“Kathleen, I’m a new member of your Overseas Retirement Circle, and I am interested in additional information concerning the ‘Light Leaseback’ opportunities in France that you’ve written about in the past. How can I find out more?”
–C.W.B., United States
In the mid-1980s, the French government recognized the country’s growing demand for short- and medium-term accommodation and conceived what is generally referred to as the French leaseback. In short, they decreed that anyone investing in a qualified leaseback property in this country would:
— Receive a full refund of the 19.6% VAT paid on the purchase price (this applies to new-build leaseback properties only…but is a nice concession and means, in effect, that you can take nearly 20% off the top of the sales price)…
— Pay no taxes on rental income generated by the property…
— Earn a guaranteed rental yield; this varies from 3% to 5%, depending on the property and the developer…
— Be free of all management hassle and responsibility.
The management company you “lease back” to is responsible for everything from advertising and promotion to meeting renters upon arrival…from keeping a contents inventory to processing payments…and from between-rental cleanings to changing the light bulbs.
Meantime, you’re the owner…so you’re enjoying any capital appreciation during the term of the leaseback (typically nine years, renewable for an additional nine years).
On the one hand…it’s a turn-key, tax-advantaged investment with a guaranteed return. On the other hand…what’s the point of owning a place of your own in belle France…if you can’t ever use it?
That was the problem with the original leaseback program. It was a long-term play, because, under the requirements of the traditional leaseback program, during the term of the agreement, the owner was allowed maybe two weeks personal use each year.
Several years ago, the French Leaseback went “light.” Now you can enjoy the no-VAT, no-rental-income-tax benefits of the traditional leaseback…plus have use of your place up to six months each year.
You’re still guaranteed a rental yield…though only during the months the property is under leaseback management. If you choose to live in it for six months each year, then your 3% to 5% annual yield is effectively cut in half. (The precise yield you earn depends on when you choose to be in residence; allow the place to be managed by the leaseback developer during the Christmas and Easter breaks and all the summer season, and your yield could be more; black out peak periods, by reserving the place for your own use during French holidays, and your yield could be less.)
This isn’t a home run from an investment yield point of view. But it is a steady, reliable, and predictable return. And it should be enough to cover your carrying costs (other than your mortgage if you borrow to buy), meaning that you end up with a second home in France that wipes its face, as they say…that earns capital appreciation…and that’s sitting waiting when you’re eventually ready to retire to it full-time.
You can read more about this creative approach to owning in France here.
“Kathleen, I liked this weekend’s article because it mentions expats living in parts of the world other than in the Americas. You explain the reasons you are fond of the Americas; however, I’m not sure other places don’t offer quite a bit, as well.
“For example, I like that you are mentioning Asia and Europe regularly now. As I recall, you’ve said that you might be having a Live and Invest in Europe conference in Paris in 2012. This sounds inviting.
“Are any Asian conferences planned?
“Thank you again for your Panama Conference last month. Simply wonderful and stimulating.”
–Elise H., United States
Yes, we are planning a Live and Invest in Europe Conference for 2012. Watch this space for details soon. Nothing definite at this time for a Live and Invest in Asia event.