Find out the basics you need to crunch the numbers
The idea of buying a French property to generate rental income is attractive to many. If you’re tempted to embark on a Languedoc buy-to-let property venture (or are already the proud possessor of a home in the south of France), you need to know how to do some basic maths to ensure that the return on your investment is worthwhile.
It’s all about your gross and net yield.
Let’s start with a definition of the terms. Gross yield is a quick calculation that serves to establish the rental value of a property for its current capital value; take the annual rental, divide it by the current value, and express this as a percentage (in other words, multiply the figure by 100).
Net yield is a little more complicated to work out, but it is arguably a more useful figure for landlords as it answers the all-important question, “How much do I actually end up with in my pocket?”
Remember, monies made by charging rental fees are never going to be pure profit. From the annual rental income of your Languedoc property you must deduct:
– managing agents’ fees
– no-shows (those annoying people who say they’re coming, and then don’t)
– service charges
– ground rent
– local taxes
– income tax (any monies made from rentals have to be declared)
– wear and tear
– other incidentals (think gardener, odd-job man, emergency plumber).
Property owners the world over know that the cost of running and maintaining your own permanent residence can quickly mount up; when it comes to rented accommodation, a succession of happy holidaymakers in high spirits can really take its toll.
So back to the maths.
Take out your calculator and add up the various costs detailed above. Next, deduct these from your annual rental income (don’t include any loan repayments in this calculation).
Divide the balance by the current value of your Languedoc property (if you bought some time ago, get it revalued to obtain an accurate figure) and then multiply by 100. You will be left with a percentage figure – the net yield.
If you have been renting out your Languedoc holiday home for some time, it can pay to take a reality check, based on the current value rather than the original purchase price. If your vacation home in the south of France is not generating the yield you yearn for, then it may be time to revise your rental rates. Failing that, your money might be better invested elsewhere.
What are the magic numbers to aim for?
Developers and agents suggest that on average, the net yield should be about two thirds of the gross. For capital growth, a landlord should be looking for a gross yield of 5%, or a net of 4%. If you focus on short term letting the net yield will fall to roughly half of the gross, due to increased management fees.
Most experts would not recommend buying a Languedoc holiday home purely as a financial investment if the income is essential to covering your mortgage and running costs; if rental income underperforms you could find yourself high and dry, defaulting on your repayments and even losing your Languedoc property.
However, cash buyers who invest in a well-managed Languedoc holiday let with good resale potential could reap greater financial rewards than by putting their money in the bank; the number-crunching is key.
Once you have counted your beans and are sure you are charging a sufficient amount to generate that all-important yield, you need to minimise your losses.
To do this, be ultra-firm about your cancellation policy. It makes good business sense to ask for a non-refundable deposit of anywhere from 20-50% to secure the booking, with the balance payable anywhere from eight weeks before arrival to the day of arrival.
Another tip: the one factor that can make the greatest difference to the amount of rent you can charge for your Languedoc vacation rental – and the number of bookings you secure – is a pool. Languedoc holiday homes with pools always get booked first, and installing a quality pool can double your weekly income.
A decision to focus on short- or long-term lettings can also affect your yield. While it is always easier to rent out a Languedoc vacation home in the high (summer) season, the low- and mid-seasons can be more of a challenge; if you want your south of France property to generate the most money possible, one option is to put it up for off-season lets (typically of six months or so).
Owners can generate extra income by renting during the off-season between autumn and spring, perhaps to francophiles who are considering buying a property in Languedoc-Roussillon but who want to test-drive the lifestyle for a few months.
As a Languedoc landlord, not only can you make some extra cash in this way, but your property is being aired and heated throughout the colder, damper months. Additionally, it is probably safer for a home to be occupied than to stand empty for weeks at a time.
For investors looking for the optimum return, buying brand-new Languedoc property – possibly on a leaseback basis – can be a good bet. The benefits of this option are many; the property is looked after year-round by the developer, the rent is often guaranteed and inflation-linked, plus as the purchaser you receive a VAT refund of 19.6%.
Languedoc leaseback properties can provide not only guaranteed rental, but also capital growth. It is essential to select the area in which you make your purchase; agents can offer advice on those regions and areas that still have potential, and those which have already peaked.
A brand-new home makes a good investment buy for several reasons:
– it can be rented out from the day of delivery
– there is no work to be done to bring it up to the standards required on the rental market (most new developments come with a 10 year construction guarantee, all mod cons, double glazing, thermal and acoustic insulation)
– with little or no maintenance required, these qualities bring peace of mind to both the owner of the property and potential tenants or holiday makers.