There are a number of financial factors to consider on your Leaseback Investment potential or return on investment (ROI)
- Guaranteed Rental Income
- Capital Appreciation
Guaranteed Rental Income
On rental income, the ROI is calculated on the ex-VAT (TVA) price. After all you are getting a refund on the VAT!. Some companies pay the income quarterly, others annually, but always in arrears.
The income is net of all charges. Remember, the leaseback company pays all management costs, repairs, maintenance charges, taxe d’habitation, electricity, water etc. (It does not pay Taxe Fonciere – about 300 euros on a 100,000 euros property).
When looking at the yields offered by each different it is important to remember that it is not always the highest yield that will offer you the best long term investment. For example an apartment sold in an ‘up and coming’ part of Paris with a yield of 3.5% would be a better investment than lets say an apartment in Normandy at 4.5% as the capital appreciation of the first outweighs the second considerably. You must not forget that this is a real estate investment that one-day you may want to sell. Usual Real Estate rules apply: location, location, location.
Over the long term you can expect that your property will be appreciate over the term of the leaseback. The old adage: location, location, location is very important. So an investment that has a lower Guaranteed Income may have much higher capital appreciation. So an up & coming area in Bordeaux, Cannes, Paris may appreciate much quicker than a rural development in Alsace!
How much will the price increase?
Of course, this is difficult to predict! And history does not mean the same gains will be made in the future. But here are some examples quoted by Pierre et Vacances:
- 1 bedroom Meribel apartment bought in 2003, appreciated in value 118.3% when sold in 2006.
- 1 bedroom Coudalere apartment bought in 2004, appreciated in value 97.4% when sold in 2006.