Investing in a student residence: advantages, disadvantages, risks
Investing in a student residence is first and foremost a regular rent in a dynamic and attractive city, for a low real estate expense. It is also an interesting tax thanks to the LMNP status or the Censi-Bouvard system.
Ultimately, there are many reasons to want to get into student real estate investment. But what exactly are we talking about? What are the advantages ? Are they sufficient to overshadow the risks and disadvantages? We take stock of this case.
Reminder: what is a student residence?
Student residences are made up of buildings with several furnished apartments for students. The accommodations are most often studios, but it is possible to find a few one-bedroom apartments.
They must be practical in a small space, and have a functional WC, shower and kitchen area, in the private or common areas. In addition, a reception, breakfast and laundry service must be offered.
Finally, a decisive criterion for benefiting from the designation “student residence”, it must be inhabited by… students. To benefit from the tax advantages, it is necessary to justify the rental to a student during the reference quarters (October to December, January to March, April to June).
The advantages of real estate investment in a student residence
Investing in a student residence provides many advantages, financially, tax-wise, but also in terms of peace of mind…
The tax benefits
With the purchase of one or more apartments within a student residence, you will have the choice between two rental schemes: the LMNP and the Censi-Bouvard.
As an LMNP (Non-Professional Furnished Rental Company), the acquisition of accommodation in a student residence becomes accessible to all investors, even beginners. This is why it is one of the recommended investments for a first purchase.
To be eligible for LMNP status, you must meet the following conditions:
- Not carrying out the rental activity as a main activity and / or on a professional basis
- Generate rental income not exceeding 23,000 euros per year and / or 50% of your overall income
In return, you benefit from the following tax advantages:
- The accounting depreciation of the property and the deduction of the charges under the actual regime
- Or the flat-rate allowance of 50% on your income under the micro-BIC scheme
- The recovery of VAT at 20% under the condition of operating lease and non-resale of the property for 20 years
The Censi-Bouvard device
This solution, more suitable in the context of a diversification of real estate assets, allows individual taxpayers to reduce the amount of their income tax, subject to conditions.
To benefit from the Censi-Bouvard scheme, you must meet the following criteria:
- Commitment to rent a furnished student residence for a minimum period of 9 years
- The declaration of the collection of rents in the category of BIC (Industrial and Commercial Profits) and not in the category of property income
In compensation, your tax benefits are as follows:
- 11% reduction in income tax on the amount of the real estate acquisition within the limit of 300,000 euros invested
- The recovery of VAT at 20% within 3 to 6 months after the rental and the commitment not to resell the property before 20 years
- The deduction of actual costs and loan interest even in the BIC regime
The financial advantages: a high return
By going through a management company such as Nexity, to name a few, the return is guaranteed and more attractive than many other real estate investments, since they show higher returns of 5 to 6%.
In other words, it is a financial windfall with regard to the investment effort, reinforced by loans granted at low interest rates for several years.
The advantages of “passive” and secure management
The management of student residences is delegated to a service provider acting as a professional operating company. In other words, once the commercial lease has been signed between the managing company and the investor, there is no longer any need to worry about the inconveniences encountered with a traditional rental (relationship with the tenant, repairs, inventory, etc.) .
In addition, the commercial lease secures your investment by defining the obligations between the two parties as well as the distribution of charges. In addition, an obligation of results ensures that you are paid your rent, whether student housing is provided or not.
All these advantages should not blind the investor, because the risks always exist in real estate. It is important to know them to limit them as much as possible.
The disadvantages of real estate investment in a student residence
The health crisis that is shaking the whole world is not sparing students, more and more of whom are leaving their accommodation. If the situation is exceptional, it shows that no investment is 100% secure.
In addition, it is important to be vigilant on several points before investing in a student resident: the location, the management company and the quality of the rental are important.
Choosing the right student city in which to invest
There is still a shortage of student accommodation in France today. Not all newcomers to higher education can find a decently priced studio due to the lack of enough student residences.
However, you should be careful about the city in which you invest. Some faculties, either by their location or by the course they offer, are more attractive than others. Avoid, therefore, investing in a city where the number of students is decreasing from year to year.
Also pay attention to the environment offered by the student residence: proximity to services, shops, transport, etc. Within the student residence, the provision of parking, Wi-Fi, a laundry service, a relaxation room or a gym are also the minimum required.
Choosing the right management company to delegate with serenity
The choice of manager and the quality of the commercial lease contract is decisive. This must be financially irreproachable and have solid backs, since you agree to rent your student accommodation for a minimum period of 9 years.
As a reminder, the management company to which you delegate will be responsible for drafting rental leases, signing entry and exit inventories, but also managing disputes, monitoring and recovering unpaid bills, etc
The rental constraint over time
Although accommodation in a student residence is a sought-after property that is easy to resell because of the immediate returns it can offer, it should not be forgotten that its premature resale will cause you to lose your tax advantages.
After 9 years, you will have to return the VAT from which you were exempt, and before 9 years, you will have to return the VAT and repay your tax benefits. However, the capital gain is rarely sufficient to cover the losses.
It is therefore only after 20 years of rental that you will have made the best investment, provided that the cost of the renovation and possible restoration work has not been too heavy on your budget.