English
FrançaisI currently own a house in Massachusetts and bought a second home in Cape Cod about 5 years ago when the market collapsed. I have got it to the point that the Summer renters are paying for my mortgage and about 90% of all expenses. I had to part with the down payment but it has proved to be a great investment.
In considering my retirement (in about 20+ years) I think I will want a few residences including one in France. In doing research I have read all about these French Leaseback arrangements and am very intrigued. Sure there are a lot of scams out there but some of the bigger companies like Pierre and Vacances seem legit.
I am really struggling to understand the finances of it. It appears I need to put down about 30% but will get the 19.6% VAT returned to me – so for sake of simplicity I have to put down 30% but get about 20% back. Then it looks like there would be a period of time (on avg 9 years) where it would be rented out by the property management firm and I would be earning anywhere from 3-5% on that money. So if I got a 70% 15 year mortgage at around 5% I could come close to or even break even every month. So after 15 years I would own this property free and clear and have only paid 10%? Sounds way too good to be true. What am I missing here other than the inherent risk of my property management company failing?
If it sounds too good to be true, it usually is!
There are quite a lot of things that nibble away at your return, even if you can achieve those figures; e.g Syndic charges (which sometimes may be met by the management company, but not always - check what you are signing), taxe fonciere which is payable after 2 years and the cost of an accountant to file returns.
Also, as part of the overall deal you will be asked to sign up for an overpriced furniture package, which will be valueless after a couple of years (at which point, you will be obliged to buy another).
For info, you mention 15 years; you have to hold onto the property on leaseback or equivalent para-hotelier terms for 20 years (or transfer to another investor on same terms) to avoid a proportional claw-back of the VAT.
What you are left with after 20 years is worth a thought; it may be in a block that really has no other purpose than seasonal lets, so you're kinda tied into the leaseback theme and the only way out is to sell to another investor and the value will only be a function of the rent.
The risk of a mangement company failing is certainly not to be undervalued - or, more likely, the MC dangling the threat over you and trying to force a reduction in the rent ("if you don't agree, we will seek Court protection").
Last but not least, you will be used to certain standards of service, responsiveness and business transparancy in the US that you simply won't get with this type of investment!
Ditto the above
Also, the price of the apartment may well be inflated too.
I'm sure Pierre & Vacances are legit, but read the threads regarding them, where at the end of the initial lease period they demand exorbitant fees to refurbish your apartment, or you pay them compensation to exit the lease.
The trouble with leaseback, is that the management company have got you by the balls.Very little freedom to have any control over your apartment.(Despite what you are told). You are dictated to or pay compensation.It is a trap that is very hard to get out of. Look instead at renting out freehold(classic) property.I wish I had
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