Highly appreciated by the French, rental property investment is one of the most used investments. This allows, in addition to access to an interesting profitability, to build up a real estate heritage for later. This investment over the very long term is one of the most popular ways for individuals to obtain additional income. However, like any field of investment, it is important to master the veins to obtain an interesting and growing profitability. But how do you assess the profitability of a property you want to buy? Your Nice Concierge accompanies you to understand how the profitability of a property is calculated and how to carry out a rental investment simulation. 

What is good profitability 

Understanding the concept of profitability is essential when it comes to investing in rental property. To properly assess a potential investment, it is essential to understand what a good return is. In simple terms, good profitability means that the income generated by your property from which you deduct the purchase price allows you to make a net profit.

The key elements to take into account to determine the profitability of a rental investment are the following:

• Rental income: good profitability assumes that this income is high enough to cover the expenses related to the investment.

• Acquisition costs: this includes the initial cost of buying the property (including notary fees, acquisition taxes, any brokerage fees and any other associated costs).

• Management and maintenance fees: these include the day-to-day running costs of the property, such as condominium fees, repairs, maintenance, property management fees if you use the services of an agency, etc.

• Tax savings: in some cases, you will be able to benefit from tax advantages linked to your investment (Pinel Plus, Malraux, etc.). These savings help increase the overall profitability of your investment.

• Long-term capital gains: these are one of the positive points of a real estate investment. In addition to regular rental income, you can improve the profitability of your property thanks to a large capital gain. This means that the value of the property could increase over time, making it possible to make a very attractive profit when reselling it.

The notion of profitability can vary according to the investment objectives of each individual. Some investors may be looking for a quick return and prefer housing with a promising monthly rent, while others will favor housing with high potential for capital appreciation.

Financial indicators for a good rental investment simulation 

Several indicators are at your disposal to estimate the profitability of your rental investment. 

Difference Between Gross and Net Profitability

It is important to distinguish between the gross profitability and the net profitability of a rental investment. Gross profitability is calculated by dividing the gross income (rents) by the cost of acquiring the property. On the other hand, net profitability takes into account operating expenses such as: 

• property taxes (depending on your status and the aid schemes you can claim); 
• management fees (if you choose to delegate your rental management to a real estate agency or, if you choose seasonal rental, to a concierge);
• condominium fees; 
• maintenance work;
• etc. 

Once defined, the net profitability gives you a more precise idea of ​​what your rental purchase brings you. This is the real return on your investment.

The most useful indicators to define your rental profitability 

The TRI 

The Internal Rate of Return (IRR) is an essential tool used in finance to assess the profitability of a project or rental investment over a given period. IRR is often preferred over other metrics such as Gross Rate of Return (GRR) or Net Rate of Return (NRR) due to its more comprehensive approach and consideration of the different cash flows associated with investing.

The calculation of the IRR is a somewhat complicated notion at first sight. However, it is based on a relatively simple principle. In specific terms, the IRR is the discount rate that equates the net present value (NPV) of future cash flows with the net present value of initial costs.

The cash flow

Cash flow represents the difference between the income generated by your property (rent received) and the expenses related to its maintenance and management (charges, taxes, mortgages, etc.). A positive cash flow is essential to guarantee the profitability of your rental investment and cover any unforeseen events. However, a neutral or negative cash flow is not necessarily an indicator of an unprofitable investment. Indeed, some investors play in the long term by counting on the capital gain of their property on resale to make their investment profitable. 

Some online simulators

To simplify your procedures and obtain a quick response, do not hesitate to carry out an online rental investment simulation. Your Nice concierge has listed some tools for you to help you see things more clearly: 

To simulate the profitability of your property: 

• Calculation of rental profitability – Flatlooker
• Simulator via Excel file –Greenbull

To estimate the possible aid for your investment: 

• Sim'aid – France Renov 

The types of investments recommended by your Nice concierge

Specializing in short-term Airbnb rentals, your Nice concierge will help you make the most of the exponential profitability of this mode of rental. Benefit from our in-depth expertise of the local real estate market to optimize your yields and increase your rental income. Our owners are seeing an average 25% increase in revenue. 

Our rental management agency accompanies you throughout your project and takes care of all your administrative and logistical obligations. Save time and maximize the potential of your rental properties with your Nice concierge team. 

Before committing to a rental investment, it is essential to understand the concept of profitability and to carry out several rental investment simulations. A good return on investment depends on several factors. To best define your project, define the net profitability of your investment. An analysis of the cash flow of your rental purchase as well as the IRR of this one will allow you to obtain a more precise vision of your investment. Trust your concierge in Nice to increase the income from your Airbnb rentals. We support you throughout your project to allow you to increase your rental income without the slightest effort.