French sale & leaseback opinions ?

Hi - does anyone have any opinions on this ? There was an ad recently for 2 bed cottages in France, 9 year leaseback agreement, €9000 deposit, purchase price 220k, 104% mortgage organised for you. Anticipated gains 10% p.a. and guaranteed rental. Seems a bit too good to be true. Has anyone any experience of similar ?

It is simply not possible to have 10% annual appreciation on a leaseback, as they figures and structure dont allow it. Any decent appreciation can only be realised outside the lease period as the percentage yield is set for it's life only increasing along INSEE guidelines, which are conservative.
Allow also that leasebacks are only built in areas that are not exactly prime locations.
If you buy a leaseback it only makes sense as a long term investment. It wont wash it's own face for probably the whole of the first lease. They are designed as a pension plan.
If you want capital appreciation go for buy to let - Thats why they cost more than leasebacks, as you can sell them in 4/5 years time and actually make some appreciation. No one will buy a leaseback in 5 years time for much more than you'd pay for it as your 5% renatal would become 3% for them, if you upped the price.

What do you hope to get from a leaseback? Is is a pure investment or are you looking for a second home in France?

Thanks for the answers / opinions. It's something I would be looking at as a way of purchasing a 2nd home in France to own and use in 10 years or so (rather than resale value). I haven't found anywhere I would like as yet though (would be aiming for Southwest Brittany).

Ceatharlach - would have thought they meant capital appreciation to be realised at the end of the lease (not guaranteed) but I have heard that there is little interest in resale value in leasebacks in France.

Hi Midsummer, many people buy leaseback properties with the impression that they can eventually live in them. This is why I posed the question. A leaseback is a commercial property. You cannot simply move make it your second home at the end of the lease. Firstly many leases (bail commercial) are tacitly renewable at the end of the initial period. This means you must renew the lease with them. Secondly, to make a commercial property a residential property, you must apply to the mairie (town hall) to turn your property from commercial to residential. This is not easy. These leaseback properties are set up as holiday villages. They are not really suitable or designed to be used a second homes and for this reason it is unlikely that the mairie will allow you to change the property from commercial to residential. They are really only for investment purposes. The people in France who buy them keep them in the family and use them for obtaining an second income. Hope this helps...

Thanks Louloubelle - you're right about leases of course I would have had to look into that. I wouldn't have wanted to actually move to France just use it as a holiday home (though maybe the 1st option eventually !).

When they say capital appreciation on their adds, they dont say you wont realise this until the end of the lease period. People reading this believe they can sell after 3 or 4 years and make 10% P/A. As this is not the case, this makes an exit strategy very hard as no one will buy it after say 5 years.
There is the odd refurbishment leaseback that may be worth looking at, as the tend to be in better locations. Another big problem with them is the tend to be tiny, and as the guaranteed yields are too low for it to pay for itself the level of subsidy you have to make on a larger unit makes it a poor investment. Buy to let is more expensive for good reason. Get some good advice as leasebacks are designed to fill the pensions shortfall in France.

Would you not think of just buying without leaseback and rent to holiday makers? Build a website for yourself and put it on places like holiday lettings.co.uk.

I've read some of the posts here and in related threads to do with leaseback with great interest and would like to clarify 2 issues in particular:

1. Some posters are saying there will/can be no cap app in lease term cos if rents don't move then prices won't either. Firstly, most Lbacks I've reviewed have at least CPI rental returns so I'd expect capital values appreciation to match that rate at least, am I wrong to expect this? and also if there is any yield compression at all, surely cap ex appreciates?? Finally as you near the end of the lease period you will be realising a freehold at an effective vat rate discount on what you paid first day so surely this must be factored into the potential cap gains realiseable over say 10 years???

2. Also, some posters are saying that after the initial 9/10/11 lease that many of the leaseback companies will have the automatic right to extend the lease to 20 years?? This was not my understanding of any of the LBack Properties I have reviewed to date. Is this a (popular) misconception???

Thanks for all opinions.

Hey Riviera

I like the idea of buy to let and setting up your own website and also advertising online etc then selling a few years later for a better rate of profit.

However, how on earth are you meant to maintain it for your guests? You can't be there in person to clean, wash sheets etc etc and hw is it possible to get someone 100% reliable to do it for you? That's the main downfall I see.

Any ideas?

The Leaseback Kid

You use a management company.

Buy to lets are more expensive per sq meter in France for good reason, as they are in better locations and larger.

It's generally part of leaseback agreement that the management company has the option to renew after first period. You can give written notice to withdraw after first lease period, but if they insisted they could take you to court.

At their current yields you will have to subsidise a leaseback, as it wont wash its face. If in 5 years time your circumstances change you will be stuck with it as any appreciation will only be realised until end of lease. Rent increases are usually every 3 years and linked to the INSEE which would be conservative at best. (If the market is flat overall you get no increase, even thought it may be in an area of growth).

NOTE again they tend to be poor locations and are thus not very popular with the French.