### Legal - Detention - Buy to rent

## Buy to rent

Buy-to-let

Some people want to purchase a property in France which can be let out most of the time, but available for themselves as a holiday home for two or three weeks a year. We call this a seasonal let. Others are looking for a long-term investment in property that will give a total return superior to that available from financial investments. This normally means letting the property unfurnished to a local person for use as a home. We call this a permanent let.

The rate of return

The rate of return on both seasonal and permanent lets varies between 4% and 6% per annum gross depending on the location and the costs involved to keep them let.

For example, properties in the prestigious aria of Paris can command high rents and thus yield 6% gross with only 12 weeks let of an 18 week season. But the costs charged by the agents who let the apartment and handle the change-overs can be 15 to 20% and this reduces the yield to 5% gross

Not all purchasers are directly conscious of the benefits of purchasing their rental properties using leverage (i.e. a mortgage) and then using the stream of rentals they generate to pay off the debt contracted to buy it.

"Unlike most equity investment, most homes are paid for by borrowing; interest payments may offset the rent. But the use of leverage can also greatly boost the return on your initial stake. Suppose you invest $20,000 in shares, which after five years are worth $40,000, including reinvested dividends. That implies an average annual return of 15%. Alternatively you could use the $20,000 as a deposit on a $100,000 house, which then rises by 7% per year over five years, to $140,000. Assume for the sake of simplicity that mortgage interest payments and maintenance costs exactly offset the rental income…Then comparing the total capital gain of $40,000 with the initial stake of $20,000 gives an annual return of almost 25%".

Using figures typical of a French buy-to-let, if you put down, say, 30% on a property, let it at 5% and use the rent to pay off the debt over 20 years at a rate of 3.6%, your 30% investment has multiplied 5 times.

If you then add in any likely capital appreciation, a buy-to-let becomes a very attractive investment indeed, provided that interest rates remain low and the property remains let.

Gross Yield

Gross yield is calculated by dividing the properties annual rent by the property value.

Gross yield = Annual Rent / Property Value

For instance: if a properties annual rent is 14,400 € and the value of the property is 360,000 € then the gross yield is 14,400 / 360,000 which equals 0.04, which is equivalent to 4%.

Therefore the gross yield = 4%

Net Yield

Net yield also takes into account all the operational costs. Therefore it is much more reliable at making a true assessment as to whether a project is profitable or not.

Net yield is calculated by taking away the properties annual operational costs from its annual rent. You then divide this figure by the property value, as below:

Net Yield = Annual rent – Annual Costs / Property Value

For instance: If the annual rent for a property is 14,400 € and its operating costs per year i.e. insurance, maintenance etc. are 400 €, and if the property value is 360,000 €, then the following expressed as a percentage, would be true.

Net Yield = 14,400 € - 400 € = 14,000 € / 360,000 = 0.038 which equivalent to 3.88%

Net yield as a percentage = 3.88%