Financing a property you intend to let follows the same broad rules as a residential purchase, with two differences that matter: how the rent is counted towards your borrowing capacity, and how the letting is taxed. Both affect what you can borrow.
Lenders do not take projected rent at face value. The common approach is to count around 70 per cent of expected gross rent as income, the discount covering vacancy periods, management costs and maintenance. Some lenders treat the rent as reducing your debt burden instead, which produces a slightly different calculation but a similar outcome.
The practical effect is that a rental property does not finance itself in the eyes of a bank. Your own income still has to carry a meaningful share of the loan.
| Unfurnished (location nue) | Furnished (location meublée) | |
|---|---|---|
| Tax category | Property income (revenus fonciers) | Commercial income (BIC) |
| Main advantage | Simpler, longer tenancies | Depreciation can offset taxable income |
| Typical lease | Three years | One year, or nine months for students |
The furnished route under the LMNP regime is frequently attractive because depreciation of the property and its fittings can substantially reduce taxable rental income for many years. It also brings accounting obligations. This is a decision to take with a French accountant before you buy, not after, because it influences what you buy and how you hold it.
An interest-only loan, known as a prêt in fine, is more common for investment purchases than for homes. You pay only interest during the term and repay the capital at the end, usually from the sale or from savings pledged to the bank. Because the full interest is paid throughout, the total cost is higher, but the deductibility of interest against rental income can make it efficient for higher-rate taxpayers. Lenders typically require a substantial pledged investment alongside.
A gross yield calculated from purchase price and rent will always flatter the reality. Deduct the taxe foncière, co-ownership charges where they apply, insurance, management fees if you use an agent, maintenance, and periods without a tenant. A gross yield of 6 per cent commonly lands somewhere between 3 and 4 per cent net before tax.
For the financing process itself, see non-resident mortgages, and the buying guide for the purchase sequence.