Pitt falls and on going costs of a leaseback

[oliflorence]

Hi,

i am currently looking for a property in France, the leaseback schemes seems relatively attractive but is there any pitt falls I should know about?

Also I realise the cost of TAX, capital gain in case of a sale and the VAT to be refunded if I stop the lease before 20 years but is there any other on going / annual cost I should be aware of.

 

Thanking you in advance

[leucate this]

We are also considering buying via leaseback.  Would be grateful if you could share any findings you have.

Thanks

[:D]

[Pickles]

First of all, these schemes have been going for quite a while now, so there is some evidence about how they perform - although there are now FAR more of these schemes which are in their first or second lease term than have exited from the leases - which is an important point to bear in mind with regards to future predictions ....

You really have to look hard at these and think hard about why you are considering them. Some of the French books on property investment warn that (depending on the location and the type of property) you may end up with something at the end of the lease which is worth less than you paid for it.  Some properties are pretty much stand-alone and are therefore relatively independent of the complex in which they are located: others amount to not much more than hotel rooms and therefore at the end you are dependent on who manages the overall building - in these cases you are looking into a crystal ball about how strong the management company is, what reputation they have now, what's going to happen to the business over the next 10-20 years, how well they are going to manage and maintain the building, etc etc. In some cases, beyond the end of the leases, you will need to think about how easy is it going to be to either resell or manage the property? The common areas (which would have been the responsibility of the company to which you let the property for the first 9 or 20 years or whatever) end up as being the responsibility of the copropriete, and so from that point onwards (just when things start wearing out) the cost falls on the owners - if the management company has done minimal maintenance leading up to the handover, then higher-than-normal costs will be incurred by the owners. Some French commentators regard these properties as being overpriced in terms of their potential as an INVESTMENT. That's not not say that they are not worth buying; it's just that you need to go in with your eyes wide open and the best advice seems to be: don't consider them as being indistinguishable from "normal" property investments. If it is something that you are going to use yourself, then that gives it an additional value to you. Otherwise, be VERY careful.

The same goes for de Robien-style investment offerings: quite often these are priced above the local market norms - and bear in mind that eg de Robien investments giving rise to a deduction from your tax may in effect be far more attractive to French residents than UK/overseas residents. This is because overseas residents will be subject to the "minimum 25%" tax rate which is applied AFTER de Robien tax reductions are applied. Thus, if the tax benefit offered is a direct reduction in your final tax rather than a reduction in the amount on which the tax is calculated, the benefit will be nullified by the requirement that you pay 25% of the imposable amount (unless you can prove to the satisfaction of the French tax authorities that if your world-wide income were to be taken into account for French tax calculation purposes, your overall tax rate would be less than 25%).

Pickles