Buy to let: a good idea?

The market for rented residential real estate in Luxembourg continues to display a high potential.

However, you shouldn’t just buy property anywhere! To ensure that your investment is really profitable, you should begin by paying careful attention to the property's location. Areas with a high concentration of inhabitants and shops can be very attractive. Although the city centre accounts for most of the demand, don’t overlook outlying districts or areas enjoying high economic growth, such as Esch-Belval for example.

The construction of apartment buildings has increased non-stop since the year 2000. Apartments of approximately 70 to 90 m² are much in demand for rental purposes as these are perfect for single-person households, or even for couples with a child.

Investing in buy to let properties also entails rental risks. The buyer must be aware of the risk that his property may remain unoccupied for a certain amount of time. However, if the investor has received financing from a bank, he must ensure that he possesses the funds needed at all times to be able to repay his loan on time. In the event of rental, there are insurances providing coverage in case of unpaid rent.

Before you can benefit from your investment, you’ll need to pay out a whole series of costs both for existing properties and for those acquired on a sale-before-completion and pre-sale basis. With this in mind, you should plan on the following:

The net rental income – the gross income from which you deduct certain expenses such as interest and charges, maintenance and management costs, depreciation of the property, etc. – is subject to tax. By the way, did you know your rental investment is depreciable at a rate which is based on the year the property was built? For example, you benefit from a depreciation rate of 5% for the construction year and the 5 subsequent years of a property’s existence. Rather attractive, isn’t it? Finally, a negative net rental income may be deducted from your other taxable income.