 Poster: A snowHead
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In the process of entertaining my far-fetched dream of buying an apartment in a ski resort one day I came across the French Leasebacks website. I just had a quick skim over the info but the way it seems to work is you buy an apartment in a ski resort off-plan and lease it back to the developer for 9-12 years. Upon the expiry of the 9-12 year leaseback period the property is all yours to do what you want with (which is where it differs from a timeshare).
Because you get a VAT rebate under French law as it's a leaseback (17.5% of the property value) that pays for the deposit. Then, you get to use the apartment for 4 weeks (or so) a year and it's rented out for the rest of the time with you receiving a % of the rental income (the developer receives the rest). According to the website you can get a mortgage structured in such a way that the rental income covers the mortgages payments. So between the VAT rebate paying the deposit and the rental income paying the mortgage payments, your outlay is…ZERO.
Is that right or am I missing something pretty fundamental?? Presumably there'll be some tax hit for the rental income though I reckon this might be off-set against the interest on the mortgage payments. I'm guessing there's no way it works like this or every  would be in on the game. Does anyone have any first-hand experience??
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Obviously A snowHead isn't a real person
Obviously A snowHead isn't a real person
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If something sounds too good to be true, it normally is.
Ground rent, insurance, leasee insolvency, lack of rental bookings, over priced to start with, repairs for damage...
It's all very well looking at perfect world scenarios but I'll bet the split between best and worst case liabilies is huge. Buy in a good location, at the right price, with the right mortgage and you can sell up with controlled losses of circumstances change.
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Well, the person's real but it's just a made up name, see?
Well, the person's real but it's just a made up name, see?
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Oops double post
Last edited by Well, the person's real but it's just a made up name, see? on Thu 17-12-09 17:58; edited 2 times in total
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You need to Login to know who's really who.
You need to Login to know who's really who.
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Anyway, snowHeads is much more fun if you do.
Anyway, snowHeads is much more fun if you do.
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Tommy4681,
go check the apartments/chalets forums for innumerable discussions on leaseback schemes. Some people like them, some don't. Horse for courses. As barshaker has said, twice, there are pit falls and prat falls.
For exmaple, VAT taper relief is over 20 years, so if you choose to lease break at 10 years you've got 50% of your tax break to pay back...
And French law supports the lessee, they can demand you re-lease to them...
I'm a lessor. I'd be very careful about doing it again, but probably would IF AND ONLY IF I made sure the contracts were watertight.
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You'll need to Register first of course.
You'll need to Register first of course.
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i had a look at these when i was buying but decided against it. Didn't like the inflexibility and lack of choice over the 4 weeks you can use yourself, i liked to think I could just up and go when I wanted to and the snow was good (although that's not always the reality!) And whether the rental income does actually cover your mortgage completely depends on what percentage you put down and interest rate you got. Don't forget your bills, edf, taxation habitiation, fonciere, apartment service charges etc.
am sure it works for some people though, as long as the numbers add up
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| bar shaker wrote: |
| If something sounds too good to be true, it normally is. |
Especially where the something in question seems to be a free apartment.
As always, the value of this is in the fine detail. Is there ground rent? How are repair costs split out? What happens if the developer goes bust? etc, etc.
They seem to be offering one bed studio places in somewhere like Avoriaz for c. EUR 180. In a popular resort like that with a smallish mortgage you'd like to think the margin for big losses would be minimal....
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Tommy4681, do you have a link to the website? I wouldn't be paying anywhere near that for a studio, especially after a TVA rebate. Our apartment was bought outright, but there was an insurance paid that meant if the developer went bust the apartment would still be completed. There are likely to be co-propriété charges which may be deducted from your income. There may be a fund for maintenance and repairs. There won't be ground rent, this is a leaseback not a leasehold. France does not have leasehold properties, even within a block of apartments. You own the apartment on a freehold basis, but in exchange for the VAT reduction, you lease it back to the management company in exchange for the guaranteed income. It is not the same as a UK leasehold apartment.
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You'll get to see more forums and be part of the best ski club on the net.
You'll get to see more forums and be part of the best ski club on the net.
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There are a lot of discussions on the internet about some of the problems with these properties, including the difficulties when a management company goes bust and stops paying rent. There are a lot of very unhappy owners out there. I'd be interested to know whether there's a proper market in ex-leaseback properties - there should be by now, as the scheme has been going for a long time. And don't forget, as stated above, that there is no guarantee you get given the property back after the initial lease - the company can extend it, and if it's all going well and making them money, why wouldn't they?
At the very least you'd need to do a lot of very careful research. A useful brief summary here:
http://www.propertywire.com/news/opinion-and-analysis/french-leaseback-under-review-200811061908
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Tommy4681
After considering leaseback, we baulked at: (a) the (relatively) high cost of all of the leaseback schemes - which all seem to be for bigger, more expensive, properties; and (b). being restricted on when we could use the place.
Having decided that a 'normal' purchase was for us, we bought a small studio in Tignes 2.5 years ago at the budget end of the Espace Killy market.
Our overall objective was to realise our dream of owning a property in the Alps as cheaply as we could for somewhere with great skiing. We also looked at properties in Les Arcs and Les Menuires. Although these offered cheaper prices and a lot more for your money size-wise, we went for Tignes in the end because of the year round skiing.
We are onto our 3rd winter of renting it out. If future years' bookings continue like the first 3 (average 17 wks rent per winter season) it'll pay for itself in just under 10 years from purchase. Although somewhere bigger would be nice, we have found that - relatively - a double sized, and double priced, property doesn't produce double the rent - so all in all we're pretty pleased with things so far.
This is the website where we found our property:
http://www.leapfrog-properties.com/region/Ski%20Property%20for%20sale%20in%20the%20French%20Alps
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snowHeads are a friendly bunch.
snowHeads are a friendly bunch.
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All good stuff, one thing not yet mentioned when I looked into it 3 years ago at tignes
Unlike a UK BTL (buy to let) where the rental income has to be generally 1.3 times the mortgage interest payments to cover the mortgage requiremnt which has no reflection on your personal income, the french mortgage takes into account your personal income for headroom to pay the mortgage. It does not take into account the rental income.
Great if you have a small motgage with a large income but if you are already mortgaged up to the hilt you poo-poo out
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And love to help out and answer questions and of course, read each other's snow reports.
And love to help out and answer questions and of course, read each other's snow reports.
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Poo poo ?????????? well use your imagination
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Helen Beaumont, here's the link:
http://www.frenchleaseback.com/results/ski-mountains/
Cheers for all the advice, guys. I suppose the main concern would be the solvency of the developper (which it may be possible to insure against). The other charges, costs, fluctuations in the rental market, etc I presume would affect anyone buying an apartment, whether by way of leaseback or otherwise. That said, the leaseback route seems like a lot of extra fuss and puts constraints on your ownership and use which I probably wouldn't want. Oh well, looks like the dream's going to have to wait a few years...
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You know it makes sense.
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Tommy4681, the developer has to pay an insurance against bankruptcy, so that properties can be completed , I think it is French law.
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Otherwise you'll just go on seeing the one name:
Otherwise you'll just go on seeing the one name:
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OK, look at this scenario...
The property is small and would not otherwise be worth anything like the €200k that it is being marketed at, as the location is certainly prime. The price works though because although the mortgage is at an expensive interest rate the lease back company will arrange this and you won't have to pay a deposit. They are also guaranteeing a considerable rental income that covers the mortgage and gives you a profit each year. This looks very good and as the OP said, gives you an apartment that you can use for 4 weeks a year and is yours, without you actually spending a penny.
You sign up and everything seems fine. The developer sorts out your mortgage and you sign over the property to his appointed management company.
In May, one of two things happen. Either the management company revise the rental income that you will receive for 2010/2011, meaning that it will pay only 50% of the mortgage or the management company goes bust and doesn't pay you your rental income for the last 3 months (these will be Feb, March and April). You must still pay the mortgage and are now significantly out of pocket, but you have the asset. A new management company approach you and also offer you a rental income that no where near covers the mortgage. You decline this and put you <1 year old apartment on the market. The best valuation for the property is €130k and selling it will involve considerable expense.
This is exactly what happened in London with Grant Bovey, Anthea Turners husband. His company was the developer and fleeced lots of people who were lured in by guaranteed returns covering their mortgage payments. Then the company went bust having sold the properties for 30-50% more than they were worth. Most of the properties never had a tenant. I managed to talk a friend out of taking one of these properties although he just couldn't see a downside. He would have been at least £100k out of pocket and that was before the property market tanked.
Be careful out there.
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Poster: A snowHead
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Obviously A snowHead isn't a real person
Obviously A snowHead isn't a real person
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Buy off plan = fund developers plans.
The rest is B/S
HTH
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Well, the person's real but it's just a made up name, see?
Well, the person's real but it's just a made up name, see?
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bar shaker, I'm not sure it works in that way in France, I think there is more protection for the purchaser under French law, as it is a common form of investment and holiday home purchase. It wasn't for me, and someone with more knowledge may know for definite.
DAVE 2227, I bought off plan, but I didn't buy leaseback.
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