The Non-professional furnished rental status is a simple and attractive investment solution for rental property, enabling landlords to rent out furnished accommodation and benefit from tax advantages.
a) Registration with the Registry of the Commercial Court :
As a non-professional furnished rental company, you must register with a business formalities center.
- to obtain a Siret number,
- to make known the existence of this activity,
- indicate the tax regime chosen.
On the other hand, the status of non-professional furnished rental company does not require the creation of a company. Non-professional furnished rental rental can only complement a salaried activity.
b) Prior authorization for change of use:
In certain municipalities, the lessor (professional or not) must submit a request for prior authorization for change of use to be able to rent it for short periods repeatedly to passing customers.
This authorization does not apply when the rented accommodation remains the principal residence of the lessor.
c) Check-in in a furnished tourist accommodation or guest room:
Any person (professional or not) who offers furnished tourist accommodation for rental must have previously made a declaration to the mayor of the municipality where it is located.
This prior declaration is not obligatory when the residential premises constitute the principal residence of the lessor except in municipalities where the change of use of premises intended for residential use is subject to prior authorization and if the municipal council in decided otherwise.
The rule is the same if you rent rooms at your home, breakfast included, (bed and breakfast) for one or more nights to tourists.
The different categories of furnished rental:
Furnished rentals can be used as principal residences, occasional rentals, or seasonal and tourist rentals. In these cases, the Furnished leases as the tenant’s principal residence.
a) Furnished leases for principal residences are governed by articles 25-3 till 25-11 of the French Civil code (Code civil):
Indeed, the article 25-3 of the French Civil Code specifies that:
“The provisions of this title are a matter of public policy and apply to rental contracts for furnished accommodation as defined in article 25-4, where such accommodation constitutes the tenant’s principal residence within the meaning of article 2.
Articles 1, 3, 3-2, 3-3, 4, with the exception of l, 5, 6, 7, 7-1, 8, 8-1, 18, 20-1, 21, 22, 22-1, 22-2, 24 and 24-1 apply to furnished accommodation.
The present title does not apply to “logements-foyers” or to housing covered by an agreement with the State concerning occupancy conditions and allocation procedures.
The present title does not apply to housing allocated or rented because of the exercise of a function or the occupation of a job, nor to rentals granted to seasonal workers”.
The lease must be concluded for a minimum renewable term of one year. This period is reduced to 9 months for students, with no automatic renewal.
b) Furnished mobility leases are governed by articles 25-12 till 25-18 of the French Civil code (Code civil):
Indeed, the article 25-18 of the French Civil Code specifies that:
“Rental charges ancillary to the main rent are recovered by the lessor in the form of a lump sum paid at the same time as the rent, the amount and payment frequency of which are defined in the contract, and which may not give rise to any subsequent supplement or adjustment. The amount of the flat-rate service charge is set according to the amounts payable by the lessor in application of article 23. This amount must not be manifestly disproportionate in relation to the last statement of charges by type, in relation to the frequency of payment of the flat-rate charge”.
This is a short-term lease of furnished accommodation to a tenant who can prove, on the date the lease takes effect, that he or she is on vocational training, higher education, an apprenticeship contract, an internship, a voluntary commitment as part of a civic service, a professional transfer or a temporary assignment as part of his or her professional activity.
The mobility lease is concluded for a minimum of one month and a maximum of ten months and is non-renewable and non-renewable on-professional rental.
For tax purposes to qualify for non-professional furnished rental status, and not be considered a professional lessor, your rental income must:
a) be less than 23.000 EUR per year (for all members of the tax household), or not exceed the total income of the tax household subject to income tax in the following categories: salaries and wages, industrial and commercial profits, agricultural profits, non-commercial profits.
For many years, furnished rental of residential property has been a favored tax-efficient option.
Over time, however, legislators have increasingly tightened the conditions of application, both in terms of tax law and legal regulations.
b) annual revenues in excess of 23.000 EUR, revenues exceeding the total professional income of the tax household.
Regarding the Tax benefits, the concerned has the choice between two tax regimes, the micro-BIC regime, also called flat-rate regime and the real regime. The goal is to choose the best tax regime for your situation, we therefore advise you to carry out simulations.
This particular rental status is becoming increasingly popular with property owners, as it offers a number of advantages. Indeed, this type of rental offers advantages for both the owner and the tenant. The best-known benefit is the tax advantage.
a) A rental facility
Furnished accommodation is, most often, rented more quickly. Indeed, this type of rental can allow owners to avoid rental vacancies. This is due to the fact that people looking for furnished rentals are, most of the time, students or people changing professionally or personally.
They will therefore tend to stay in the accommodation for a rather short time. They therefore necessarily have an easier time choosing an apartment. Unlike people who are looking for empty rentals whose aim is to settle in for the long term. They therefore think more about getting an apartment.
b) Flexibility of status
Moreover, this type of rental is a status which has more flexible rental criteria. Indeed, there are differences between empty accommodation and furnished accommodation in terms of the rental contract. If you want to know more about the rental contract for a furnished apartment, click here. The differences are for example the duration of this contract, the duration of the notice period for the tenant and the owner or the amount of security deposit authorized.
All these elements which differ between the two types of accommodation make furnished rental more flexible and therefore more attractive for tenants and owners alike. For example, if we are interested in the length of notice. It is shorter for furnished accommodation for both the owner and the tenant. This allows the tenant to quickly change apartments and it allows the owner to end the contract if things do not go well with the existing tenant.
c) Advantageous rents
This type of rental status allows you to rent your apartment at a higher rent. Obviously, an apartment that has furniture can be rented with a higher rent than an empty apartment. Quite simply because you have invested more, but also because the tenants are ready to pay more for a furnished apartment because they will not have the additional costs of furnishing the accommodation and they will not have to make the move at their arrival and departure.
A furnished apartment rents at a rent 12% higher on average than if it were empty. Of course, thanks to this advantage, you will obtain higher income, but you must not forget that the furniture will wear out and that tenants can also damage it. You will therefore receive higher income, but additional expenses are to be expected.
It is also very interesting to have this type of rental status for the resale of your property. You can, of course, invest in real estate in order to carry out classic furnished rentals and decide to change its function a few years later. You can choose to use your accommodation as a primary or secondary base. When you are an expatriate, this can be interesting if you want to come back from time to time to see your family or if you want to return to France in part of your future life. But you can also choose to resell your property.
A furnished property can sell for a higher price than an empty property. In fact, you can choose to sell your furnished property. You can therefore increase your price. In addition, if you have carried out renovation work in addition to the furnishing, your property may sell for more. This advantage is really one in heritage cities. In heritage towns, the important thing in a real estate investment is resale, unlike in yield towns. In general, when an owner invests in heritage towns, he aims to resell his property at the maximum price.
Now, we will tell you about the disadvantages of this type of rental status:
a) Tax risk
This status is very popular for its many advantages but in particular for its tax advantage. We have explained it to you in more detail just above, but when you are this type of rental your income must be declared in the Industrial and Commercial Profits (“BIC”) (bank identification code) category.
You can then choose between the micro-BIC category and the real category. However, we must still be vigilant regarding the risks that owners may face regarding the tax side. Tax changes and regulatory changes may occur from time to time. These changes can be negative for owners in certain situations. We therefore advise you to be vigilant regarding all changes.
b) Limited depreciation
Depreciation is a significant advantage of this type of rental. However, this is an advantage limited in time. In fact, you can amortize your entire investment over approximately 30 years and the purchase of your furniture over approximately 7 years. But when the depreciation period for your investment is over, you cannot start depreciating again.
The possibility of depreciation is therefore a fleeting advantage. When this benefit ends, your taxable share of your income will therefore necessarily be higher. We therefore advise you to do the calculations carefully to find out if the actual regime is the tax regime that suits you and to find out if this type of rental status corresponds to you.
c) To face of the concurrence
This type of rental status is a very popular status. Indeed, we spoke to you about it a little above, but it is a status which interests more and more owners. This is because it brings many benefits. We talked to you about these advantages in the first part of this article. They are numerous and very interesting for owners. However, due to its success, the number of furnished apartments is constantly increasing in many cities in France.
You must therefore find out carefully about the location of your property. In some cities, it may be better to rent your property empty. Indeed, if there are too many furnished accommodations in a city and therefore too much competition, you may have difficulty finding tenants. You could therefore face long rental vacancies and therefore a significant loss of profitability. Do not hesitate to contact us if you would like support during your real estate investment project in France.