How still to invest in rental real-estate property in France ?

 When stock markets are, as it is the case today, volatile, when bank loans are expensive and difficult to obtain, when we see that in some areas the price of real-estate property is going down, real estate investment may seem risky.

However, when compared to financial investment, real-estate stands as a « safe » investment for the French.

We also notice that more and more of our foreign clients invest in France, either to become permanent residents, purchase a « holiday » property, retire or rent out.

A home is not as liquid as a financial investment. Forgetting this can be expensive.

For years, assets advisors and bankers have not hesitated to put forward the advantageous tax schemes the French Government have implemented for rental investment (new buildings first, then ancient property too) to sell standard products aimed at those who seek tax benefits.

However, rental real-estate is not a financial investment but an existing good which value grows with time. Real-estate property must generate regular rental income and allow an easy sale with possible gains.

Three requirements must be met to make a "happy" investment. Otherwise, one can say farewell to tax credits…

Property bought under a tax scheme must be rented out to eligible tenants, otherwise no tax credit is applicable. Indeed, whoever pays a lot of tax has one idea: reduce their tax liability.

In this case, the rent must be set according to market price and not be a theoretical amount far from what tenants could afford. The last few months have seen more and more unlucky investors with the arrival of a number of senseless programs built in areas where this market is weak.

Naturally, this situation put many investors in trouble: they were counting on a tax credit and on the rental income to pay their mortgage back…

Small towns : the market is saturated. Many flats remain desperately vacant and must be sold urgently to avoid loosing everything; or the rents must be lowered to try and attract tenants…

According to « Fédération des promoteurs constructeurs » (Federation of property developers and builders), rental investment has led to approximately 62.700 sales in 2007, i.e.: 49 % of the new buildings production. Not all investors have made the wrong choice: as long as good old habits are kept.

A powerful lever to raise pension income.

Once again, real-estate is not a financial investment. It implies a close review of the property to be purchased. The location is the most important criteria, but we also advise our clients to only invest in big cities such as Paris, Rennes, Bordeaux, Montpellier, Lyon or Marseille. We also advise they seek property downtown or in the close suburbs… where they can be sure they will find tenants.

We do not take tax benefits as a priority, but only as a tool.

Real-estate is an advantageous investment if one knows where to invest and chooses the proper tax scheme.

Run away from building schemes solely aimed at investors

For new and ancient buildings, there is no need to get a comfortable return on investment if the neighbourhood has not been valued or even lost value. Please, ban property built solely for investment: once the compulsory duration of the lease to benefit from the tax credit is over, these flats or houses come on the market at the same time. Many is the enemy of a good sale.

Principles to abide by

The parameters to take into account to invest in Paris, the Paris area or province are the same:

- location, environment and rental market demand. And before betting on a neighbourhood in restructuring, find out when the building work is going to take place (in 3 or 10 years?) and if it is going to be beneficial to housing or, on the contrary, depreciate it.

Take these precautions seriously: some have regretted their investment…

- run away from fabulous return on investment developers promise: they mean long-term risk. Favour medium return on investment good investments provide: they ensure preservation of the capital and a possible capital gain.

Seek advice

We advise our clients all through their project.

If need be, we help set-up a structure (company) who would be the property owner.

We advise on the most appropriate tax scheme on a case to case basis.

We issue the relevant tax returns, according to the applicable tax scheme (income tax, V.A.T., etc.)

We work with professional partners (English-speaking Notaires, insurers for unpaid rents insurance, etc.)