Renting Out Your Apartment and Taking Out a Second Loan: The 5 Key Steps

Are you looking to rent out your apartment to secure a loan for a second real estate purchase? Here are the key steps to making your project a quick and hassle-free success. L’Agencerie, your real estate agency in Albi, Anglet, Bayonne, Bordeaux and Hossegor also explains in which situations this project is beneficial for you.

Renting Out a Property and Taking Out a Second Mortgage: Is It Feasible?

Yes, it’s entirely possible to get another loan to purchase your second property by renting out the first one. In fact, this is a common practice among homeowners.

However, there are certain factors you should consider before moving forward. These primarily concern your borrowing capacity, which refers to the maximum amount you can borrow to purchase your new home. To calculate this easily, you can use a free online mortgage calculator. The calculation takes your income and expenses into account.

In the simulator, you’ll need to enter the amount you want to borrow for your mortgage. This amount shouldn’t be limited to just the purchase price of your second property. You should also include, for example, real estate agent fees and notary fees. Check out our guide to all the costs to expect when buying a home to learn about them all.

Your debt-to-income ratio is also one of the factors to consider when determining whether you qualify for a new loan. Generally, banks accept a debt-to-income ratio of less than 33%.

Here’s how it’s calculated:

Debt-to-Income Ratio = ((monthly payments + fixed expenses / (net pay + other income)) × 100)

Step 1: Preparing Your Primary Residence to Rent It Out Easily

Before renting out a property, it is important to be familiar with the applicable rules, particularly those regarding rental apartments. These apartments must meet the standards of decency already established by law. More specifically, a decent dwelling must meet certain criteria, such as:

• a minimum area of 9 square meters for the main room;
• a ceiling height greater than 2.2 m.

Don’t forget to have the required property inspections so that you can rent out your property. These include, in particular:

• energy efficiency;
• lead exposure;
• thermal insulation;
• etc.

This document must be included as an attachment to the lease agreement.

Create that “love at first sight” effect with home staging

Home staging is a form of real estate marketing that helps you quickly attract potential tenants during showings. This is achieved by making small, inexpensive improvements, such as laying tile and painting walls.

Home staging is based on three basic rules:

• decluttering to highlight the space in the apartment;
• depersonalization by removing personalized decorations such as family photos;
• The redesign was intended to allow as much light as possible to enter the rooms and create an open, airy feel.

The goal of home staging is to showcase your property rather than hide its flaws. It does not involve major renovations that require structural changes, such as tearing down a wall. The fundamental principle of home staging is to enhance the property’s appeal without incurring excessive expenses.

Step 2: Choosing a Lease for Your Rental Investment

Choosing the right type of lease is an important step in ensuring a smooth rental experience for your property. To do so, you have the following options:

• Furnished rentals: You can find the list of required furniture that you must provide to your tenant on the Service-Public.fr ;
• unfurnished rentals.

You should also be aware that the type of rental agreement you choose has a direct impact on your taxes. For example, if you rent out your apartment unfurnished, your income is taxable as real estate income.

If you rent out a furnished property, the income is taxable as BIC (industrial and commercial profits). It is important to take tax implications into account to ensure the viability of your rental investment.

Step 3: Setting the Rent

When it comes to setting rent, several factors must be taken into account, including:

• the location of your property: Rent varies depending on your property’s address. In fact, your rent should not deviate too much from the rental market trends in your city if you want to attract tenants easily;
• the layout of your property: whether it has an elevator, the number of rooms, the energy efficiency rating, etc.

As you can see, setting the rent for your apartment isn’t something you do on a whim without taking all the factors into account. That’s why it’s sometimes essential to hire a real estate agency to handle the rent assessment.

If you would like to rent out your apartment, consult a local professional to ensure an accurate estimate. The amount of rent directly affects your rental yield, especially if you plan to pay off your new loan with your rental income. Don’t underestimate it.

Step 4: Conducting Site Visits

Arranging showings takes a little planning. If you’ve decided not to have your rental apartment managed, be attentive to prospective tenants and answer their questions honestly and transparently while highlighting your property’s best features. Don’t forget to request their rental application to ensure they’re reliable.

Once you’ve found a tenant, you can begin drafting your lease agreement. In 2023, this document specifies:

• Your name and the names of your tenants;
• Description of the rental property;
• Rent payment terms;
• Agency fees if you have opted for rental management;
• etc.

Step 5: Applying for the Second Mortgage

Once your property is rented out, you can then apply for your second mortgage. Although you can apply for a new loan before finding a tenant, this can be risky.

In fact, the period between renting out your old apartment and buying your new home can be difficult if you can’t find a tenant quickly. In this situation, having to meet two financial obligations at once can put a strain on your budget.

The procedures for applying for a second loan are virtually the same as those you followed when you took out your first loan. The only differences are:

• you are not eligible for the financial assistance programs designed for first-time homebuyers;
• Your debt-to-income ratio is increasing. Debt consolidation is a solution that allows you to lower the monthly payments on your current loan and thereby reduce your debt-to-income ratio.

To apply for your second loan, you can contact your current bank or work with a mortgage broker. A mortgage broker can help you save a significant amount of money in the long run by negotiating a loan offer with competitive rates on your behalf.

L’Agencerie –