Real estate investment, a profitable option?
FEB 26 2019 | PROPOSED BY OUR PARTNER ING LUXEMBOURG
Rental investment remains an interesting alternative to diversify its savings and ensure additional income. But what should you watch out for if you want to make a successful investment? The answer in 5 key points.
1. Choose an attractive location
The choice of location is obviously paramount. Choose the cities that invest the most in public infrastructures like Luxembourg-City or Esch-sur-Alzette , as well as municipalities close to employment areas and equipped with a high-performance public transport network (Belval, Hesperange, Leudelange, Sandweiler, Strassen ...).
Think also in the north of the country . Since the opening of the North Highway in September 2015, this region is becoming more and more attractive. However, prices are the lowest in the country, even if they tend to climb since the commissioning of the Nordstrooss , and rental supply is still undeveloped.
2. Invest in new or old?
We have already discussed the advantages of both in our previous article . The new is covered, flexible, less energy consuming and offers the best comfort. The former is cheaper, more available, has more charm and generally has a larger area. This last point is important if you want to occupy a part of the housing and to allocate another one to the hiring. You will be more likely to be able to do it in an old building than new.
3. Pay attention to rental risks
Keep in mind that renting involves risks . Your home may experience an extended vacation and possible problems with your tenant may occur: non-payment of rent, possible rental damage ...
Managing a property requires some personal investment, as well as significant management and maintenance costs. In addition, the super-reduced rate of 3% for your work will be granted to you under certain conditions, including the fact that it must be an old housing (more than 20 years at least).
4. Do not neglect the fiscal aspects
Pay attention to the tax costs that may weigh down the bill when you buy the property. Thus, you will not be able to benefit from the tax credit on registration and transcription rights ("Bëllegen Akt") because your acquisition is not for personal housing purposes. In this case, you will have to pay an amount equivalent to 7% of the value of your property. Unless, within a period of 2 years (4 years if it is a building plot or a building under construction) from the notarial act of acquisition, you actually and personally occupy the property for an uninterrupted period of 2 years.
Whether or not you are resident in Luxembourg, you are obliged to declare your rental income to the Administration des Contributions Directes. You can, however, reduce the taxable amount of rents through the cost of obtaining. In particular, depreciation of the building, property tax and municipal taxes, insurance premiums, management fees, maintenance and repair costs and, above all, borrowing interest in full, may be deducted. limitless. This latter possibility of deduction is particularly advantageous because if the acquisition costs exceed the rental income, they are deducted from the base of other income at the level of the tax return.
In other words, borrowing for a rental investment can be very rewarding, even if you have enough cash to pay for all or a significant portion of the property.
5. Revive your home through social rental management
If, in the future, you do not want to worry anymore about the problems inherent to the status of owner, you can always opt for social rental management . The Luxembourg state introduced this concept in 2009 to combat social exclusion through housing.
In concrete terms, you sign a lease agreement with one of the partners contracted by the Ministry of Housing : a foundation, a non-profit association or a social impact society with the social purpose of promoting housing (you can find the complete list on the website of Guichet.lu or contact the Ministry of Housing at +352 247 84819). The agreement body finds an occupant for housing (households or individuals with modest incomes or in precarious situations) and takes care of the occupant's monitoring, as well as minor maintenance work on the rented property.
The benefits for you are many: not only do you have a social act, but you also benefit from a guaranteed rent, even in case of non-occupation, and a tax exemption. Since fiscal year 2017, 50% of the rental income that you receive from an agreement partner exercising the social rental management are exempt from taxes. A measure that partially offsets the fact of renting your property 30 to 40% cheaper than in the private market.
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