Is MGM / CGH "safe" bet on Leaseback?

11 January 2016

Hello, all!

I'm happy to have discovered this forum, very educational (and concerning) to read through some of the stories!

I'm about to make a purchase decision of my own, a new leaseback property in French Alps, Val Cenis - built  by MGM, operated by CGH.

I've been thinking about it for several years, as I've been (still am) rather sceptical about ownership in France, with French goverenment changing laws each day, french non-service culture etc etc.

This particular company (MGM/CGH) operates almost network of almost 30 locations across French Alps and they seem to operate very professionally and with high standards (the 4-star place they run in Val Cenis for 5 years now looks like new and maintained to very high standards), also they offer rather modest "guaranteed" rent - ca.2-3% of the property value, which I read as rather a positive sign, that they don't offer unrealistic yields, that can't be maintained (Ponzi scheme-like I can sense in the other troubled developments -certainly anything above 5% would raise my suspicions...) but that could mean the property is sold at too high of a price...

The forum contributions would however suggest dominantly NEGATIVE experience with the French lease back system (scam, scandal etc - frequently used words).

But I didn't find any negative posts in relation to the MGM/CGH companies, so would like to ask if there are members here who own properties from MGM, run by their daughter company CGH, to share their experience, good or bad. 

Many thanks!

thanks!

granko

Hi, we have owned a leaseback apartment in Tignes that is managed by CGH for 10 years and our rental income has always been paid on time and the apartment is in a reasonable state of repair. The income that we receive from CGH has only increased by just over 1% in the ten years of ownership but the rates CGH charge to clients have increased by over 30% in the ten years! During this time CGH have not given us anything extra for within the apartment and deducted an inflated price for a digital television from our income.

We have also owned a leaseback apartment in Tignes that is managed by Pierre Vaccances for 14 years and they also have always paid our income on time and the apartment is also in a reasonable state of repair. The difference has been that our income has risen in line with inflation and extras such as replacement light fittings, curtains, digital tv, fold ou sofat bed were all supplied free to us as owners.

You should be safe with receiving your income from CGH but it is also possible to get a higher rate of income from other well managed companies.

We have an apartment in Le Cristal de l'Alpe in Alpe d'Huez, purchased in 2010. The residence is in good repair and the buying process was straightforward- albeit all in French!

We elected to have a discounted purchase price rather than receive rent so can't comment on that aspect. Our building is very well managed by CGH and we have no complaints.

Just to make you aware that as of 2016, MGM and CGH are no longer part of the same group and are now two completely separate companies.

I agree with previous comments. Leaseback is an easy option for owning a property . However there are some pitfalls to be aware of so read your contract carefully before committing. The worst aspect is the financial payments due to CGH, plus the town, if you decide not to renew your lease after 11 years.  Also there is an element if the unknown as to how much any refurbishments will cost at lease renewal. (We were charged circa 27,000 euros by Pierre et vacancies for a different property.) we are yet to be told what our refurbishment costs will be with CGH.

Submitted by axed on

We were misled by MGM at the time of purchase in La Rosiere. All the literature we were given said that the apartment would revert back to us at the end of the 11 year lease and we could then choose to either enter into a new lease with CGH or enter into a new lease with someone else or not enter into a lease at all (subject of course to repaying some of the VAT back to the French government for coming out of the tourist residence scheme.  Contrary to this owners whose leases end this year are being told that they must pay CGH compensation if they do not renew the lease with CGH AND if they do renew they also have to pay for the refurbishment/update of the apartment which will be carried out by CGH and the costs being quoted are huge.

Like another forum writer we were also asked to pay for new digital televisions. Our residents association had to consult lawyers and eventually CGH backed down from trying to pass this cost on to the owners.

The latest issue is non-payment of rent to some of the owners which was due in October 2015.

 

 

Submitted by granko on

Many thanks to all who took their time and responded! Really appreciate, as it helps us to form a balanced view on this investment, before entering it.

From your replies and also some other consultation with folks "in the know", I view MGM/CGH as very reliable and high quality company in this type of business. But as you say, nothing goes without risk and especially the long term duration of this contract / relationship is still nagging me (so many things can dramatically change in 11 - 18 years).

The key input I received from quite few folks is that this is surely not the best return on investment, and it's true, with the 4 weeks formula, we get only 9000 EUR "rent" and immediately pay some 3000 EUR back on CGH charges and Tax fonciere (and just yesterday the MGM agent replied to my questions on insurance stating that I'm responsible for the appt insurance too...not sure how much that would cost on top...), so at best I'll see some 5-6 mEUR income, that would just cover mortgage, but leave nothing for "rainy day fund". 

Tomorrow I have a meeting with a financial broker, will see what he tells me, will keep this blog updated, in case anyone's interested.

Again - many thanks for your replies and inputs!

Cheers

granko

Hi

Out of interest, what did you end up doing?

We are 18 months from the end of the 11 year period and definitely won't be renewing, whatever it costs us to exit. I just wish we hadn't gone into it so blindly from the financial side.

A poor investment on our part. We must have been stupid to esentially fund the capital for someone else to run a nice rental business.

Getting the TVA back is a con. I think they just inflate the prices by 30% to begin with and then offer you the 10% reduction in lieu of any rent.

As least the end is nearly in sight for us, although an expensive 1.

Cheers.

 

Submitted by loatie (not verified) on

Hi peasgr001 - I have sent you a PM.

Best wishes

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