Which Developers?

In the current economic climate we all need to be more careful about the decisions that we make and where we invest our money. A period of low interest rates makes this an ideal time to invest into a long term investment like a French Leaseback, however you should still be cautious about which development you invest into.

It is important to understand that the guaranteed rental income is only as good as the company making it.

At Somerset we only deal with the largest developers, who have in excess of 100 established resorts in France. Having this base enables them to cross subsidize new developments in the early years, to ensure their success.

We tend to favour schemes that are built and managed by the same firm. If a company knows that it has to manage a development for the next 20 years plus, it may well build it better. Smaller developers may outsource the management of the scheme to a specialist management company when it has been completed.

One of the key advantages of applying for a French mortgage is that the bank will also do a thorough check on the developer and the management company to ensure that they are both experienced and financially sound. As well as confirming that the development is fairly priced and in a good location. Before a bank will lend, they need to be sure that the property will hold its value.

A signal that should arouse caution is when a management company offers a higher than average "guaranteed" rental yield. This is often done by smaller developers in less popular locations. These high returns often lure in investors, but you may find that these companies are not able to maintain these yields.

Under the terms of lease the developer has to return the property in the same condition as it was leased.

 

Key things to consider

• Always deal with a major developer, as there's many developers out there offering 5.5% - 7% that will have to default to a lower percentage, in 2-3 years time. Expect to receive 3.5% - 4.5% in reality.
• The income is index linked upwards, so combine this with a fixed rate mortgage and as the years go by, the cash flow gets better and better.
• Expect to receive a lower income for a ski property as the building costs in the Alps are higher than in a city.
• Ask yourself if the development would still be an attractive investment if it was outside the leaseback scheme.
• It is mainly the larger developers who offer a resale service.