Real estate: why investing in a city where rental yields are high is not always a good idea?

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The cities that offer spectacular rental profitability rates are also those that stand out with high vacancy rates. Renting your property in these municipalities is therefore complicated .

By Guilhem Pouiol

Real estate investments that offer high rates of return are also the riskiest. In a study published on Tuesday, the Bevouac company, which specializes in turnkey rental investment, shows that the most attractive rental yields are found in municipalities where the vacancy rate is well above the national average. Finding tenants in the most profitable cities can therefore be complicated.

To arrive at this observation, Bevouac observed the share of vacant housing in the 100 largest French cities in order to compare these figures with the gross yield rates observed in these same municipalities. Thus, in Béziers, Perpignan and Mulhouse, three cities where the vacancy rate is high (around 16%), the gross yields are particularly interesting (more than 9%). This is explained by a relatively low purchase price, combined with rents that remain profitable for owners. But the counterpart is that it is complicated to find tenants to fill your accommodation due to the lack of attractiveness of these municipalities.

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Conversely, attractive towns such as Cannes, Ajaccio or Mérignac, which have low vacancy rates (between 2 and 4%), offer less attractive rental yields (between 2 and 5%) warns Martin Menez, president of Bevouac. It is important to take into account the dynamism of the city in order to avoid unpleasant surprises”.

Stand out from competition

If you still intend to invest in an unattractive city in order to hope to benefit from high returns, it is essential to take care of the layout of your property in order to hope to attract tenants. “The higher the vacant housing rate in a municipality, the tougher the competition between owners, comments Martin Menez. Investors’ properties must stand out from the rest of the market, even if it means increasing the works budget.” In a city where rental demand is low, choosing an attractive location is also essential. Prefer neighborhoods that are adjacent to universities and that are well served by public transport.

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If the gross rate of return is a significant indicator for choosing a municipality in which to invest, we must not omit to take into account an equally important factor: the evolution of prices in the municipality. In cities that offer spectacular yields, purchase prices tend to stagnate or even fall over the long term. It is therefore very complicated to make significant capital gains in order to make the investment as profitable as possible. Conversely, it is possible to make very good capital gains in municipalities where the rental yield may seem relatively low.

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