Investing in rental property: new build or existing property?

Before investing in a rental property in the French Alps, many owners will ask themselves a pivotal question: Is it better to build a bespoke property or buy an existing one?

Each of these options has its advantages and aspects to consider. Similarly, each of these adventures will appeal to a certain investor profile.

To help you decide what is best for you, we’ve compiled a list of the advantages and disadvantages of each option, from taxation to the prospect of profitability.

The advantages of building a new chalet

1. Taxation

A reduced rate of VAT

You can benefit from a reduced rate of VAT (5.5% instead of the standard rate of 20%) on building work and certain equipment. It is also possible to reclaim VAT on the construction of a new chalet, depending on the social and tax system you choose.

A person working with a laptop and calculator at a desk
There are many tax advantages to having your own chalet built rather than buying one that’s already been built. ©Canva

The zero-rate loan (PTZ) 

The PTZ is a government-backed loan that can be used to part-finance the construction of a principal residence.

Tax savings on resale

Future owners who invest in the construction of a chalet for holiday rental can benefit from advantageous tax regimes, such as the micro-BIC regime (Bénéfices Industriels et Commerciaux) or the régime réel d’imposition. Under these schemes, you can deduct certain expenses relating to the construction, management and maintenance of the chalet from your tax return.

Exemption from property tax

In certain communes or areas, there may be exemptions or temporary reductions in property tax for new builds.

All these potential advantages are subject to conditions (resources, communes, etc).

A close-up of someone doing calculations and filling out a form
Building a chalet guarantees compliance with current building standards. ©Canva

2. Materials

Personalisation and modernisation

By opting for construction, owners can customise their chalet to suit their tastes, needs and specific requirements.

What’s more, building a new chalet guarantees compliance with current building standards in terms of safety, thermal insulation, acoustics and durability. This guarantees that the chalet will be built in compliance with current regulations, ensuring a high level of quality.

Modern technology

Expectations have also changed in recent years in the wake of Covid and successive lockdowns, both on the part of traditional owners and holidaymakers. Features such as teleworking spaces, adapted ventilation systems, larger storage areas, environmentally-friendly equipment and home automation solutions that can be operated remotely will be a plus, whatever the use of the future chalet, and even a marketing bonus.

Two people working together at a desk
The 10-year guarantee applies to construction work. ©Unsplash

The 10-year guarantee

In France, all newly-built homes come with a guarantee that covers serious damage or damage compromising the solidity of a building for a period of 10 years from acceptance. This guarantee applies to construction, renovation, extension or refurbishment work.

3. Profitability

Given you have researched local tourist demand, a custom-built chalet can make a profitable business that pays for itself very quickly, despite higher initial costs.

What’s more, maintenance costs are likely to be lower in future years than for an existing chalet, particularly as renovation costs will be lower.

The advantages of buying an existing chalet

1. Taxation

The amount of the notary’s fees is the major potential advantage when buying an old chalet. These costs may be higher for a new build, as they include the fees for the various procedures involved in acquiring the land and building the chalet.

A selection of tools on a wooden table
If you buy an existing chalet you may pay less in notary’s fees ©Unsplash

2. Materials 

Expected prices

The price of building materials, such as wood, steel and other resources, rose significantly after the COVID-19 pandemic. This increase can mean higher costs for building a chalet. In this respect, it can be advantageous to buy a property that is already built.

Keeping deadlines under control

Delays in delivery are also a potential concern. Material shortages and logistical difficulties can lead to delays in the delivery of the necessary building materials. These delays can extend the duration of the project, and again generate unforeseen expenses, in addition to upsetting the original schedule.

Power tools and ear protectors on a work bench
Delays in delivering materials can set your construction project back ©Unsplash

3. Profitability

Investing time and effort

Buying an existing chalet can be quicker and less demanding in terms of project management and coordinating the building work. If owners buy an older chalet, they can rent it out more quickly and generate rental income.

No budget overruns

When you buy an existing chalet, it’s easier to get an idea of the real costs (purchase, solicitor, renovation if necessary, and even energy consumption based on past consumption).

Buying an existing property is quick and easy, while building a new one allows you to adapt to market trends and add your own personal touch.

For help with your rental investment project, don’t hesitate to contact OVO Network. With over 150 chalets under rental management, OVO Network can help you make the most of your mountain investment.

Finally, find out how much you can earn by renting out your property using our free rental income calculator.

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