Estimating the total cost of your new-build rental investment

When you sign the contract of sale, your notaire will ask you to lodge a deposit in respect of legal fees. Legal fees are lower when you buy a new-build, accounting for between 3% and 4% of the price of the property.
Legal fees are broken down into 3 items:

• the fees of the notaire and his/her staff: these fees are fixed by law and are the same for all notaires,

• the duties and taxes the notaire is responsible for collecting,

• costs and disbursements: i.e. all the costs incurred by the notaire in handling your case.

A few months after signing the contract of sale, the notaire will send you the supporting documentation explaining the costs incurred. If the balance of the account is in your favour, he or she will pay the amount due, or where the opposite is the case, request payment of the difference where the costs have not been covered in full by the original deposit.

These are the guarantees and insurances you enter into when you take out a mortgage:

• preliminary interest: you pay for your property in several stages. At each stage, your bank releases a part of the amount borrowed, but you don’t begin to repay this capital until the full price has been paid and the property handed over to you. Until that time, you pay only “preliminary” interest (intérêts intercalaires in French),

• your loan guarantee: you have the choice of a mortgage secured against the property or a guarantee bond, which is usually granted by a specialist or mutual company,

• death and disability insurance, which is obligatory,

• unemployment insurance, which is optional.

Contact your bank and compare the insurance rates on offer, as you would with mortgage rates.

Don’t forget to take out Propriétaire Bailleur (Owner/Landlord) or Non-resident insurance (which covers types of damage not covered by landlord and co-ownership policies) and, where appropriate, insurance against non-payment of rent or tenant insolvency.
If you decide to delegate the management of your rental property to a property management company, remember that the company will deduct its fees from your rental income (including rental charges). You should allow for this fee being approximately 6-8% of rental income exclusive of VAT.
N.B.: you should deduct these fees from your rental income every year, because they form part of your allowable deductible charges.
* * Reform of the tax scale for rental income 2006: finance law 2005-719 of 30 December 2005.