Buy to holiday let property investment in France
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Ever thought of owning your own home in the South of France and using it to fund your retirement. An impossible dream? Here we explain how owning a buy-to-let investment property in the South of France could be a lot easier than you thought and why 2023 is the right time to buy property in South France.
Buying a house in France and capitalising on the buoyant holiday rental market, is a growing trend for property investors. With annual rental yields in the South of France exceeding the returns from buy to let properties in London, Dublin and Paris; it is easy to see why the buy to let market in South France is rocketing. Whether you are looking to invest a lump sum or to develop a pension pot, we explain why now is the right time to buy property in South France.
French property market for Investors
The French property market is buoyant at the moment. In terms of house sales in France, the year up to April 2022 saw over 1 million property transactions completed, the first time this has ever happened. This is the third year in a row that house sales in France have exceeded 950,000 (Source: www.notaires.fr).
In terms of French house prices, the National Institute for Statistical and Economic Studies (INSEE), showed that house prices in France rose by an average of +5.8% throughout France in the 12 months up to Q2 2021, the 20th consecutive Quarter of rising prices. The projection for house prices in France shows an upward trend of +3.5% for apartments and +3.1% for houses during 2022.
Finally, French interest rates remain historically low at just 1.17% in May 2021. The result has been a reported the annual growth rate of +5.3% in new French mortgages applications up to the end of August 2021 and the average interest rates on new fixed rate French housing loans reached a new long term low in September 2021. The forecast for French mortgage rates for 2022, shows that the underlying low interest rates will continue for the foreseeable future [Source: Banque-de-France, Sept 2019].
These 3 factors combined point to 2022 being the best time to buy property in France for over a decade.
Buy-to-holiday-let Property investment in France
So how does this differ from a normal buy-to-let property investment? Basically, you are capitalising on revenue from 2 distinct rental markets. In the the South of France, not only is there a healthy demand for long term rental properties during the winter months, but you also benefit from a summer season of 8-10 weeks during which the monthly rental income can be quadrupled. So for example, a 4 bedroom villa with a pool can be rented for €1200 per month for much of the year, but during July and August, you can rent out this same villa for around €2200 per week. With annual rental yields of 6-8%, you can easily see why investing in property in the South of France is such an attractive proposition.
By investing around 25% as a down-payment and using the rental income to pay off the annual financing, you can reasonably expect the property to be paid off in full in around 10-15 years. So for around €100,000 investment, you could own your own villa in the South of France, use it yourself for a free holiday each year and then have paying guests pay off your mortgage loan. At the end of the 10-15 year period, you can either cash in the capital on your investment, or you can retain the property and receive a very healthy annual retirement income.
If you are 45 years old and you are facing the prospect of working well into your late 60's or even early 70's, investing in a property in the South of France represents the perfect opportunity to enjoy a healthy retirement. The proposition also works equally well for people approaching retirement age.
Buy to holiday let in France 2022
If you are nearing retirement and you are thinking of downsizing your home and buying an overseas property, then just pause for a second whilst we outline how you can end up owning a better property than you first thought. Let us use the example of a buyer who has a €70,000 budget to buy a property in France. What tends to happen is that the buyer searches for a run-down property halfway up a mountain. It probably will not have any outdoor space and it will certainly need updating. It will also be hard to off-load when the buyer comes to sell. Why? Because there is only a small market for people who want to live halfway up a mountain in a house with no outdoor space.
Now let's consider the same buyer with a budget of €70,000 but instead of disappearing up a mountain, they look to buy in a coastal location in South France, like Marseillan, Grau d'Agde or Collioure. A budget of €70,000 will be a decent down-payment on a property up to €270,000 in value. That would get you a very nice 2-3 bedroom house with a roof terrace or a sea view apartment with a balcony. This type of property could be rented out for 8-10 weeks during the summer for €800-€950 per week. The Languedoc coast is also an attractive location for out-of-season rentals during April-May and September-October, so the buyer will also pick up around a further 8 weeks' of off-season rentals at €650-700 per week. Then you have the constant demand for people looking for long term winter rentals. In the winter, do you want to be stuck in some dark dreary village, or do you want to be by the coast with the bright blue sky and sparkling sea? Off course you want to be by the sea. So again, your property by the coast could earn you around 4 months in winter rentals at around €700 per month, plus utility bills. So per year, your coastal property in France could earn around €13,000-€15,000 in rental income.
The end result is that a buyer with €70,000 could buy a house out-right in a rural location in France, but in ten years time that house will probably still only be worth €70,000. If the buyer puts that money into a coastal property and uses the rental income from paying guests to pay off the mortgage, then in 10 years time, that same €70,000 initial investment has been turned into a capital investment of around €270,000. You could reasonably expect to add on an extra 10-15% for the rise in house prices over the next 10 years. Either way, you are left with a very healthy investment.
There are two principal objections to the scenario I have just outlined:
I don't want to have a mortgage in my retirement, I want to buy a property out right.
Well, I completely understand this point, but in France there is a very morbid reason why buying a property with a mortgage is a very good idea. Basically, lets say you die a lot earlier than you planned to. Unfortunately, this happened to some good friends of ours. Mike, a very healthy and active 58 year old passed away after a 12 month illness. Apart from being a very decent man, what made this all the more depressing was that it was always his dream to retire in France. He and his wife Margaret had 18 months previously bought a property in Marseillan. They bought the property outright. I won't go into all of the details, but with inheritance laws in both France and the UK, Margaret had a hell of a battle to not lose around 50% of her life savings. If the capital investment in the property had been kept below €100,000 then there would have been zero inheritance tax to pay.
We work quite a lot with a Real Estate agent in Cannes and Nice. Where she makes most of her money is through wealthy Octogenarian's from nearby Monaco, selling their expensive real estate and buying properties with the maximum mortgage level. She even told me recently about an 89 year old Danish man who secured a €1.5m mortgage on a property near Nice. He could have bought the property outright, but he chose not to. Now, with the best will in the world, both the buyer and the bank know full well that he will not live to see the end of this 25 year mortgage. Is the bank worried. Not in the slightest, because they know that the property will eventually be sold by the family's estate and they will recoup their capital value. The family of the man, will inherit the down-payment he has put into the property, or they could keep hold of the property and continue to pay the mortgage. Either way, there will be no punitive inheritance taxes for them to pay.
So, whilst it may go against the grain, there are very good reasons why buying a property in France with a mortgage is a very good idea. Will you be able to get a mortgage if you are in your late 50's or early 60's? Well if an 89 year old Danish man can obtain a €1.5m mortgage, then I think that the chances are pretty good.
Why would I buy a house and not be able to stay in it when I wanted?
Well the simple answer is of course you will still be able to stay in the property, you just need to plan ahead and block off you availability calendar for when you want to visit. Having lived in the South of France for 10 years now, I can also honestly say that the best time to be here is from late February to May and from late September to early November. The summer is too hot and crowded. The winter is nice, with crisp blue skies, but it can get quite cold during the evenings, especially in old village houses.
So the times where you don't want to be here, is the exact same time period when other people do want to visit. The next question is always "But where will I go?". The answer is, anywhere you want! Visit Australia and New Zealand when the air fares are at their lowest. Go back and see your family. Take the train down to Spain and rent a cheap apartment. The list is endless. And with people paying you not to be in your house in France it is a nice problem to have!
South France Investment property calculator
So, down to the central issue. What will your property be worth in terms of rental income. As a rough rule of thumb, these are some fundamentals when it comes to calculating rental income of properties in South France:
- Every 10 kms you travel away from the beach you lose €100-200 per week in high season
- A private pool plus 4 bedrooms and within 25 kms of the coast you are virtually guaranteed 8 weeks high season rentals and 4 weeks June or September rentals
- A private pool adds between €500-€700 per week to the value
- A shared pool adds between €200-€300 per week to the value
- A roof terrace or balcony increases rent-ability, but not necessarily the weekly value. What it does do however is increase your occupancy level
- If you property has not outdoor space, it simply will not rent (unless it is walking distance to the beach)
- Your weekly price in high season is usually what you can expect to earn per month for long term winter rentals
Village house - no outdoor space
A village house with no outdoor space may rent out in popular towns such as Uzes, Pezenas, Sommieres, Carcassonne, Marseillan. But you are going to struggle to rent it out in non-tourist villages. A 2 bedroom property will potentially receive €500 per week in high season. A 1 bedroom property will receive €350-400 per week in high season.
Potential rental income:
- 2 bed: 4 weeks summer rentals + 6 months winter rentals = €5,000. If you have purchased the property for around €85,000 and your annual maintenance costs and taxes are around €2000, this will provide you with a rental yield of 4%.
- 1 bed: 3 weeks summer rentals + 4 months winter rentals = €3800. If you have purchased the property for around €60,000 and your annual maintenance costs and taxes are around €1500, this will provide you with a rental yield of 4%.
Village house - with roof terrace
A village house with a roof terrace will be attractive for rentals. In popular towns by the coast or in tourist centres such as Uzes, Pezenas, Sommieres, Carcassonne, Marseillan you should expect at least 8 weeks rentals during the 14 week season. The house will also prove popular for longer term rentals. A 2 bedroom property will potentially receive €700 per week in high season, €550 in June and September. Monthly rentals should be around €550-€600. A 3 bedroom property will receive €800-€950 per week in high season, €650 in June and September. Monthly rentals should be around €600-€700.
Potential rental income:
- 2 bed: 6 weeks high season rentals + 2 weeks in June/September + 6 months winter rentals = €9,200. If you have purchased the property for around €125,000 and your annual maintenance costs and taxes are around €2000, this will provide you with a rental yield of 6%.
- 3 bed: 6 weeks high season rentals + 2 weeks in June/September + 6 months winter rentals = €10,600. If you have purchased the property for around €150,000 and your annual maintenance costs and taxes are around €2500, this will provide you with a rental yield of 5%.
3 bed Villa/House - no pool
A 3 bed villa or substantial village house with character will attract some rentals, but it runs into some issues. Potential buyers will either trade-up (for an extra €500 they can get a villa with a private pool) or trade down (for €800 I can rent a town house with a terrace). Again, if the property is by the coast or in one of the tourist towns it will rent for sure, but the little villages inland will prove much more difficult. However, where these properties do come into their own is for long term rentals. In this segment, people want the space, especially outdoor space and private parking. So in a way it is difficult to value. A 3 bedroom property will receive €1000-€1200 per week in high season, €700 in June and September. Monthly rentals should be around €950-€1000.
Potential rental income:
- 3 bed: 5 weeks high season rentals + 2 weeks in June/September + 8 months winter rentals = €14,400. If you have purchased the property for around €250,000 and your annual maintenance costs and taxes are around €2000, this will provide you with a rental yield of 5%.
Villa with pool
An attractive villa with pool should expect at least 12 weeks rentals during the 14 week summer season. The house will also prove popular for longer term rentals, but there is often a reduced market for 4 bedroom properties. It is strange, but the 3 bedroom villa may prove more popular. However, with the 3 bed villa you may reduce your opportunity for summer rentals. A 4 bed villa allows 2 families to share the villa for a cost-effective 2 week holiday. A 3 bed villa will just be for 1 family. It will still rent, but you may have to work harder to get the full 12 weeks in the summer. A 4 bedroom property will potentially receive €2000 per week in high season, €1750 in June and September. Monthly rentals should be around €1200-€1400. A 3 bedroom property will receive €1800 per week in high season, €1500 in June and September. Monthly rentals should be around €1000.
Potential rental income:
- 4 bed: 8 weeks high season rentals + 4 weeks in June/September + 3 months winter rentals = €26,600. If you have purchased the property for around €350,000 and your annual maintenance costs and taxes are around €3500, this will provide you with a rental yield of 7%.
- 3 bed: 7weeks high season rentals + 2 weeks in June/September + 5 months winter rentals = €20,600. If you have purchased the property for around €300,000 and your annual maintenance costs and taxes are around €3000, this will provide you with a rental yield of 6%.
Investment property calculator
I have to say that the figures above should be used as a guide. Many factors will affect the valuation such as interior decoration, availability of UK TV satellite channels, WiFi and the local facilities such as restaurants, boulangerie, shops, etc.