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3rd September 2010
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 Buy-to-let in France – a good investment? Buy-to-let has long been a popular concept in the UK and, despite the economic slowdown, is for many a great way of generating an income. Buy-to-let generally means buying a property to let out on a long-term basis to permanent tenants but it can also mean letting a property on a short-term basis to holiday-makers. Generally investors in the French property market have preferred to let out their property for holiday lets capitalizing on the popularity of the country with holiday-makers. Having a holiday let in France can be an easy and reliable way to make money, if the property is in a good location and well marketed. However, as more and more gîtes come onto the market, getting bookings has become increasingly competitive. Holiday lets are also labour-intensive and the investor must find someone to clean and maintain the property on, more often than not, a weekly basis. Therefore, for property buyers wanting to generate the maximum income with the least effort, a long-term let is worth considering. Longer term lets can ensure a regular stable income, have fewer advertising costs, no changeover fees, lower agency costs (if you use an agency), and are often likely to have less damage caused to the property (holiday-makers do cause damage!).At FrenchEntrée we have had a surge in property enquiries from investors, often looking for a buy-to-let. Gaelle Perreaux, FrenchEntrée property consultant, commented: “As well as buy-to-let clients we have had enquiries from a number of investors interested in €10 million plus properties, often looking to develop luxury resorts and hotels in different regions of France. The FrenchEntrée Property Buyers’ Service works hard to find them the right property for their project with the help of our Premier Partner Estate Agents located throughout France.” Here, we ask some of our Premier Partner Estate Agents what they would advise an investor looking for a long-term buy-to-let in France and analyse how to ensure a profitable investment. Is buy-to-let still worth it? Buy-to-let investment can reap outstanding monthly returns, but should you expect to generate a monthly income or just cover costs? Paddy Gibbins, FrenchEntrée Premier Partner Estate Agent in Montpellier, has been selling buy-to-let properties for many years and provides a working example of how buy-to-let investment works and an income is generated: “Potentially, you can turn €20,000 into €100,000 in real terms. Say in year one you buy a €100,000 property with a €20,000 mortgage deposit, that’s €80,000 borrowings in year one. In year 20 that property in relative terms (ignoring capital increase or decrease above or below inflation) will be worth €100,000 and you’ll have no borrowings. If you buy the right property, it will be cash positive throughout the 20 year period and so will effectively have cost you nothing. “Generally on a 20-year term the interest element of the mortgage should be covered by at least 130%. Say for example you buy a property at the total cost of €100,000 with €80,000 borrowings. At a 3% rate of interest, over 20 years the approximate repayment is €458 per month; the interest element of this is roughly €220. The property therefore should be yielding at least €286 net profit, in this example. In Montpellier, however, you would get a realistic net rent of €500 thereby making it highly cash positive – easily covering interest and capital.” Paddy believes that buy-to-letting successfully is all about the maths: “The only thing that really matters in property investment is the income the property will generate. Sure location, property type, tenant profile, market value, personal taste etc. are all important secondary aspects, but in essence it’s all about the cash flow; it has to cost less than what it brings in. Figures do not lie and if you are too busy to do the maths then property investment is not for you. “It can take many forms; if you are young and have a bit of cash sitting in the bank, you can use it to buy a property that will self-finance over 15 to 20 years. At the end of which you will earn it out right and have an on-going income. If you are older and have cash reserves, property yields better than any annuity and it can be inherited by family. “In France you can get fixed rates of 4% and variable rates of 2.5% on mortgages. Well-sourced city centre properties with tenants will yield 7.5% gross, which equates to 6% net roughly. Banks are paying savers about 1.5% for their money." Where and what to buy? To ensure a successful return from a buy-to-let property many factors must be taken into account, with one of the most important being location. If you are looking for long-term tenants then buying a city centre apartment is a sensible option; for example, one or two bed apartments in central Montpellier rent extremely well since you have short supply married with a buoyant market of aspiring South of France new-comers, students and young professionals. The safest places to invest in a French buy-to-let are, not surprisingly, Paris and the Mediterranean coast. While new builds can sometimes be a popular choice for buy-to-let investors, they are not always cost-effective. New-build contractors tend to demand much higher asking prices and you would therefore need to demand a higher rent from your tenants to cover the mortgage. Claire Healy, FrenchEntrée Premier Partner Estate Agent in Nice, recommends buying a property which requires a little work: “Although you will be buying it for less than a new build in the same location, once you have renovated or decorated it, you can expect to get the same rent as a new build would, while having a cheaper mortgage. “For example, I bought a property which required some updating in Beausoleil (Monaco border). My mortgage is €1,200 per month while the rent I receive is €1,800. I am therefore making a profit of €700 per month.” Some buy-to-let investors will choose to buy a leaseback property which can be ideal for those looking for a place in the sun to provide a little income but which they can use a few weeks a year themselves. Leasebacks are also completely managed and therefore can be minimal hassle for the buyer. However, investing in leaseback should not be done without caution and the economic slowdown has seen this market severely hit. In the past, leaseback companies have been known to mis-sell themselves; for example, some are known to give the VAT back to buyer but overprice the property in the first place in order to compensate for it. Investors are usually tied into a 20-year contract and if the company cannot let the property for the whole term, buyers are still obliged to pay the mortgage. Leasebacks can also mean that the monthly mortgage repayments are higher than the rental income. However, knowing the high rental demand for new build properties, the French government actively promotes such schemes by rewarding tax payers; the loi Scellier, an amendment to the French Finance Act, gives residents huge tax incentives to buy leaseback properties. Paddy says he sees three types of investors and, depending on which they are, will recommend a different investment property type for each. “Firstly, there are those who require maximum income; secondly, there are those who require a good income but want the property to be situated in a nice location with the intention to use it themselves from time to time; and thirdly, there are those who want to regularly use the property themselves but would like some income when they are not using it.” For the first type of buyer he would recommend studio to two-bed apartments which will not necessarily be in the town centre, but will be attractive to long-term tenants. For the second type of buyer he would recommend a city centre studio which he knows will appeal to students and young professionals and have good letting and re-sale potential, while making a nice holiday home too. For the third type of buyer he would recommend a leaseback property since, completely managed, it is an ideal long-term holiday home. A genuinely good sourcing agent for French investment property will know the local market well and be able to answer your questions about property values, rental incomes, management, finance and legal issues. A specialist agent for French property investment is highly motivated to get it right as they know a happy property investor will buy again. Finding tenants In France, tenants have more rights over the landlord than in the UK. While in the UK it is normal for a landlord to give a tenant two months’ notice, in France if a tenant has paid their rent and looked after the property, i.e. there is no reason to throw them out, then they are entitled to rent the property for as long as they wish, regardless of whether or not the landlord wants to move in or sell the property. It is also harder for a tenant to rent a property in France. More paperwork is required by letting agencies, who will ask for three years’ tax returns, amongst other things. For this reason, some landlords choose to rent the property out privately or use British estate agents in France. Claire remarked, “Many of our buy-to-let clients rent to UK and US tenants who don’t have the extensive paperwork that French agencies require. They can tailor the contract stating the length of tenancy, etc. “If you buy in an area such as Nice or Cannes, you will never be short of a tenant and 1- or 2-bedroom properties are particularly popular,” she added. “If looking for a seasonal let, our agency has its rentals occupied, on average, for 27 weeks of the year. In my experience, using an agency to let your property can be the safest option.” For buy-to-let investors looking for minimal work, some estate agencies can not only sell you a suitable buy-to-let property but also manage finding and maintaining tenants for that property. A good agent can be paramount in making sure your property yields the return you want. They understand all the rental regulations, what is a good lease and what is critical to build into the tenancy contract. Paddy remarked that it can be easy to find long-term tenants in France: “The right property in the right location will let immediately. There is still a strong culture to rent indefinitely in France, as opposed to the UK where it is seen as a stepping stone before getting on the property ladder.” Yolanda McCafferty, FrenchEntrée Premier Partner Estate Agent in Paris, knows from experience that apartments in the right location will be quickly let: “At our estate agency we have 120 apartments let on a furnished basis with differing lengths of rental from short- to mid- to long-term. Of these apartments, 60–80% are let at one time. The majority of our long-term rentals are in the 3rd and 4th districts, which are popular areas. “Our biggest challenge in Paris is having enough properties on our books to meet the demand. Although the economy has taken a slight hit over the last couple of years, our rental rate has not been affected. Renting an apartment is for many a cheaper option: for permanent Paris residents it is cheaper than buying, while for holiday-makers a short-term let is more affordable than staying in a hotel.” The agency also has 230 holiday lets on their books and offer a complete package for buy-to-let investors, from buying the right holiday or long-term let to finding and managing the tenants. Buy-to-let mortgages An important aspect of purchasing a buy-to-let property is arranging the mortgage. Unlike in the UK, where a buy-to-let mortgage can be obtained for a property solely on the predicted rental income, in France lenders want the buyer to prove that the property they are purchasing will generate an income. This can be difficult, especially if it has not been used as rented accommodation before. It is therefore advised, when looking to purchase a buy-to-let property and if not going for a leaseback or other buy-to-let scheme, to buy a property which has previously been used for this end. If the previous owner has been correctly declaring their income from the property to the tax man, then it is a bonus if the buyer can prove the vendor’s income to the mortgage broker. Property investment in France is not seen as a “career” as it is in the UK and it is therefore much easier to obtain a buy-to-let mortgage if you have another source of income. Simon Smallwood, FrenchEntrée mortgage adviser, explains, “As a repercussion of the economic slowdown, French banks are definitely more cautious about buy-to-let mortgages. If the buyer can prove the level of income that the property has previously achieved, the lender will be more favourable. Nevertheless, there are many factors to be reviewed and a buy-to-let application will always be considered if the buyer has found a suitable property in a sensible location. “If you are looking to generate a better return from your savings than the current low interest rates offer, now could be the time to benefit from the current low French mortgage rates and a potential upturn in the French property market in 2010, and purchase that French property investment.” --- It seems that buy-to-let can definitely still be worth the investment providing you buy the right property in the right location and market it to the right tenants. It goes without saying that an estate agent who can see you through the whole process, from choosing the property to finding a tenant, can be the difference between success and failure when so many underlying factors such as French bureaucracy must be taken into consideration. Nina Richards, FrenchEntrée.com  Buy To Let Mortgages What you get with a new build property in France Languedoc-Roussillon Property Investment France Investment Property Home Page 
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