Introduction
We’ve been scouting for a discounted French leaseback deal for the last six months. These are as prized as they are rare, because the French local investment market is so strong and finance so readily available that developers have no need to discount to sell. But we persevered.
It was an old acquaintance from Jonty’s short career in France as a goat-herder (don’t ask) who finally led us to this deal. And what a deal it is. Word of a Parisian, Best Western-branded apart-hotel with a 14% discount, a guaranteed 5.09% net rental yield, VAT cashback, excellent leveraging and low entry deposits saw us embarking on the very next Eurostar to Paris.
Meeting the developer, we immediately snapped up 55 of the 120 units for you – from under the very nose of a French competitor – and negotiated hard to secure a limited-time price 14% below their list prices. To further exasperate our competitor, we even brokered five days per annum free usage for the first three years you own the unit, ideal for families wanting a place to stay for free when travelling to Disneyland Paris or to the heart of the capital.
For the uninitiated, the beauty of a discounted leaseback is that it boosts your rental yield and ensures you have something competitive to offer when selling into the local market. This sort of packaging underwrites your exit strategy. You won’t find a much better location either. Ten minutes from Disneyland Paris and just 35 minutes from the city centre, the four-star world-renowned Best Western Marne la Vallée is in the suburb of Bussy Saint-Georges. The area is a dynamic and expanding business hub which supports the continued growth of the region and ensures your investment has only one way to go – up.
Your investment is more secure too. French leasebacks are the government treasury bonds of the property world – safer long-term investments, with limited downside. The advantage of property over bonds however, is that you can leverage property. In the investment time-frame, you’ll have had a steady guaranteed income, as well as ending up with a mortgage-free asset, worth many times your original investment. It is impossible to do the same in the bond market, unless you’re a risk-taking hedge fund manager.
This is why leasebacks are so beloved by French investors, who buy three or four at a time, to balance out their portfolios and safeguard their retirement plans as well as tax breaks. As these are commercial properties, they can be put into your SIPPs also (please consult your financial advisor regarding this)
So, sensing a renewed vigour and confidence in the French economy, thanks to the election of economic reformer Nicolas Sarkozy, we say: “Vive la France!”
Read on to find out how you can get all the VAT back and exit capital-gains free.
Best wishes,
Jonty and Alise Crossick
Leverage
Any deal that you can use bank finance to buy gives you an immediate advantage. It means your money will work harder for you and your returns can increase significantly.
In France, UK investors are typically able to secure 80% finance from French banks to purchase leasebacks. In this deal, pending status, it is possible to get 90% loan-to-value mortgage.
Guaranteed yield
The yield on these properties is 5.09%. Barring income and council tax, which everyone must pay, this is a net amount.
Depending on how much you put into this deal as equity, and whether you take an interest-only or repayment mortgage, this yield can cover 100% of the total cost of your monthly repayments.
A higher yield also means that when you sell your unit into the local market, you can sell it on at a profitable price which still allows the buyer to receive a healthy yield from the investment. Any net yields above 3.5% sell well in the French market.
SIPP
An added bonus in this deal is that as it is a commercial property, you can use your self-invested personal pension (SIPP) as an investment vehicle. It is rare to be able to use this to purchase overseas property. Therefore this is a unique opportunity to gain tax benefits.
VAT cashback
Receiving the VAT of the purchase price back within three to nine months after completion is another way of making money. This lump sum payment can be used to pay off a portion of your loan and therefore reduce mortgage payments.
Under market value
The 120 units within this deal are being sold by two brokers, one in France and Ready2invest in the UK. We have negotiated a discount from the developer 14% below what our competitors are selling for.
This discount positively affects your rental yield too, as you receive the same net amount of rental payments as the French broker but the yield is effectively higher thanks to the discount.
Low entry deposit
The minimum purchase price is €118,015 including VAT, making the lowest 10% deposit only €11,802 (or ~£9,000).
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Deal security
“Paris is the highest return, lowest risk European investment location.”
PricewaterhouseCoopers
According to PricewaterhouseCoopers’ and Urban Land Institute’s 2007 market report, Paris tops the league as being the lowest risk and highest return investment location of any European country.1 This is a perfect combination for making the most of any market, but with this deal there are additional factors that make it even more secure.
No development risk
Because this hotel is already built, the risk of non-completion is close to zero. The infrastructure is in place, rooms have been divided, the reception area built and pool filled with water – all that is left to be done is refurbish the rooms and communal areas.
Respected, reliable developer
Vianova is known and respected for its reliability in completing projects on time, to schedule. Their role involves fitting the kitchenettes and refurbishing the hotel; they will start the build in October and take three months to finish it – but due to the staged nature of the build, your rental guarantee will start in October.
Top-branded hotel – best western
Best Western is one of the world’s best known hotel chains, with a presence in most major cities around the globe.
Highly experienced operator – atrium
While Best Western owns the hotel, the managing agents are Atrium, a local, highly respected operator with an excellent track record. It is Atrium who will pay the net rental yield of 5.09%. In the unlikely event that any problems occur, another operator will step in to continue leasing the units.