How secure is French leaseback?

Friday, March 27, 2009

French leasebacks are touted to be safe long-term investments, with limited downsides - TheMoveChannel.com finds out if this really is the case...

France has traditionally been a hot favourite with second home buyers and buy-to-let investors, thanks to the country's strong rental potential.

Today, it remains a popular property investment destination, with some developers introducing the idea of a leaseback scheme to appeal to investors looking for a long term opportunity and reliable rental returns.

In today's shaky market, investors are keen to snap up a stable investment and leaseback could provide that for them - they buy the property and hand it over to the developer for a fixed term, who then rents it out on behalf of the client for an agreed return.

The downside is that, often leaseback schemes don't offer any personal usage - so if a buyer was purchasing a holiday home rather than an investment property, the idea of leaseback may not suit them.

There are some deals around that include a few weeks personal usage each year, or offer the property to the owner to use during un-let periods and they then pay a discounted rate to ‘rent' their own property.

The leaseback schemes have really taken off in France as they have been encouraged and supported by the French Government and can also offer investors a VAT rebate as the cost of the VAT is often removed up front from the purchase price.

Leasebacks may not be so good if investors are seeking to make a large profit quickly, or are looking to flip the property in a year or two. They are best suited to those who are seeking long term gains and don't want the hassle of arranging letting, property management or maintenance themselves.

French leasebacks are the property equivalent of the good on paper guy - whilst they will not bring huge, spontaneous returns, they will offer a slow, safe and steady investment.

Leasebacks have a fixed term so investors will be locked into a contract - but these terms differ vastly in length, so make sure you know exactly what you are getting for your money before signing on the dotted line.

If the leaseback is as long as 20 years, by the end of the leaseback term, the mortgage may have been mostly paid off, thus buyers will be left with a property that they own in full. They can now choose what to do with it - either continue to rent it out or move in themselves.

Picture by fdecomite