Think Long Term When You Buy Leaseback

The British traditionally love to buy and sell property, surfing the housing market to make a profit from the upturns and downturns.

Yet when it comes to buying leaseback property, Britons should consider following the example of the French, says estate partner Dominique, in the south of France, is well placed to compare the habits of buyers on both sides of the Channel.

And for him leaseback has to be seen as a long term investment. ‘The two countries have a very different culture when it comes to buy property. The French regard leaseback as a form of pension fund rather than as a property,’ he says. ‘To make commercial sense it has be seen more as an investment.’

Dominique says that French people will typically take out a 20 year mortgage to buy a leaseback property. Once that mortgage is paid off the property will then be providing an income for that person’s retirement.

French Investors

Indeed it is not uncommon for such properties to be passed on from one generation to the next as a source of continuing income. Another advantage that French people have – and this includes any people who are tax resident in France – is that the costs of the leaseback can be offset against income tax.

‘In effect you are paying into a mortgage rather than paying tax,’ he says. ‘What you would pay in tax you are instead paying into a mortgage.’ Dominique points out that on a typical 20 year mortgage the purchases may initially have to make up a small shortfall in the difference between their mortgage repayments and their rental income.

However usually after about ten years the balance shifts towards a small credit in favour of the buyer. He warns however that the British approach to property may not be the best one when it comes to leasebacks.

In a leaseback scheme the French government refunds the VAT that is included in the purchase price. ‘If you sell it early then you may have to pay back some of the VAT and may also be liable for capital gains tax,’ he warns.

‘You will also be selling it with some of the lease still to run, so you have a limited market of people you can sell it to.’

He adds: ‘You will have to sell to another investor and they will look closely at the figures and make a decision with their head and not their heart.’ Anyone looking to buy a leaseback property should take proper advice from a financial advisor to make sure they find the deal for them. But in any case, says Dominique, there is one golden rule. ‘You have to think long term.’