Leaseback

The concept

The investor purchases a freehold property (net of VAT). The property is then leased to a management company, with a rent guarantee for a period of at least 9 years, the management company pays all maintenance and management costs.

Owners can choose from a number of occupancy options. A guaranteed rent is paid on the purchase price of the property, with the level dependent on how many weeks the owner opts to use it per year, it rises in time in line with the Index of Construction Cost.

Anyone considering leaseback should look at it as a long-term investment, not a way to swiftly flip the property over a period of a few years. Owing to its long-term outlook investors in leaseback should be protected from their property price falls.

The leaseback scheme is referred to in French as LMNP. All Citizen living and paying taxes in France who purchase a leaseback in 2011 will be able to deducted for 9 years, 18% of the purchase price against their income tax.

Choose your investment wisely

• The location: if you are looking for a holiday leaseback, places like seaside resorts, golf villages, ski resorts are always a good bet. For a student residence, a city will be more appropriate (Lyon, Lille, Marseille, Rennes etc.). For pure investment, senior residence in the south of France or in a city can be a good alternative.

• Management company: one of the most important factor will be the management company: check out their experience, financial situation, number of other residences managed. 

• Yield: a realistic return for a leaseback without any usage is between 3% to 4.5% - Anything above that, make sure the developer is not subsidizing the rental income for the first 2 years to make it attractive to buy.

Financing your leaseback

We can usually finance up to 80% of the total price. If the developer advances the Vat, the financing is on the net amount, if the investor pays the VAT, the finance is offered on the total gross price.

Selling on your leaseback

You can choose to sell your leaseback property at any time. If you choose to do so during the initial lease period (which is on average between nine and eleven years), the buyer will be required to take over the remainder of the lease contract.

If you choose to sell your property at the end of the lease period without a renewal contract you will be required to pay back 9/20 of the VAT.

As of January 2008, if you choose to sell your property with a renewed lease contract you will no longer be obligated to pay the pro-rata of VAT.

If you keep your property for at least 20 years the VAT is yours to keep and after 15 years you have no capital gain tax to pay in France.