Sell and take the money or pay back the bank?

We have a French mortgage that covers 3 properties in France. We make interest-only repayments on this mortgage. The value of the 3 properties together is about twice the value of the mortgage.

We want to sell one of the properties as it was bought as part of a tax-saver scheme which we no longer benefit from as we no longer pay income tax in France. We bought it for 184500€ 8 years ago. It is on the market at 170 000 and we've had an offer at 150K. We might settle for 160K if we get it. The bank will not oblige us to pay the money we get for it back to them, as the value of the other two properties still far outweigh the capital we owe. Those two properties are rented and the rent exceeds the interest repayments.

My question is...if we accept to sell the apt for 160K, should we keep the money in case we decide to buy in Ireland (we have been renting here since coming back from France) or should we give it back to the French bank and reduce the capital we owe there. My feeling is keep it because if we want to buy here we might not get a very big loan and yet 150K plus some savings would make a rather nice deposit...

My husband says if we are going to keep the money we might as well keep the apartment...except that the apt costs us money at the moment, it is not rented and any rent we get would probably only cover the cost of running it/property tax etc.

Any advice?

Thanks,

hbor

Read up on the current loan criteria Irish banks now want.
I would keep ever cent from the sale.

Why is this property worth less than what you purchased it for yet the other properties are worth a lot more. Are you sure of your valuations of the other two properties. There have been stories of French leasebacks not giving back the return people expected.

It seems the other two properties are paying for themselves. But how are you going to pay off the capital on them, from the capital appreciation I assume. Is the market where they are strong.

Are you sure the French bank will release the deeds to the property if you sell, have you asked them?

Based on what you've posted it would make sense to keep the cash to purchase in Ireland, and it's an excellent time to purchase there. Large deposit is the way to go as it's very difficult to get a mortgage.

As you have French rental income, are you quite sure you no longer have to pay income tax in France?

Hi,

thanks for your answers.

yes, we do have to pay tax on our rental income but it is peanuts compared to what we would've saved on income tax from the leaseback property if we had continued working in France. The leaseback property ended up costing us money really as the rent is capped and the management fees are huge.

The reason this property has lost value compared to the other two is due to location and property-type. The other two are in central Paris, they were bought years ago and are the type of apartments that will never really lose their value. We have had them valued a few times over the past ten years and we are confident that the valuations are correct.

The plan is to pay off the capital in 15 years or so by selling one of them. In the meantime the rent exceeds the interest repayments so they are a source of extra income for us.

The value of the leaseback apartment, in the outskirts of Toulouse, has taken a much bigger hit since the European economy has suffered and, typically of these schemes, it's initial value was probably excessive.

We have asked the French bank can we sell the Toulouse one and keep the money, they revalued the two Paris ones and said yes.

I just don't know if we should simply try and rent the Toulouse again (the previous tenant left end of last year and given it is difficult to sell with a tenant in situ, we decided to take that opportunity to put it on the market. This is the first offer we've had since last December!!!

If we sold and took the money we'd hardly make any interest on it but at least it wouldn't be costing us, which the apartment does, even when rented. And that money could go towards a house here.

Or

If we sold and gave the money to the bank we would at be taking 160K off a 450K mortgage and we could then use the rent from the other two apartments to make capital and interest repayments on the remaining 290K...

Not sure what is best option.

The two Parisien properties make sense, even your bank have agreed to you not repaying the sale proceeds, I would keep this money and make it work for you. If apartments in Paris collapse we're all in trouble. By selling you are less exposed to one asset class in one country.

In your situation with a large deposit you will be able to get something decent with a mortgage equal to the amount you currently pay in rent I imagine. It's certainly an excellent time to buy.

As an aside, as I suspected it was a French leaseback that caused the problem. Would you mind posting on here the details on this, how the leaseback works which I understand is something to do with a VAT rebate and why it went wrong. Probably due to sales pitch at the beginning that magnified the gains to be made but had those gains built into the price. Which is what you hinted at. Also details of how the management charges eat into the return and how you have no control over these etc. These kind of details help others on here to understand the risks they take when deciding on purchasing abroad.

Hi Bronte,

i am happy to give details of our leaseback scheme in Toulouse except that it was a scheme aimed at people living and working in France, so slightly different to a leaseback aimed at people living abroad, which indeed has a VAT element. This was similar in that the properties involved were in areas where the French govt wanted to encourage people to live and so the rent was capped for the first 9 years. When we bought we had no choice (or so we thought) of management company either and it turns out their charges are high and they also included a whole load of insurance costs too (against non-payment of rent etc, which we actually ended up availing of at one stage). The main reason though that it didn't work for us though was because we left French quite suddenly soon after buying it, so we were never able to take advantage of the tax benefits. OK, we no pay no tax on our rental income in Paris, but I reckon we would have saved about 100K on tax over the past 8 years if we had continued to live in France. That 100K sits on my avis d'imposition every year as a "deficit foncier non-impute" - don't ask me how to say that in English!
I was nervous about selling before the 9 years were up as normally we are supposed to keep it for 9 years, but a French tax advisor said that because of that 100K non-impute there is no way they could claim anything back from us.

Anyway, I need to decide whether to negotiate the offer of 150K pretty quickly as the buyers are waiting to hear from us! My husband is the one reluctant to sell at such a loss...but it is not going to go back up that much any time soon in my opinion.

Thanks again

Thanks for the info.

That's good the buyer is eager. I think you're right to sell. You have a buyer, first bite in 9 months and your husband wants to hold out. SELL.

Forget about the loss, minor in the scheme of things and move on and always both of you be happy that you made the right decision