Why do not buy your main home

Rationality orders to invest in rental real estate. By David Brauman, Managing Partner of BSM Invest, a real estate investment consulting firm.

The latest polls show the growing willingness of French to invest in real estate: more than one in two French believes it is indeed a timely time to invest. However, this generic term "real estate investment" covers many alternatives, including the purchase of a principal residence or the realization of a first rental investment, which in reality have little to do between them. 

 "Do I have to buy my main home? This is a question that many of you ask at one time or another. The prospect of no longer "paying rent for nothing," "living really at home  " seems very attractive, but everything is not so obvious. Why? Because unless you project yourself in the long term in a house or consider it exclusively as a supplementary capitalization for your retirement, it is most often preferable to opt for one or more rental investments.

Few gains when reselling a principal residence

Let us explain by taking a case-by-case scenario that can not be more common: when you buy your main residence, you do some work to renovate it, or for taste. We pay notary fees. Add the repayment of loan interest, which occurs during the first years. If we add to these expenses, the fact that one buys for oneself in a city judged "good," where the prices increase more slowly than in the cities "with potential," so much to say that one capitalizes little on his purchase during the first years.

 Pursuing. In five to six years, your family situation has changed: you move in a couple or you divorce, you have a child or two, or more, you want to live elsewhere. These developments will probably lead you to want to change your main residence. As a result: there is a good fortuitous that your return on investment will be lower. Conclusion: From a strictly commercial point of view, it is likely that you will earn nothing or almost nothing at the time of resale of this principal residence if it intervenes in the next 10 years.

Real estate investment is gaining value over time

The lesson is simple: a traditional real estate investment is gaining value over time. For this investment to earn you money after only five or six years, the selling price of your principal residence must have increased by at least 15%. A striving goal, in such a short time, especially if we have chosen a luxury neighborhood, where prices will grow less quickly. 

 So what to do? It is in this instance that a rental investment can be the key. Smaller, cheaper, it will allow you to first buy in a city "potential" where prices are likely to increase more quickly and where you can make your purchase profitable after a few years only in the hypothesis resale. This is the case of neighborhoods in full gentrification, as we now find in all urban centers. Also, it is possible to largely self-finance your acquisition, by recovering rent and benefiting from tax exemption schemes.

 Let's keep it in mind, in all circumstances: investing in real estate is not buying a product, it's buying a home! Therefore, everyone develops an effective relationship to "his good," which he plans to reside there or not. This explains why one sometimes hesitates between these two options, whereas from a strictly economic point of view, and expect to buy one's main residence in the new one, one often seems much preferable to the other.