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This article is an explanation of the French leaseback plan, including common questions like 'What is a French leaseback?' and 'What are the risks?'

What is a leaseback?

Leaseback is a unique process developed by the French government more than 15 years ago to encourage quality development in tourist areas. Investors buy a freehold property and at the same time sign a lease contract with a property management company who will rent it for short term rentals for a renewable period generally 11 years.

In return, investors receive major tax breaks (no VAT on purchase price) as well as a guaranteed return for the duration of the contract. A guaranteed return is typically between 4,5 and 5,5% and is linked to an official index. The management company takes care of the running costs and maintenance. Thanks to tax breaks the income is not taxed during the first 10 years.

Finance

You can get 80% finance from local banks with rates on French mortgages of
between 3.5 and 4% on 20-25 years with a down payment of a minimum 20%.

Importance of fixed guarantee

These last few years of poor equity market performance have made it abundantly clear how important guaranteed income investments can be.

Hassle Free

Leaseback schemes are ideal for people who want a complete hassle free investment. This is a complete hands off investment.

Risk

As long as the sourcing is well undertaken (sourcing of properties in areas with potential for resale) and verification of the management company is done properly then the risk for this type of investment is minimum.

The Lease Period

The lease period is normally three years. Once you sign a lease with a tenant you have virtually no chance of recovering the apartment for personal usage unless through severe professional or family problems which will be verified.

Return on Investment

The average gross rental yield on a buy to let opportunity is 4-5% before costs on extra guarantees. This can change from area to area.