The letting strategies
| Unfurnished long-term letting | The simplest and most widespread strategy. A stable tenant, light management, but rent controls in tight markets and strong tenant protection. |
|---|---|
| Furnished letting | Significant tax advantages, including depreciation of the property under the business income regime. Rents slightly above unfurnished, with a shorter tenancy, one year against three. |
| Short-term letting | A potentially high gross yield, but intensive management, growing local regulation, many cities limit the number of nights or require a change of use, and a less favourable tax treatment. |
| House sharing | A higher yield per square metre than standard letting. More complex management, with strong demand in university cities. |
| Commercial property | Long commercial leases of three, six or nine years, professional tenants, but potentially long void periods and a more cyclical market. |
Calculating the return correctly
Monthly cash flow: the operational indicator
Cash flow is the difference between receipts, the rent, and all outgoings: the loan instalment, irrecoverable charges, property tax, insurance, management fees, provisions for works. Positive cash flow means the property finances itself.
ℹ A worked example A flat bought at 200,000 €, let at 850 € a month, with a loan of 180,000 € over 20 years at 4 %, giving an instalment of 1,091 €. Monthly outgoings: instalment 1,091 € plus irrecoverable charges 80 €, property tax 70 €, insurance 25 €, management 60 €, and a provision for works and voids of 50 €, that is 1,376 €. Cash flow = 850 − 1,376 = −526 € a month. The investor must contribute 526 € a month from their own resources, though the investment can still be profitable long term through capital accumulation.
Bank leverage
Leverage allows investment with a limited deposit by funding most of the purchase through borrowing. It amplifies the return on the capital invested, provided the return on the asset exceeds the cost of the debt.
| Positive leverage | The return on the asset exceeds the borrowing rate. Every euro borrowed creates value. |
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| Negative leverage | The return on the asset is below the borrowing rate. Every euro borrowed destroys value. That is the trap investors fall into when they borrow at 4.5 % to invest in assets yielding 3 % net. |
| Leverage and risk | Borrowing equally amplifies losses if the asset falls in value or the variable rate rises. |
The tax treatment of rental income
| The simplified regime, unfurnished | A flat 30 % allowance on gross rent. Simple, but poorly optimised where real charges exceed 30 %. |
|---|---|
| The real regime, unfurnished | Deduction of all real charges: loan interest, works, management fees. Recommended as soon as charges exceed 30 % of rent. |
| The furnished real regime | Allows the building, excluding the land, and the furniture to be depreciated. Often produces a nil or negative taxable result for 15–20 years, allowing rent to be received tax free. |
| Social contributions | 17.2 % on net rental income, on top of income tax. |
The traps to avoid
- Over-estimating the rent: basing figures on asking prices rather than the rents actually achieved in the area, and ignoring rent controls where they apply.
- Forgetting void periods: systematically allow one to two months of vacancy a year in the calculations, even for a well-located property.
- Under-estimating the works: making good between tenancies and major repairs, roof, boiler, façade, are unavoidable over a ten-year horizon.
- Investing at a distance without a local network: remote letting management is possible but generates additional costs and slower reaction to damage or conflict.
- Ignoring resale constraints: a property finely optimised for tax can be hard to sell to a buyer who will not enjoy the same advantages.
Related articles: calculating the return on a property project · Financial risks in construction projects
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This page is educational. The worked examples are illustrative. Every buy-to-let investment merits a personalised analysis by a wealth management adviser.
The nature of the figures quoted
The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.
Sources: the BT construction cost indices published monthly by INSEE on its 2010 base, used to update the figures · construction cost statistics from SDES, the statistical service of the ministry responsible for construction · regulatory texts published in the Journal officiel and consolidated on Légifrance for the requirements cited.