Buying a property, renovating it, and reselling it has become a real phenomenon in recent years, particularly among real estate investors. While it may seem like a lucrative activity, it is important to understand the financial repercussions of this process before getting started.
Notary fees, registration taxes, and property tax
The purchase of a property requires a significant financial investment. Whether using your own funds or taking out a mortgage, it is important to know that the costs involved are not limited to the purchase price of the property. There are additional costs such as notary fees, registration taxes, and property tax. It is important to take all of these costs into account to determine if the investment is viable.
Setting a renovation budget
Embarking on a renovation can quickly become expensive. It is therefore important to set a precise budget and stick to it as much as possible. Costs can easily spiral out of control if you do not closely monitor your expenses. The work can include installing a new kitchen, refreshing the bathroom, repairing the roof or plumbing, as well as repairing floors and walls.
You must also take into account the time and cost of labor. If you are not an experienced handyman, you will likely need to hire professionals to carry out your work. The cost of labor is high, and it is important to take it into account when establishing your budget.
Stamp duty or registration tax
The inflation of real estate prices has not yet increased enough to cover the registration fees you paid when purchasing your property. This means that, when selling a property, the registration fees are often not recouped. It is important to mention that registration fees amount to 12.5% of the selling price in the Walloon Region.
You can still recover part of the registration fees
However, you can recover a portion of the registration fees paid at the time of purchase if you sell your property within two years of acquisition. In Wallonia, you can recover 3/5 of the registration fees. To be eligible for this, the resale deed must have been executed within two years of purchase and you must not have benefited from a reduced rate at the time of acquisition.
And what about the abatement ?
In case of a quick resale, you will have to repay it if you have benefited from an abatement on these registration duties. If you do not meet the condition that entitles you to this tax advantage, that is, being domiciled in the property for at least 3 years in Wallonia, you will have to repay the abatement, except in case of force majeure. In Wallonia, the abatement applies to the first 20,000 euros of the purchase price. Therefore, if you have benefited from this tax advantage, you will have to repay 2,500 euros in Wallonia.
The housing grant
The housing grant is a financial aid that can be obtained from Wallonia to undertake work with the aim of energy saving and renovating a home. To benefit from this grant, you must follow the work order that will be recommended to you by a housing auditor accredited by Wallonia. This auditor will highlight problems that should be addressed in your home. This analysis will tell you where to start improving your home.
In Wallonia, you must commit to staying domiciled in the property for 5 years to receive this housing grant. This period starts after the date of registration of the first follow-up report on the work.
The capital gains tax
If you sell your home for a profit, you will not have to pay a tax on the real estate capital gain if your property is considered your primary residence or if you inherited it. However, for other cases such as secondary residences or investments, a tax of 16.5% applies to sales made within 5 years of purchase.
In conclusion, it is important to keep in mind that recovering the initial purchase price, as well as the deed fees and renovation costs, during a real estate sale is a rare situation. While renovation can increase the property value, it is essential to weigh the costs and benefits to avoid significant losses. Ultimately, it is crucial to plan well and be realistic about profitability expectations before embarking on a real estate renovation project.