Mortgage for a B&B and Deposit

[Chateau Toombs<P>Fay<P>]

Hello Fay here

My family and I are moving to france to buy a property for us to run yet another bed and breakfast. Where do I start?

Where do we go to get a mortgage for our venture? All I know is that a lot of companies will only lend you money on second homes, not to start a business. Is there anywhere back here in the uk that I can arrange this? or in france in the Charente area? We have found a couple of properties and would only need to borrow 30/40% for the mortgage.

Also  A Deposit ????? Now I'm stuck Nearly all our money well all of it is in our home we will not have the  deposit until we have sold our home. And although we have a little in the bank it's not enough.

Do we have to sell and move here and stay in tempory accommodation so we have the money available?

Or is there some way we can agree that if we do not sell our home we would still pay the 10% deposit? Could this be done?   

Please help Thanks

[Ron Avery]

Fay

Short answer is that normally you must put down a 10% deposit when you sign the compromis de vente (draft contract), you have 7 days then to cool off and walk away with your deposit or after that you lose the 10%.  Between the compromis and the contract signing, typically 12 weeks,  the price is fixed and the house "off the market".  If you have not sold your house, you could try a short term equity release loan, but probably best not to mention what you want it for

You can put in a clause in the compromis that states that if you are unable to raise a mortgage and/or sell your UK house you do not have to proceed with the sale, but I believe that if this happened you would still lose your deposit, but not 100% sure.

[Will]

The amount of the deposit you put down can be negotiable, down to nothing at all. But in view of your apparent lack of liquid funds I think it highly unlikely a notaire would agree to waiving it, unless you have a guarantor in France. Should you not go ahead with the purchase you would still stand to pay a penalty of 10% of the purchase price even if you have not paid a deposit.

Business loans are available in France, but all loans in France are geared to your income rather than the value of the property you are borrowing against so you would need a very sound business plan. There have been people offering advice on this subject before, a search through the finance and B&B or gites topics should come up with something.

The problem with the clause suspensive about being able to drop out of the sale if you do not get finance is that it has been badly abused, not least by British timewaster buyers who have used it to just change their minds. As it is a clause suspensive you would not normally lose the deposit, but from being a standard clause in most compromis de ventes it is fast becoming conditional on you being able to show that you have made every effort to find finance, and have not refused any sensible assistance received, while some notaires are now refusing to include it at all, insisting that you must have funding agreed at least in principle before your offer to buy can be accepted.

Selling up and renting in France while looking for the right place to buy and waiting for completion often proves to be the best solution. It removes a lot of the pressure on you.

[Teamedup]

I don't know anyone else's feelings about this, but how do you make a living from a b&b is you have a mortgage to pay too, if you can get one anyway. There are all the social charges to pay and often in advance.

I think where ever you are planning on opening will have to be very very touristy to make a living and have a loan, and saying that, property is always expensive in very very touristy areas.

[makeiteasy]

Hello Fay,

 

i don't know if Will is talking about me but regarding your first question yes it exists someone to help you for your commercial loan, me!!!

Thanks to look my website because i'm not allowed to advert here, but i'm sure i'm the right person!!

Regarding the deposit, you could negotiate with the notary and the vendor to pay less than 10%, try and see...BUT don't accept to sign your compromis de vente without the clause suspensive about getting a loan from a bank!!!I've seen so many people losing their deposit because of the pressure put on them by the estate agent or the vendor or just because none explain them that it exists

It's the only way for you to get your deposit back if for any reason you can't get your loan.

So hope to speak you soon.

Céline Monier

[Quillan]

I am sure others will pick up and correct me if I am wrong but basically I would say forget it if you need a mortgage.

I have been here three years coming on 4 and run a B&B way down south so I have absolutely no axe to grind as you would be no where near me.

Firstly your income, what do you expect? I can tell you that a rule of thumb income would be all your rooms let for 10 weeks of a year so lets say you average out at 50€ per room and have 4 rooms thats 50*4*7*10 = 14,000€ per year. You loose 2,500€ in cotistations the first year, 3,000€ the second then a percentage every year after. I don't have the exact cotistation figures but I am sure somebody will correct me but it's roughly right. Don't forget you need to eat and pay your bills out of this plus any mortgage you raise.

Now you might make more than the 14k especially if you open all year, spend a few thousand on regitration and publicity and do evening meals but believe me it's not easy cooking, ironing, feeding, washing, entertaining, housework etc etc. We have tried all year and have taken a leaf out of others book and now close for two months. What do we do in those 2 months, decorating and maintenance and a lot of sleeping if we can. Do we have a holiday - No.

You will have to get jobs to supliment your income, we all have to, be it just one of us or both. To do this you really have to be able to speak fluent French at street level. O or A level French qualifications gets you started but it's a bit different out here in the real world.

Please, please, believe me when I say I am not trying to be negative, I'm telling you how it is which could save you a lot of heartache in the future.

DO have  a look throught he B&B threads, there is loads of excellent stuff there. If you don't get much of a responce it's probably because if you do look through the B&B section you will find these sort of questions have been asked so many times before our fingures are worn out typing the reply.

Whatever way you go I wish you the best of luck.

[Coco]

I don't want to sound negative either, and I'm not, I really love my life running a B&B. It's hard work but we meet some really interesting people.

Would I do it if I had to pay back a loan?  Even a small loan?  ABSOLUTELY NOT!!!  I think I remember from another thread that you have one or two young children.  You will spend your whole time worrying about where the next meal is coming from.  Sometimes I get very down worrying about this, and there's just the two of us.  So far, thank goodness, it has all worked out OK, but the first year we supplemented our B&B income with my salary from my old job in central London that I continued to do via the internet 3 days a week.  That all went pear-shaped after six months and the second year we dipped into about £4000 of the money we had left from the sale of our UK house.  This year, so far, we're doing fine, living off the B&B, but I anticipate that we will still end up supplementing our income with a bit of our savings again.  Hopefully about half as much as last year, but nevertheless - it would be a hell of a lot more if we had to make regular loan repayments.

I really would strongly advise against it if you can't at least pay for the house outright.  Don't forget that you will have alot of other outgoings.  We only have two rooms but you will need to frequently replace pillows.  There will be at least 3 sets of bed linen and 6 to 8 towels per room.  Crockery and glasses to buy and replace when they get broken.  In doing evening meals I realised I needed another fridge and freezer.  Our standard washing machine is just about going to see us to the end of this season but then we are going to have to replace it with something a bit more substantial, and it's only 3 years old!!  But in the summer it is being used about 3 times a day!  Then there's advertising to pay for - you won't get any bookings without PLENTY of advertising.

Like Chris, Charente if far enough away for me not to have any personal reasons for trying to deter you but think hard before doing it without cash to back you up.

[Will]

As I said above, if Fay wants to get a loan to purchase a B&B she will have to produce a business plan, including all icome and expenditure, which should soon tell her whether or not the project is viable. Celine has indicated that Fay should be able to get a loan. I appreciate why people are urging caution, but sometimes you have to chance your arm if you genuinely feel it is the right thing to do.

Best of luck to you Fay, I say. If the lenders don't think you will be able to pay back the money, they won't offer it to you in the first place. France is not like some other countries where it seems that any no-hoper can borrow money for hare-brained schemes.

[Cerise]

I would have to endorse both Coco and Quillan's posts.  We simply would not make enough money to live if we had to pay back any loan for our B & B.  There are only 2 of us, and although so far we are managing to keep our heads above water it is worrying.  This year tourism in this area is down enormously, everyone I meet is anxiously asking if we have any guests - long established folk who have not worried before are ringing and letting us know they have vacancies just in case we have something to pass on  If I had a young family and a loan I would be beside myself.

Will, I agree that in principle it seems to be harder to get a loan in France - but recently our bank asked us if we would like a loan (we wouldn't) and we certainly don't have enough extra cash to repay it.  That, however, didn't stop them trying to persuade us to take it.  I am therefore not convinced that French banks are any more scrupulous than English ones.  Unless a business is already up and running, projected figures are just that - projected not reality.

I am not trying to be negative and do think people should try to realise their ambitions, but they should also have a realistic view of things on which to base their decisions.

Good luck to Fay whatever she decides

Maggi

www.les-cerisiers.net

 

 

 

 

 

[Chateau Toombs<P>Fay<P>]

Dear All

     Thanks so much for your help, I think I might lower my sights a little, We will have enough for a beautiful large property, but I would have wanted something extra special, 

I have been looking for small Chateau or MANOR style home and not the farmhouse type.                                     

I think I shall keep looking I'm sure I will find something so I will not have to borrow any money or very little.

Many thanks for all your help and I shall take on board what you all have said, You guys know best.      I'm sure I shall be back for more advice

Thanks again

[Quillan]

You are very sensible.

Good luck with your hunt!

[makeiteasy]

Dear All,

i'm just coming back about what i've read about banks and mortgages/loan.

First of all, i've never said that Fay will have or not a commercial loan for purchasing the B&B because at that step i don't know whether or not the income provided in her forecast(which should be done by a french accoutant in association with her to make sure that figures are realistic) is enough to pay the loan and either to live with it!!!

And i'm amazed by Maggi's remark because so many people are consedering that getting a mortgage/loan in France is the devil of a job !!

I would say that now there are so many gîtes, B&B and chambres d'hotes that banks are less and less confident to lend money for this kind of project BUT if they find that figures are realistic, if people have original ideas to promote their gite/B&B and know their stuff and at least could provide enough and good income, there's any reason to say "NO".They are just logical and won't lend money to someone who's not able to repay them,it's fair!!!

Banks are looking at figures but either who you are, what is your experience to manage that business and it is as much important as figures if not more... 

So i won't be pessimistic as others but my advice is:" just be realistic, don't think that it would be easy because you would change all your marks, but it is a real challenge and you could be very happy at the end of the day"

Good luck!!!

Céline

[Weedon]

Fay,  from your replies to the many answers that urge caution it would seem that you are wrestling between the anticipation  of a new life for you and your family and the possible hardship of achieving your aims.

Please, please do not underestimate the effects it will have on you and your family doing  it with borrowed money.  I know I am repeating what others have said about it but I can tell you from experience that running a business tight on working capital will have you under immense relentless stress.

I have no personal knowledge of B&bs nor Gites but from the information I have gained from this forum and other sources, just as an interest on Brits in France, I can tell that its not an easy life.

This is not at all a slight on Céline, but I would not take advice from a mortgage broker because it is not they that take the risk.  Much better that you listen to others in a similar business line to the one you are considering. 

I know that some others may think that I am overly pessimistic but my advice is not to consider doing it with borrowed money,even in the short term as a bridging loan.

weedon

 

[makeiteasy]

Hi again,

i don't want to debate but i'm shocked by Weedon's reply!!

Of course anyone who wants to start a business in France, and not only a B&B but all kind of businesses has to be very careful and has to listen to the differents pieces of advice he could get( but because i'm a credit broker it seems that mine can't be?)!!

I completely agree that if anyone has cash to start with that's the best, but whatabout the others? Should they stop thinking and expecting to live somewhere else or doing something different because they haven't enough money??

Again, i don't mean that setting up and managing a business in France is easy, nor for french, but if you balance all the differents informations and at least think it's a good idea, why not trying?

And i repeat that banks are lending money to project which are able to survive and make profit...

And at least, in Uk and either in France, do you think that a lot of businesses are settled without borrowing one pound or one euro?So why is it a bad thing in France and a good one somewhere else?

I guess that each one is different and each one should have the choice of choosing what he wants subject to the fact of being realistic, of course!

Céline

[Quillan]

Célene - I do not think that anyone was aiming their comments at you personally but just making an observation.

As you yourself stated and as been reported in several other sources currently the supply of Gites and Chambres D'hôtes (B&B) far outweighs the demand. Some areas (like mine) there is a very large discrepancy between beds available and people visiting. In my area there is normally a choice of in excess or 50 beds to choose from for every person visiting in peek season. This year with tourism down substantially (in our area) due to the high cost of holidaying in France and the fact that many Brits (and other nationalities including French) now own a holiday home in the region it's getting very tough. I cannot speak for the area in which Fay was looking but I am sure the are others here who can.

What I and others have said is that it is not realistic to think that one can live on a B&B income alone. A second income of some form is required. Others have pointed out that the income just from a B&B is unlikely to be enough to cover repayments on a loan when all the financial costs of running a B&B is taken in to account.

Again, as you and others have said, it is a requirement to make a business plan financially but then some who have never operated a B&B before would probably not know what to include. If a financial advisor or bank is not knowledgable in the running of a B&B the persona may get a loan only to find they can't afford the payments after a brief period and then the problems start. After all as has been said once the loan is committed it is no longer the responsibility of the advisor, they move on to the next project and there is no personal comeback on them apart from the sadness that they got it wrong.

Of course there are great success stories of people getting it 100% right and offering something unique that brings in business when others cannot but these are becoming rarer and rarer. The Brits in particular are real entrepreneurs and by now have covered just about every angle in attempts to make money in France so the opportunity of doing something unique it as I said very rare.

All of us who are B&B owners that have answered in this thread have learnt at least one hard lesson, if not more, starting our businesses in France and all we wanted to do is pass on some of that information as in many of our cases there was nobody there to help us.

[Weedon]

[quote]Hi again, i don't want to debate but i'm shocked by Weedon's reply!! Of course anyone who wants to start a business in France, and not only a B&B but all kind of businesses has to be very caref...[/quote]

I have to say that it takes more than a piece of advice on caution to actually shock me , as you put it, but that may be just a figure of speech.

Quillan has put it better than me in his last reply and it has to be stressed that it is easier to borrow money than to pay it back, I know everybody understands that but sometimes judgement can go awry in the excitement of a possible new venture.  I can remember not so long ago when some people had overstretched themselves in obtaining huge loans for homes and the noise of the keys dropping through the letter boxes of the Building Societies was only deadened by the footsteps of speculators as they rushed to the auctions to buy up cheap properties.  Many of those were the "experts" who had previously advised on borrowing!

weedon

[Quillan]

Weedon - I don't think borrowing money is a bad thing at times, many a good business has started on borrowed money. What I would say is in the case of a B&B unless you have another income you should not borrow as there is not a great amount of profit to be made, if any.

I just wanted people to know I was not anti borowing if the conditions are right.

[Weedon]

[quote]Weedon - I don't think borrowing money is a bad thing at times, many a good business has started on borrowed money. What I would say is in the case of a B&B unless you have another income you shou...[/quote]

I am not against sensible borrowing  at all and completely agree with all you say.  But again, as you say, borrowing in order to fund a B&B, and particularly the deposit, if there is no additional source of income I see only lots of tears ahead.

On the other hand if Fay goes into it with eyes wide open after taking lots of advice and makes a successful and happy life for herself and her family I would be offering many congratulations on a job well done.

weedon

[Coco]

On a more upbeat note Fay, and to keep your hopes alive.  There is nothing wrong with lowering your sights a little, if it means you won't need to borrow to do it.  As someone else has already said, the stress of repaying that loan will soon change your views on it being a better way of life for your family.

I'll tell you our experience of the last week.  There is a beautiful chateau not 4km from here (in fact a previous forum member almost bought it at one stage!)  It is now owned by some Dutch people who have just finished renovating it and have a big wedding party there this weekend.  In fact a BBC news presenter's wedding, so potential for good publicity.  We have mopped up some of the "overspill" from the chateau; an aunt and a cousin and their other halves, both quite perturbed about not having been offered rooms at the chateau.  My husband joked with them and said "oh but you'll have much more fun here".  Yesterday, day two of the stay and the wedding eve, they came back to tell us how right we are.  The others can't wait for the wedding to be over so that they can cut short their stay.  The Chateau is charging 60 euros for the smallest room, PLUS 7.50 per head for breakfast, PLUS extra for any tea and coffee that people want.  There is no room other than their bedrooms to sit and relax because they have had to turn as much space over to bedrooms, to get a return on their investment, as possible and they all feel that every movement they make is being watched by their hosts.  And apparently this wedding party is their first booking this summer and they have no others for the foreseeable future.

My little farmhouse is doing much better, we've had 40 nights out of a possible 62 booked for July and so far have 35 booked for August - and everyone around here is complaining about what a terrible year it is.

The important thing to make your B&B a success is not a grand house but abot getting your pricing right, not letting your guests feel they are being ripped off, and making them feel comfortable.  And the less worry you have about paying off a loan the easier you will find all of these to do in my opinion.