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
This is a scheme whereby you purchase a second-home or an investment property and use it for a commercial lease. It was originated by the French government in the late 1980s as a way of encouraging people to buy property in holiday hotspots, boosting both the property market and the tourist industry.
How does it work?
When you buy a leaseback property, you lease it to a management company, which then rents it out on your behalf. You receive guaranteed rental income, with annual rates ranging from 3-6% (1). The lease is usually effective for a minimum of 9-11 years and it is often renewable.
What’s in it for me?
A huge additional incentive is that the French government refunds the VAT on the purchase on a pro-rata basis. Effectively you will receive the full 19.6% tax back for a new property (3). The VAT rate is lower (approximately 12%) on existing property such as our refurbished apart-hotel in Bussy Saint-Georges. On top of this there are other tax benefits, including no capital gains tax if the property is held for 15 years.
A leaseback investment is a secure way of generating income – the managing agent takes the hassle out of leasing the unit and you can just sit back and enjoy your yield. As mortgage interest rates can be fixed over long periods, French leaseback is seen as a lower risk property investment. Property investors therefore often buy several of these, as it balances the risk in their portfolios (5), and they can also be bought with SIPPs.
Our leaseback deal
The Best Western units offer Ready2invest investors a 14% discount to local French prices and a 5.09% net annual yield. This yield will be delivered to you even if your individual unit does not achieve the same income as next door. The lease allows for five days a year personal use for the first three years.
1. frenchleaseback.net
2. business.timesonline.co.uk
3. Ibid
4. telegraph.co.uk/core
5. travel.timesonline.co.uk