Leaseback Light

French Leaseback

France sees more than 80-million foreign tourists every year. Plus, 80% of the 50-million French spend at least one night a year in overnight accommodation away from home in their homeland.

The net is more than 1.5 billion hotel nights per year.

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

 

It’s relatively straightforward for a foreigner to borrow to buy in France. You can arrange a mortgage for as much as 80% loan-to-value through France Home Finance, for example.

In other words, for only 20% down, you could invest in a French pied-a-terre free of VAT, free of rental income tax, and free of hassle. 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 always my problem with the leaseback. It’s a long-term play, because, under the requirements of the traditional leaseback program, during the term of the agreement, the owner is allowed maybe two weeks personal use each year.

Others must have shared this reservation…for the leaseback has gone “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.)

Any way you figure it, though, this isn’t a home run as far as investment yields go. But it is a steady, 100% 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.

Premier French Leaseback is a small firm that specializes in helping foreigners invest in French leaseback offerings. They pick and choose among all the leaseback properties across the country, from the Pays de la Loire to the Alpes Maritimes (and, yes, in Paris, too…though Paris leasebacks are harder to come by than non-Paris ones). Right now, they feature 25 leaseback investment opportunities, one for as little as 68,000 euro in Carrieres-sous-Poissy, 30 minutes from central Paris.

All leaseback properties, by the way, can be bought “light.” It’s not that certain leasebacks choose to participate in the more-owner-usage program; it’s that you, as the buyer, dictate the terms that make sense for you. You back into the guaranteed yield from there.

Kathleen Peddicord

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