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France: French Property Investment - Paddy Gibbins, Buy To Let Montpellier

Back to school? Yes….. I’m afraid it’s all about the maths!

“How much capital appreciation do you anticipate over the next 5 years?” asked Mr. Turnbull as he reviewed plans for a French property development. The agent looks blank. “How should I know?” he thinks but seconds later replies blithely “It’s been running at 7% for the last few years...”.

It’s December 2006 and the boom time is still rolling. It is taken for granted that property will just go up and up and up. There were brochures for everything; no-money down deals, below market value deals, buy a luxury condo for free – no scrap that, we’ll pay you!

Property agents became un-regulated financial experts with an uncanny ability to predict the future. The better ones would conduct “due diligence” – but realistically how much understood from a three day fact finding visit to a country you don’t speak the language and where you are reliant almost entirely the developer’s data?

What French property investment - in fact any type of investment - is genuinely about got lost somewhere amidst the coffee table brochures and due diligence fact sheets. The first basic principal of investment is foregoing something today to have something a bit more tomorrow. So unless you have some money to go in and a pretty good idea what’s coming out the other side it just isn’t investment.

There are many good reasons to invest in property as opposed to other asset classes; it is a very durable tangible asset that can provide an income for a long long time. Property can be passed on from generation to generation. It is hard to steal and can’t be lost or broken that easily. The value is relatively transparent and there is a lot of it so acquisition costs and financing are mainstream and cheap.

Number crunching

The only thing that REALLY matters in property investment is the income the property will give you. Sure location, property type, tenant profile, market value, personal taste etc. are all important secondary aspects but in essence it’s all about the cash flow; it has to cost less than what it brings in.

Something that can not be avoided is the element that property investment involves a good grasp of maths. Figures do not lie and if you can not be bothered to crunch the figures then property investment is simply not for you.

It can take many forms; if you are young and have a bit of cash sitting in the bank you can use it to buy a property that will self-finance over 15 to 20 years. At the end of which you will earn it out right and have an income FOREVER. If you are older and have cash reserves property yields better than any annuity and it can be passed on!

If you have a bit of cash in the bank and a reasonable credit history low interest rates and the gap between savings and loan rates makes now a good time to look again at property investment. In France for example you can get fixed rates of 4 per cent and variable rates of 2.5 per cent on property loans. Well-sourced city centre properties with tenants will yield 7.5 per cent gross which equates to 6 per cent net roughly. Banks are paying savers about 1.5 per cent for their money. Lots of maths – OK - but think it though and you will see how it makes sense.

A genuinely good sourcing agent for French investment property will know the local market intimately and have answers ready to all your questions about property values, rental incomes, management, finance and legal; the best ones will provide you with answers to questions you never thought of asking! A specialist agent for French property investment is highly motivated to get it right as they know a happy property investor will buy again and again and again.

Buy a property whose value is easily checked and with a demonstrable income. Leave the crystal ball at home, respect the maths and focus on the cash flow here and now. France is out of recession, yields are good, financing is cheap – It looks like the perfect time to buy…

Paddy Gibbins

Paddy is a director of Buy To Let Montpellier, www.buytoletmontpellier.co.uk

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