Background

With the growth of the Buy to Let market world-wide, many people have considered buying a house or flat in France either as an investment or as a holiday home with rental income potential. Though the choice of property is as wide and as varied in France as in any other national market there are some specific features of the French rental market that make it an excellent choice for those seeking income from property.

Whilst there is no single answer that fits everyone, this page will help you understand the dynamics of the French rental market. It will help you decide what is the right property for you and help you take a realistic view of affordability.

We at CAFPI are happy to arrange mortgages for property that is to be rented, whether all year round or just for holiday lets, so if you have a project in mind fill in the online application form for a no obligation quotation.

 The Rental Market

In France the rental market can be thought of as consisting of 4 sectors: Gîtes, Holiday Flats, all year round rentals and leasebacks.

 Gîtes

Gîtes are usually, though not exclusively, in rural areas and are often old, traditionally built properties which may have been converted from their initial purpose such as farmhouses, stables, barns, mills or other outbuildings.

A common choice is a building, often with a selection of outbuildings, that is in need of renovation which can be used as a holiday home for some of the year and rented out for the rest of the holiday season to generate income to offset local taxes, running costs and perhaps the mortgage. Sometimes the project will be more ambitious and involve restoring a number of buildings to create a gîte complex with the owner possibly living on site the whole year.

Typically a gîte can be let for between 6-14 weeks per year, depending on location, and the rental rate achieved can be increased by high quality (professional) renovation work, high quality attractive furnishings and a swimming pool. As France has become more and more popular with overseas buyers the supply of gîte type accommodation is now starting to catch up with demand so location, acceptability and quality are becoming more and more important.

To maximise your chances of getting a good return on your investment there are a few simple rules to follow:

1. Choose a location that attracts large numbers of visitors and which has lots of amenities. Examples being a nearby golf course, coastal location, major tourist attractions within easy reach. Good transport links such as ferries and airports with low cost flights are also very important. Remember, in France there is no shortage of idyllic rural locations with no amenities and poor transport links: These places may be very cheap to buy but your only visitors will be hermits!

2. Think hard about marketing because marketing is how you will get your customers. Some owners have successfully used rental agencies and been very happy to have the responsibility for finding tenants lifted from them. Against this, the agent's fees can range from around 17% to as much as 75% of the gross rental so the peace of mind can come at a very high price when set against the net income (after agent's fees, taxes, insurance, electricity, gas and water have been deducted from the gross rental). An increasingly popular, and very successful, marketing strategy amongst owners is to "sell" via their own website which can cost almost nothing per year to run once setup and which can be very effective.

3. Think hard about the type of customers you want to attract. Generally the most sought after, and most profitable, Gîtes are at the higher quality end of the market. Spending an extra €25,000 on the property and renovation may well pay for itself within 2-3 years. A modest mortgage can enable you to match your "product" in the needs of the more discerning and most profitable sector of the market.
 

 Holiday Flats

Like Gîtes, the market for holiday flats depends most on location. Always try and choose a popular destination with all year round visitors. A good area, like Deauville or Honfleur, easily accessible from Paris can generate between 20 to 40 weeks' rental per year, far more than most Gîtes.

The cost of ownership of a flat is higher per square metre of floor space due to the management company's charges but these are often quite low in absolute terms and can be viewed against the much higher absolute maintenance costs of a gîte.

A well presented quality flat with a good location in a really popular area should be easy to let as a single contract for the half year from Easter to the end of the summer with additional weeks off season, especially around Christmas and the New Year.

The marketing considerations are the same as for Gîtes but location is even more important. A small mortgage to get the best location can double your year's profit if you buy wisely.
 

 All Year Round Rentals

As in all national markets there is a large rental sector. In France, this rental sector can be split into retirement and working areas.
In retirement areas there is always a strong demand from people who would like to spend "a few years in the sun". These people are often excellent tenants but the rental prices they will offer tend to be linked to retirement pensions so there is little opportunity to achieve premium rates for exceptional locations. Against this the income stream is steady, reasonable and secure enough to allow quite high mortgages to be granted for the purchase of a property.

In city areas the rental market functions just as it does back home with the rental achievable being directly related to the location and the demand. It is less easy to assess a fair rental rate in cities than in the retirement areas and it is often advisable to use an estate agent to manage this type of rental.

In both cases, there is considerable protection for the landlord built into the government required rental contract (1 year or 3 years) so long term rental is not a risk.
 

 Leasebacks

Leaseback properties are often found in a “Résidence de Tourisme” in popular tourist locations, on the coast, in the mountains or in cities such as Paris. The French government introduced the scheme to improve the quality and quantity of holiday accommodation, but this is now extended to student accommodation and residence for elderly people.

A leaseback property may be a townhouse, an apartment or a chalet, depending on location and type.

Your leaseback property is a freehold property which you own outright and lease back to a management company, in return for a guaranteed index-linked income during the leaseback period, which is usually 9 years. Depending on the individual scheme you may be able to reserve some free weeks in your own property, or benefit from discounted rental. The management company takes care of finding rentals, looking after your property and the shared facilities (such as a swimming pool) within the Résidence.

New leaseback properties are usually sold “VEFA” or off-plan. Furniture, together with kitchen and bathroom equipment, is included in the price.

For qualifying developments, you are entitled to reclaim the VAT charged on the purchase (currently 19.6% for new-build). Interest on your leaseback mortgage will only be charged on the amount drawn down, which depends on the completion of the building works.

To find out more, complete the CAFPI online application form and let us, the specialists, do the rest:

Click here to go to the online application form
 

 French Inheritance Tax

Any property in France, including a rental property, will fall under the inheritance provisions of the Code Napoleon. However, if you use a mortgage to buy your rental property the mortgage, which must be repaid from the sale of the property, will be deducted from sale value of the property reducing your exposure to inheritance tax. Moreover, if you arrange your mortgage so that your annual interest is paid from the rentals you receive you will avoid any tax on profits: You could find yourself in the happy position of your tenants "buying" your French property for you.