By Adrian Leeds
Paris, May 4, 2011 - Published by International Living
If you’re buying a pied-à-terre for rental purposes in Paris, France, then you will want to know how to price it and what you can expect from the rental returns, even before you sign on the Promesse de Vente’s (pre-sale agreement) dotted line.
Paris rentals come in all sorts of shapes and sizes. An apartment rented unfurnished is a very different animal from one that is rented for vacation use completely equipped for as little as a few days or by the week.
The lenders use an equation of approximately 20 euro to 30 euro ($30 to $44) per square meter per month to estimate rental income when processing your loan application. This equation fits the current unfurnished rental market in Paris.
For example, a one-bedroom apartment in Saint-Germain-des-Prés (the most expensive district) of 40 square meters would rent unfurnished for at least 1,200 euro per month ($1,777). The same size apartment in a moderately priced district, such as the 15th arrondissement, would rent for 1,000 euro ($1,481) per month and in the least expensive areas, such as the 10th arrondisement, 800 euro ($1,185) would be a fair price…for an unfurnished apartment.
We do not recommend renting your Paris property unfurnished. Unfortunately for landlords, even though recent laws have been designed to attract more investors/owners of unfurnished housing, the laws generally favor the tenants, rather than the landlords. Therefore, owning unfurnished properties achieving such low rents is not all that desirable. This is unfortunate for tenants, as well, because there are fewer unfurnished apartments on the market, but a very high demand.
Renting your Paris apartment weekly or monthly
Rental by the week can be the most profitable, but the most amount of effort and work. If you manage the apartment yourself, then you will be advertising it, taking the reservations, organizing the “meet and greets” and ensuring the property is properly maintained. If you hire an agency to do this for you, expect to pay them approximately 35% of the rental price. (Some charge more or less depending on the quality and level of service.)
Rental by the month can provide a happy medium with reasonable profit and low risk—this depends, of course, on your desire or ability to make the property available for long periods of time. Normally, a monthly rate is two to three times a weekly rental rate.
For example, the following are rates for a 20 square meter studio:
Night/105 euro to 180 euro ($155 to $266)
Week/665 euro to 1,190 euro ($985 to $1,762)
Month/1,680 euro to 2,800 euro ($2,488 to $4,148)
The range gives flexibility to charge more or less depending on season and availability. These rates were determined by analyzing the current market and staying within the same range as competitive apartments.
Achieving an occupancy rate of 50% is what you should expect as a baseline your first year, with a goal of at least a 70% to 80% occupancy in subsequent years. Good management of the apartment leads to higher occupancy rates…and let’s face it, every night you rent in the apartment becomes pure gravy once you’ve satisfied your expenses (utilities, insurance, taxes, mortgage interest and fees).
Paris hotels versus apartments
From the point of view of the agency, the success of the apartment depends largely on the owner. They all agree that unless the owner is cooperative, their job to create a successful rental can become more difficult.
When researching the market, don’t exclude hotel rates from the picture. In fact, your first competition comes from those who choose to stay in Paris hotels vs. apartments…and if a visitor can have the luxury of an apartment at the same rate as a hotel, then the privacy and feeling of being a resident can be very appealing in exchange for the daily housekeeping and concierge service a hotel provides.
A disparity in rates normally would indicate a high or low level of luxury. Rental agencies will tell you that apartments luxuriously appointed can command higher rents, achieve high occupancy rates and attract better clients. For this reason, we recommend not scrimping on the details…a little more of an investment in quality and tasteful furnishings can go a long way to a successful and profitable property.
Rental Property Return on Investment
COST OF ENTRY
Price of apartment: 240,000 euro ($355,550)
Number of square meters, studio: 20
Price per square meter, average: 12,000 euro ($17,777)
Legal expenses, taxes etc. (Notaire fees): 16,800 euro ($24,888) [7%]
Search Fees: 7,200 euro ($10,666) [3%]
Renovation and furnishings: 40,000 euro ($59,258) [2,000 euro per meter -- $2,962]
Mortgage arrangement fee: 1,500 euro ($2,222)
TOTAL COST: 305,500 euro ($452,586)
Rental per week: 950 euro ($1,407)
Property management full service: 35%
Percentage occupancy: 65%
Gross rental yield: 32,110 euro ($47,569)
Gross rental yield as percentage of cost of entry: 10.51%
Property Tax (Habitation & Foncière): 480 euro ($711)
Insurance: 158 euro ($234)
Utilities: 1,200 euro (100 euro or $148/month)
Repairs & Maintenance: 600 euro/$889 (.25% of price of apartment)
Home owner’s fees: 500 euro/$740
Property management fees: 11,239 euro/$16,650 (35% of Gross Revenues)
Additional advertising: 321 euro/$475 (1% of Gross Revenues)
Total Expenses: 14,498 euro/$21,498
Profit before mortgage expenses: 17,612 euro ($26,104)
Net profit as percentage of cost of entry: 5.76%
Net profit as percentage of capital investment: 15.52%
Loan to value: 80%
Period of loan (years): 20
Amount of mortgage: 192,000 euro ($284,440)
Mortgage interest variable rate (repayment loan): 3.90%
(Margin 1.3 plus 3-month Euribor 2.6)
Mortgage expense repayment loan: 13,841 euro ($20,504)
Profit after repayment mortgage: 3,771 euro/$5,568
As you can see, based upon these assumptions, an apartment in the center of Paris can easily carry itself depending upon the location, the amount of your down payment and your furnishings. In addition, a property in Paris will naturally increase in value over the years (proven history), earning you a profit based on “OPM”—other people’s money!
The bottom line is a property in Paris is perfect for both profit and pleasure.