Which large cities are the most profitable?

The crises pass, the French attachment to stone remains. In 2020, this rule, which has not changed since World War II, has once again been verified: appetite for real estate has weakened only marginally, despite the economic slump and the tightening of financing conditions. The explanation is quite simple: in the collective unconscious, investing in stone is the best and, above all, the surest vector of personal enrichment. It is almost the only investment which allows to combine the leverage effect of the loan, the hope of a tidy capital gain on resale and a low savings effort thanks to the rents collected every month.

Profitability, a complex issue

But how profitable is rental real estate? To answer this crucial question, it is necessary to approach the problem as a whole. And in its complexity.

Too often, rental investment applicants are content to measure gross profitability, calculated by dividing the annual rent by the market value. However, building a project on the basis of this single indicator amounts to looking at the prospects for return on investment through the small end of the telescope. This is to forget a little quickly that a rented property is a source of costs for the owner (co-ownership charges, maintenance, insurance…) and generates a tax, which depends on the level of taxation and the chosen regime.

In order to achieve net profitability that is closest to reality, Mieux Vivre Votre Argent, with the help of its partners (UNPI, Meilleur Agents and Vousfinancer), has drawn up the Rental Profitability Barometer. Available in twenty major major cities, this tool is intended to be updated regularly. The assumptions used are those of an investment of 200,000 euros made by an individual taxed at the marginal portion of 30% and having adopted the micro-land regime, allowing a reduction of 30% on declared land income. In our selection, only Saint-Étienne leaves this framework because of gross rents above the annual threshold of 15,000 euros, de facto leading to a switch to actual costs. For the sake of simplification, we will use the same tax system as in other cities. Unsurprisingly, the capital of the Loire is the most profitable on our barometer. But this should be put into perspective, because the risks of deficiency or rental vacancy are important. Ditto for unpaid bills, more likely than elsewhere.

Excluding this case, the analysis of net returns within large cities reveals differences of one to two. In the upper range, Nancy delivers 2.70%. The city of the Dukes of Lorraine, favorable to the acquisition of property intended for students, takes advantage of its still reasonable prices. In the lower range, Bordeaux has a net profitability of 1.38%, below Paris (1.71%) and Lyon (1.68%) due to higher local taxes. However, sophisticated investors may be interested. As long as you flee the golden triangle. In conclusion, there is no such thing as a good or a bad city, there are only good or bad strategies.

The Rental Profitability Barometer in 20 French cities, for an investment of 200,000 euros