Buy to Let properties have been very successful in the UK for the last 10 years and the recent slow down show decrease in profitability. Investors are more and more looking abroad such as France which represent a safe investment (Political and Financial stabilities).
The magic of Leverage Buyout (LBO)
Usually doing a LBO means that you bring 30% equity and borrow 70% of the property price with an interest only mortgage. The aim is to cover the mortgage repayment (with maintenance) cost with the rent. It does not cost you anything as long as the property is rented. In France, on a long term basis we saw that prices increased between 5 and 10% per year. At the end of the mortgage (usually 10 to 20 years) the property value will be higher compared to the intial cost. The difference will show you Capital gain. You can then decide to sell it and pay back the mortgage.
To maximise the profit, sharp people will see very fast that they should get the lowest interest rate possible.
We advice to our customers to take a euro mortgage for 2 reasons:
- The interest rates in the euro zone can be fixed for more than 15 years period
- There are no currency fluctuations because the rent and the mortgage are paid in euros
Differences between French Leaseback and Buy to Let:
| Buy to let | French Leaseback |
| The purchase is done with the VAT included. | VAT back on the purchase price: 20% cash back |
| Low notary fees: 2.5% to 3% for New Build in France | Low notary fees: 2.5% to 3% for New Build in France |
| The property is let out to permanent residents | It is let to holiday makers for Leaseback |
| No personal use possible during the lease term | Possibility to use the property several weeks per year |
| Terms are more flexible compare to the Leaseback with a possibility to break the contract with the management company at any time | The contract with the management company is usually for 9 or 11 years. It is possible to renew it at the end of the lease. |
| It is easier to find a buy to let property in the cities such as Paris. | Leaseback properties are usually located in holiday resort and business locations |
Taxes:
There are different tax schemes in fonction of theway you will rent the property:Short term holiday let (such as gites),Furnished properties and Unfurnished properties. Tax system can be a maze for a foreigner so we strongly advice to talk to a tax expert or a French accountant to minimise the costs.
Capital gain tax
You should not forget that the value of your property will also increase and it is a potential capital gain. Note that if you keep the property in France for more than 15 years then you will not pay any capital gain taxes.