With the growth of the Buy to Let and Leaseback markets world-wide, many people have considered buying a house or flat in France either as an investment or as a holiday home with gîte rental income potential. Though the choice of property is as wide and as varied in France as in any other national market there are some specific features of French property rental that make it an excellent choice for those seeking income from property.
Whilst there is no single answer that fits everyone, this page will help you understand the dynamics of French property rental. It will help you decide what is the right property for you and help you take a realistic view of affordability.
We at Best French Mortgage are happy to help you find the best French mortgage for French property rental, whether all year round or just for holiday lets, so if you have a project in mind fill in the online enquiry form for a no obligation quotation.
The French Property Rental Market
The French property rental market can be thought of as consisting of 4 sectors:
- Holiday Flats
- All Year Round Rentals
- Buy and Leaseback.
Gîtes are usually, though not exclusively, in rural areas and are often old, traditionally built properties which may have been converted from their initial purpose such as farmhouses, stables, barns, mills or other outbuildings.
A common choice is a building, often with a selection of outbuildings, that is in need of renovation and which can be used as a holiday home for some of the year and rented out for the rest of the holiday season to generate income to offset local taxes, running costs and perhaps the mortgage. Sometimes the project will be more ambitious and involve restoring a number of buildings to create a gîte complex with the owner possibly living on site the whole year. For information on French property renovation mortgages go to our French Renovation Mortgage page and French Renovation Mortgages pages.
Typically a gîte can be let for between 6-14 weeks per year, depending on location, and the rental rate achieved can be increased by high quality (professional) renovation work, high quality attractive furnishings and a swimming pool. As France has become more and more popular with overseas buyers the supply of gîte type accommodation is now starting to catch up with demand so location, accessibility and quality are becoming more and more important.
To maximise your chances of getting a good return on your French property rental investment there are a few simple rules to follow:
- Choose a location that attracts large numbers of visitors and which has lots of amenities. Examples being a nearby golf course, coastal location, major tourist attractions within easy reach. Good transport links such as ferries and airports with low cost flights are also very important. Remember, in France there is no shortage of idyllic rural locations with no amenities and poor transport links: Many people think that the remote rural locations are the best value because you can buy more square metres of land for your money. If you need the rental income remember that the prices are cheap because no one else wants to live there, go there or buy them: These places may be very cheap to buy, but your only visitors will be hermits!
- Think hard about marketing because marketing is how you will get your customers and is the key to successful French property rental. Some owners have successfully used rental agencies and been very happy to have the responsibility for finding tenants lifted from them. Against this, the agent’s fees can range from around 17% to as much as 75% of the gross rental so the peace of mind can come at a very high price when set against the net income (after agent’s fees, taxes, insurance, electricity, gas and water have been deducted) from the gross rental. An increasingly popular, and very successful, marketing strategy amongst owners is to “sell” via their own web site which can cost almost nothing per year to run once setup and which can be as effective as agents in finding clients. An Internet site is especially useful for reaching clients based in the US, Australia, Canada, New Zealand and the ex-pat communities around the world who now are an increasingly important segment of the French holiday rental market. If you want help setting up your own Internet marketing, booking and online secure payment web site click here to contact our Internet marketing partner who has a special low cost service for rental properties which is quick and effective.
- Think hard about the type of customers you want to attract. The French property rental market is very diverse with the majority of French property rental properties on offer being at the bottom end of the market. Generally the most sought after, and most profitable, French property rentalinvestments are at the higher quality end of the market. Spending an extra €25,000 on the property and renovation may well pay for itself within 2-3 years. A modest mortgage can enable you to match your “product” to the needs of the more discerning and most profitable sector of the market.
Like gîtes, the market for holiday flats depends most on location. Always try and choose a popular destination with all year round visitors. A good area, like Deauville, Honfleur or Le Touquet, easily accessible from Paris, can generate between 20 to 40 weeks’ rental per year, far more than most gîtes.
The cost of ownership of a flat is higher per square metre of floor space due to the management company’s charges but these are often quite low in absolute terms and can be viewed against the much higher absolute maintenance costs of a gîte.
A well presented quality flat with a good location in a really popular area should be easy to let as a single contract for the half year from Easter to the end of the summer with additional weeks off season, especially around Christmas and the New Year.
The marketing considerations are the same as for Gîtes but location is even more important. A small mortgage to get the best location can easily double your year’s profit if you buy wisely.
All Year Round French Property Rental
As in all national markets there is a large rental sector. In France, this rental sector can be split into retirement and working areas and both are regulated by law.
In retirement areas, like Menton, Antibes and Cannes, there is always a strong demand from people who would like to spend “a few years in the sun”. These people are often excellent tenants but the rental prices they will offer tend to be linked to retirement pensions so there is little opportunity to achieve premium rates for exceptional locations. Against this the income stream is steady, reasonable and secure enough to allow quite high mortgages to be granted for the purchase of a property.
In the main city areas the rental market functions just as it does back home with the rental achievable being directly related to the location and the demand. It is less easy to assess a fair rental rate in cities than in the retirement areas and it is often advisable to use an estate agent to manage this type of rental.
In both cases, there is considerable protection for the landlord built into the government required rental contract (1 year or 3 years) so a long term rental is not a risk.
Buy and Leaseback
The idea of a French Leaseback property purchase is simple to understand and financially attractive but only if you are offered a viable leaseback contract.
Essentially you purchase a leaseback property using a French mortgage and get the French TVA (19.6%) back. You then lease it back to the developer, typically on a 9 year leaseback contract, for a monthly payment at least equal to your monthly mortgage payment so you will end up owning the property for free.
Too good to be true? Sometimes yes and sometimes no, it all depends on the small print in the contract.
If the leaseback scheme is reputable you are indeed signing up to an agreement where you can have the property largely paid for by the tenants and stand to make a long term tax free capital gain. These schemes are well worth investing in if you have really done your homework and have a sophisticated enough grasp of financing to be able to be certain that you could make a profit.
Unfortunately, we are seeing a current market trend whereby some unscrupulous developers are beginning to adopt marketing practices similar to the worst days of the infamous timeshare market. The quoted return, excluding most if not all of the acquisition costs, can never cover your real costs. The cost will have been pushed up as “ristorne” after “ristorne” will have been added to the price as too many intermediaries have grabbed “a slice of the action” and the rental prospects beyond the guaranteed leaseback period are effectively zero.
Don’t be put off by there being risky leaseback schemes on offer in the market, just don’t get caught by one yourself. There is no “magic” in these schemes, they are just normal commercial financial funding mechanisms and should be evaluated using a straightforward investment appraisal model. If the scheme passes the investment appraisal model for the whole life of the investment then you are looking at a reasonable investment. If the scheme fails, stay away. If you don’t feel competent to perform your own investment appraisal then speak to your own accountant, a qualified independent accountant or perhaps contact us for help. Do not trust an accountant or anyone else who will be getting an introduction fee or similar kickback if you can be persuaded to sign up for the scheme unless you can fully satisfy yourself that the advice they are giving you is in your interest not theirs.
French Inheritance Tax
Any property in France, including a French property rental, will fall under the inheritance provisions of the Code Napoleon.
However, if you use a mortgage to buy your rental property the mortgage, which must be repaid from the sale of the property, will be deducted from sale value of the property reducing your heirs’ exposure to inheritance tax.
Moreover, if you arrange your mortgage so that your annual interest is paid from the rentals you receive, you will avoid any tax on profits: You could find yourself in the happy position of your tenants “buying” your French property for you.