Buy to Let (residential)

The French are a nation of renters and are currently suffering from a shortage of accommodation.

A number of measures have been taken by the French government to solve this problem one of which is a residential buy to let scheme which was introduced by Mr De Robien. The scheme has evolved in recent times but is still there to encourage people to purchase residential buy to let property.

Typically, properties available under the buy to let scheme are family properties situated in residential areas. You could have apartments near universities, city centres or houses in the suburbs. They are properties that are to be lived in as a main place of residence and therefore are designed to offer comfort and practicality at the same time.

Investors purchasing this type of property will be able to let out the properties during a 3, 6 or 9 year period and at the end of each period they can choose to renew if they wish. Some properties will be sold with an initial minimum period of 9 years.

There will be a letting agreement held between the owner and a management company which sets out the specific terms and conditions for each property.

The owner will also benefit from a host of special 'Buy 2 Let' insurances popular in France which generally include cover for unpaid rent, wear and tear, legal assistance and periods in between tenants covering lost income, providing a re-assuring package for would be landlords.

This is something that doesn?t exist in other European countries as such and is one of the reasons that the French buy to let market is so attractive. The yields are generally lower than in some Eastern European countries but what is the point of a high yield if the property is never occupied?

The insurance package does differ from development to development and largely depends on the insurance company providing the cover (big names like AXA are involved in this type of insurance) but generally the packages cover all of the above mentioned elements, ensuring maximum guarantees for the landlord.

In all, to cover the letting agency fees and the insurances, the owner should deduct approximately between 11 and 12% of the rental income earned from the property each month.

Rental returns are based on the VAT inclusive purchase price unlike for leaseback where they are based on the VAT exclusive price. Typical rental returns are between 3 ? 5%.

Furthermore the landlord can benefit from added security in knowing that when the letting agency interviews for new tenants, they are very strict regarding the criteria they must meet. For example, they mustn?t spend more than 33% of their income on debt (rent, loans etc). If they are marginal then they will ask for a bank or parental caution of up to 5 times the monthly rental amount! The methods used are very rigorous and require a lot of selection and supporting documentation provided by the potential tenant. It is often said in France that it is harder to become a tenant than to get a mortgage!

Rental income is then paid by the letting agency quarterly in arrears. It would normally be paid directly into a French bank account so we would recommend potential landlords, even those who purchase without a French mortgage to set one up. We can assist with this for no fee if required. Monthly payments can also be arranged usually for a small additional fee.

Each year, the owner of the property will be liable for the taxe fonciere (this is paid by all property owners in France and is like a land tax). The other property related tax is the Taxe d?habitation which is paid for by the tenant along with the co-ownership charges.

The rental income will be reviewed on an annual basis in function with the fluctuation of the INSEE Cost of Instruction Index. This index has performed very well since it was introduced. Past performance can be seen here: http://www.insee.fr/en/indicateur/indice_loyer/indice_loyer.asp

It is possible to deduct mortgage interest payments from any income tax liable in France providing that the correct fiscal regime has been selected. It is strongly recommended to instruct an accountant in France to look after this for you.

Buy to Let (short term)

Apart from the leaseback scheme there isn?t actually a specific scheme in France for those wishing to let out their property as a short term "holiday" let although there are plenty of landlords doing it!

Perhaps one of the riskier and more involved ways of investing in property in France, it is also one of the most popular because owners have complete flexibility as to when they wish to use their property.

Carefully selected properties in excellent locations can rent extremely well and earn their owners a small bounty. However, the work and time involved can be a major drawback and does put most investors off.

Owners who have found the ideal property can either try and go it alone, or, contact a specialist local lettings agency who are able to deal with such short term lets. These are very popular in coastal and mountain areas and they do charge for their services (agency commission on rental income) but can help to take the hassle out and make it a profitable adventure.

We will undertake to assist you in finding a local letting agent as part of our service if you were to find a suitable property through ourselves.