Why reported profitability is often a lie (and how to calculate the true one)

You are browsing the ads. One figure is obvious: "10% gross profitability”. It's tempting. In fact, it's almost too beautiful. As a real estate hunter, I see these promises come through every day. The reality? That number is an illusion. It is a hook to attract the beginning investor. Gross profitability ignores taxation, works and rental vacancies. It does not fill your bank account. To invest peacefully, you need to analyze all the data and that is what we are going to see in this article.

‍

The classic pitfalls of gross profitability

Gross profitability is a simple division. We take the annual rent. Divide it by the purchase price. Multiply by 100. It's easy to get a first idea. But it is incomplete. It's like judging the speed of a car without looking at its gas mileage. A return of 10% can quickly turn into a financial abyss if you don't look more seriously.

‍

Voluntary forgetting of acquisition costs

Investor sites or real estate agents often calculate on the “net seller” price. They can “forget” notary fees. These fees represent around 7% to 8% in the old one. They also don't know my hunting fees or agency fees. If you pay €200,000 for a property, it actually costs you at least €215,000. Your profitability falls immediately. A correct calculation starts with the total cost of the operation.

‍

The illusion of theoretical permanent rent

The announcement provides for a rent of €800. But does the tenant stay 12 months out of 12? Rarely. The rental vacancy is the first scourge of performance. Between leases, you lose weeks of income. Condominium fees, on the other hand, continue to fall. A serious calculation always includes a margin of safety. Allow at least two weeks of vacation per year to remain realistic.

‍

The mirage of undeducted charges

The owner pays the property tax. It pays for non-recoverable condominium fees. He pays for PNO (Non-Occupying Owner) insurance. Gross profitability ignores these cash outflows. However, they do come out of your pocket every month. If you don't remove these fees from the numerator, your result is wrong. You overestimate your self-financing capacity.

‍

Going from fiction to reality: net profitability

To go further in the analysis of your profitability, switch to profitability net of expenses. It's the only indicator that's starting to make sense. It separates dreamers from seasoned investors. Here, we no longer talk about what the good “generates”, but about what it “leaves you”.

‍

Integrate condominium fees and management

Rental management costs between 5% and 10% of the rents. It is the price of your peace of mind. If you manage by yourself, your time also has value. Add the condominium fees “the owner's share”. Often, these expenses eat up a full month's rent over the year. A property in a building with a caretaker, elevator, gardener will cost more than a small condominium with a dozen units.

‍

Plan the work and maintenance envelope

An apartment is wearing out. A loose water heater. A stairwell needs to be refreshed. An informed investor reserves 1% of the value of the property each year for work. If you ignore this position, your real profitability will drop to 4% at the first serious water leak. Construction is not an option. They are obvious in the long run.

‍

The growing weight of property tax

It is increasing everywhere in France. In some cities, it represents one to two months' rent. It is an unavoidable fixed load. It varies enormously from one municipality to another. Never overlook it in your simulator. A property with a low property tax is often more profitable than a property with a high rent but heavily taxed. It's the detail that makes a case rock.

‍

The justice of the peace: net profitability after taxes

This is where the lying stops for good. “Net-net” profitability takes into account your personal taxation. It is the number that really ends up in your assets. This is the step that 90% of individuals forget to take before signing at the notary.

‍

Choosing the right tax regime: LMNP vs Property Income

Taxes are your biggest expense. If you rent naked, you pay according to your marginal tax bracket (IMR). Add social security contributions of 17.2%. At 30% of TMI, the state takes almost half of your profits. The LMNP (Non-Professional Furnished Rental) status changes everything. It often reduces this tax to €0 thanks to the accounting depreciation of the property.

‍

The impact of bank leverage and interest

Your loan comes at a cost. Interest is deductible under most tax regimes. Borrower insurance as well. Real profitability must take into account the cost of credit. The aim is to maximize “cash flow”. If your net profitability is 5% but your credit costs you 4%, your margin of maneuver is very slim. Leverage should work for you, not against you.

‍

The final calculation of monthly cash flow

This is the only data that reassures your banker. Once all the charges and taxes are paid, what is left?

• Positive cash flow: The good enriches you every month.
• Zero cash flow: The operation is self-financing.
• Negative cash flow: You are making an effort to save. A “lie” of 10% gross profitability often hides negative cash flow if the tax package is inadequate.

‍

Conclusion: become a pragmatic investor

The profitability shown is a marketing tool. It is used to sell mandates. As an expert, I advise you to always do your own calculations again. Don't believe the bolded number on the ad. Grab your calculator. Deduct notary fees. Remove the charges. Anticipate the work. Above all, calculate the impact of taxes on your overall income.

A well-structured 5% net-net is much better than a gross 9% that costs you €200 per month. Real estate is a precision science. Success is not found in big numbers, but in mastering the small details. Be pessimistic about your expenses and realistic about your income. It is the only way to build a solid and sustainable heritage.

‍