Considering buying a ski home as a leaseback? We weigh up the pros and potential cons of buying one, see if it could work for you.
What is a leaseback property purchase?
Purchasing a leaseback ski property many interest some international buyers. In essence, you purchase a freehold apartment (or chalet) and then immediately lease it back to the management company.
In France, the typical lease arrangement for ski properties involves a lease of nine years up to a total of twenty years.
What are the benefits of purchasing a leaseback property?
- Guaranteed and fixed rental income: For the duration of the leaseback agreement, you can be sure of rental income, at a fixed rate. This makes covering the costs of the property straightforward. Leaseback properties tend to be located in the most sought-after French holiday locations, so you can be sure that the property will be booked all season. However, one thing to bear in mind is that if you live overseas, your rental income will be subject to currency fluctuations. This could result in you receiving thousands less on rental income than if you were expecting. To safeguard against this, reach out to a currency specialist, such as Smart Currency Exchange, who can organise a forward contract, locking in an exchange rate for up to twelve months.
- VAT Refund: You will get a government refund on VAT of 20%, significantly reducing the initial purchase cost. You will have to keep the property for twenty years to qualify for the exemption. Purchasing a new build property can mean even more tax advantages.
- Hassle-free management: If you’d rather your ski property is just quietly ticking over, a leaseback is the way to go, as the management company will take care of rentals, maintenance and repairs. However, the cost of repairs will still be down to you.
- Your own holidays: You and the management company will agree a set number of weeks that you can stay in the property yourself, at no cost. Since Brexit, Britons are only able to stay within the Schengen Area for 90 days out of every 180 without a visa. So, given that your time in Europe will have to be limited anyway and leaseback offers guaranteed rental income, this might be the best option.
- High quality: Your property will be completed and fully furnished to a high standard, ready for you and your renters.
After the lease period, you can choose to renew the agreement, live there, rent it out independently or sell.
Potential disadvantages of buying a leaseback ski home:
Before purchasing a leaseback property, here are some things that you may want to consider:
- Smaller choice in properties to choose from: Leaseback properties tend to be in prime locations, if what you are after is a little chalet in a lesser-known resort, leaseback is less likely to suit you.
- Limited personal time in the home: While you will agree with the management company your own holidays there, this will be fixed. You won’t be able to just extend a Christmas stay or pop over for a long weekend on a whim. Furthermore, if you decided you wanted to get a visa to stay in France for longer, you’d have to get out of your leaseback to stay in your home full time.
- Long-term commitment: Even if you feel confident in your leaseback property and the management company, nine or more years is still a long time. Although leaseback properties are often a lucrative investment, you will still need to be sure that you can cover maintenance costs over that period.
- Contracts can be tricky to get out of: If you decide to end the lease before your initial term, you may be required to pay compensation to the management company.
- Capital Gains Tax: If you sell the property, you may have to pay capital gains tax. France also has a tax on second homes.
- Lack of control over the property’s success as a rental: As the management company are responsible for renting out the property, you could end up seeing lower returns than if you were to take a more hands-on approach. Before you buy, really query developers’ promising of high annual returns, as these may not be sustainable.
Leaseback property will suit those looking for a hands-off approach to owning and renting out a ski home, with fixed income and an enticing VAT exemption.
While those wishing to spend more time and manage rentals themselves might prefer to take a different route.
