Country Article / Postcards

Guaranteed Investment Returns Thanks to the French Government

Date: 10/14/2003

Dear International Living Reader,

One of the best international real estate investment opportunities I know of today is something called the French Leaseback.

Through this program, you can purchase qualifying property free of VAT (19.6% in France...so a $100,000 property is immediately discounted to $83,600). And you can arrange financing for up to 95% of the purchase price at a fixed rate of interest of 6%. Money can be available for up to 20 years. This kind of leverage would be impossible to arrange otherwise.

You own the property outright...but you agree to turn it over to a property management group for rental for a fixed number of years (typically nine). In return, you are guaranteed a net return on the rental of between 4.5% and 6% (depending on the property and the management group it falls under), after all management and operating expenses have been deducted.

In some cases, during the nine years that the management company is renting your property for you, you can have use of it for two to four weeks a year (again, this depends on the property and the management company...some allow you two weeks use annually, some four...some don't allow owner use at all...this is an important point to clarify up front). However, your guaranteed returns generally go down the more weeks use you're allowed.

Plus, you've got the capital appreciation. In France, properties that qualify for the Leaseback Program are in the most popular areas in the country--Paris, the Riviera, the Alps--and so are the areas most likely to appreciate.

I've seen a lot of leaseback properties, all over France. Properties under this scheme run from $50,000 for a studio in the Pyrenees to more than $1 million for a villa on the French Riviera.

The primary advantage of the Leaseback Program is how easy it is. The management company for the development handles everything. All you have to do is designate the bank account where you want your rental income checks deposited. It's a virtually hassle-free, relatively no-risk investment--perfect, especially, for someone making his first foray into the world of international real estate investing.

This is an investment you can make...and then not worry about for 8 1/2 years.

Plus, here's an important point I just learned a few months ago.

The rental returns are indexed to construction costs. In other words, each year, as construction costs increase, your cash receipts increase as well. If construction inflation is 10%, your payout will go up about 10%, too. Your return is evaluated each year. The worst case scenario is that you always get your original guaranteed return.

While the guaranteed returns are probably the biggest part of the appeal of this investment, project location and quality should be taken into consideration--because you want to position yourself for capital appreciation as well.

Lief Simon
Editor, Global Real Estate Investor
Contributing Editor, International Living

P.S. I've written a full report on the French Leaseback Program, which walks you, step-by-step, through the process of finding, evaluating, and investing in a Leaseback property. It will be available soon. To find out more, write to lgalvin@internationalliving.com.