the roof, drainage, and sometimes exterior joinery. Once the partition walls are up, other installations must be carried out. You’ll then need to call on a plumbing company to manage the circulation of fluids in the new homes. For a high-quality renovation, it’s recommended to hire an architect. They can guide you in improving the layout of your homes.
The costs of all these interventions represent more than half of the capital expenditure. However, they can be quickly amortized thanks to rents and good management of your accounts.
You are just a few clicks away from renovating your home
The interest of a plateau cut for investing in rental property
Investing capital in real estate to achieve efficient profitability is becoming a very attractive project. Purchasing a residential property is one of the most popular businesses among rental property investors. Indeed, the final cost of this type of property is relatively low, despite the renovation costs.
Several financing options available
You can build up your initial capital with a credit loan. This is a traditional loan that allows the investor to borrow an amount from the bank. Repayments are made monthly over several years, and interest is charged on each amount.
The “in fine” loan allows you to pay a lower amount over the loan period (only the interest and insurance costs). The full principal is paid on the final payment. This option gives you some leeway to complete the work. The amounts received from the tenants will then cover the loan on the due date.
In the real estate sector, in conjunction with the tax exemption scheme, the State grants aid known as “regulated or subsidized loans.” For example, the 0% interest rate loan (PTZ). By definition, the investor can borrow an amount with an interest rate of 0%.
You may also benefit from a line of credit. A line of credit is an offer granted by the bank to clients in need. It is only granted to those who request it, and the amount is capped. The bank places the amount in the clients’ bank accounts, and the term is agreed upon between the two entities. Beneficiaries must then sign a repayment agreement. The line of credit can cover expenses related to renovation work. However, rent can cover this debt.
Significant rental yield to be enjoyed
The primary goal of any rental investment is to at least achieve profitability. Finding ideal tenant profiles is a good way to achieve this. The idea is to maximize the return on the property, and in the case of a division, to achieve these goals. To achieve these goals, it’s essential to have some accounting knowledge to be able to determine key profitability indicators. Hiring a headhunter is a wise move at this stage.
The first indicator is the gross rental yield. This is the ratio between the (annual) rent and the purchase price of the property. Using this calculation, you can estimate the potential profitability of your investment in advance. Unlike gross rental yield, net rental yield is calculated by integrating the various variables that have a financial impact on the project (taxes, condominium fees, debt, renovations). Cash flow is defined as the cash generated by the lessor’s activity. This calculation will determine whether your project can be self-financed. The final indicator is the IRR (Internal Rate of Return).
Dividing an asset into real estate allows you to benefit from the following advantages:
- reduction in its cost price (financial profitability compared to purchasing several apartments separately),
- maximum profitability (a higher total rental income for the same surface area and loan repayment financed by several rents),
- increase in rental yield and price per square meter (especially if the investment has large areas),
- saving time during purchasing procedures (done in one go),
- less competition (small areas are the most sought after by investors),
- significant financial gain (collection of several rents, easy achievement of the break-even point, possibility of purchase and resale with the prospect of real estate capital gain).
However, to benefit from these numerous advantages, it is often advisable to have good rental management. This helps prevent the risk of unpaid rent and manage renovation work between two rentals for each apartment in a division.
Investing in a tabletop cutting project also gives you the opportunity to acquire the status of Non-Professional Furnished Rental ( LMNP ). Particularly interesting, the costs of the work can be amortized over a period of 8 years.
From a tax perspective, rental property offers a significant advantage. Unlike capital investments, several schemes allow you to reduce your taxes. You can create a property deficit by investing in a property to be converted. In other words, the portion of expenses exceeding your rental income is deducted from your overall income. It should be noted that the margin for this deficit is €10,700. When renting unfurnished properties, net rental income is not withheld at source. Tax is calculated by deducting the amount of annual rent and your expenses.
Possibility of gradually building up assets (financial and real estate)
Investing in rental property also means acquiring long-term assets. Indeed, the primary benefit of this investment is the assurance of monthly income. This will build capital for your future business ventures. Going further, this capital will also allow you to secure your retirement.
Developing an efficient management strategy will allow you to quickly reach profitability. You’ll then need to start by choosing the option that’s right for you. To do this, you must adapt your property to your future tenants. As a landlord, increasing the yield on your properties resulting from a division will then create a margin on your assets.
Project management is particularly important in terms of tenant selection and rental management. This division optimizes your revenue in the medium and long term. By having two, three, or four apartments instead of just one, you have the opportunity to diversify your rentals. Some can be intended for year-round rentals, while others can be for short-term rentals. Obviously, each of the apartments must offer future tenants a living environment perfectly suited to their needs.
