Why Leaseback Properties in France Make a Sound Investment

The leaseback scheme is the perfect investment for people wanting a fixed and guaranteed rental income and don't mind restrictions on personal use. The concept involves you purchasing a property freehold and then granting the lease of it to a management company for 9 to 11 years in return for a fixed guaranteed rental income. They are a French Government initiative to increase the amount of property available to tourists and short term tenants by giving tax incentives to investors. They are hence usually located in popular tourist resorts, city centres and/or business locations. It can be possible to generate more income by renting the property out and managing it yourself but this of course comes with added hassle and risk.

Refunded VAT: One of the great bonuses of this scheme is that the purchaser gets a full refund of the TVA (VAT) of 19.6% if it is a new build property which is either refunded 6-9 months after completion or paid and recalimed by the developer. When the initial lease period expires the management company usually has the right to lease it again until the 20th year but if the owner is not in agreement it is rarely insisted upon. If you choose not to lease your apartment out again or sell it then you will have to pay a proportion of the TVA according to how many years are left outstanding from the first 20 years. For example, if the property has been under lease contract for 11 years and there are therefore 9 years remaining, then the amount of TVA that must be paid back to the French government is 9/20ths of the TVA. After 20 years TVA is no longer payable. Remember, if you sell the property during its lease contract then it must be sold with the contract intact to a likeminded individual who is prepared to see the contract through.

Guaranteed return on investment: The guaranteed investment return will typically be around the 5% mark net of all costs tax-free as you benefit from non-professional lessor of furnished property status (LMNP). This in effect means that you will receive as much interest as you would in a high yielding savings account as well as the opportunity to gain from capital appreciation of the property.

Personal Use: As the owner of a leaseback property you are often allowed to retain some weeks for personal use in return for a slightly lower rental income. If you choose not to use the weeks then you will usually get a higher annual yield.

The management company: An experienced management company will take care of the entire maintenance of the apartment or villa, usually with hotel services available such as reception, house linen, well-kept gardens, swimming pools and 24hr security.

Furnishing: Furnishing, decoration and electrical appliances are all supplied and maintained by the management company.

Accounting impacts during the loan's term:

-Deductibility of the loan interest - Deductibility of miscellaneous expenses (property taxes) - Amortisation deductibility; 3.3% per year for 30 years, however they are deferred and not imputable in regard to the business income.

After the loan's term the deferred amortisation can be imputed and set against the received net rents.

Notary Fees and sales process: The sales process follows the same routine as for new build properties with the same corresponding notary fees: 3% on new builds and for refurbished leaseback properties you will have to pay the usual 7-8% notary fees on the property before refurbishment working out at between 4% and 6% of the value of the purchase price.

Better than Timeshare: Unlike time share schemes the owner actually sees a return on his/her investment through annual rental yields and also appreciation in the value of the property which can be substantial- so it is not money down the drain. The bonus with the leaseback scheme is that the property is well maintained and you have no responsibility for changing of linen and cleaning- you simply turn up and enjoy it!

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