A Friendly Property Partnership

An old friend who traveled with me to Nice last week had expressed interest in collaborating on a property investment for a long time, particularly on an apartment in Nice which she loves as much as I do. She owns an apartment in Paris and has moved here full time as her retirement plan, so Nice now has become a regular vacation spot and would make sense as a ‘second home’ — perhaps even a retirement spot as she gets even older.

As part of our fact-finding mission, prior to looking at apartments in Nice, we visited with one of our primary lenders, Banque Patrimoine et Immobilier, to determine our borrowing capabilities. This is the lender with which I currently hold five mortgages and so there are restrictions on how much or how many loans can be made to one client. My friend’s age, more than ten years my senior, presents another issue, as the mandatory life insurance (designed to pay off the mortgage and free the property for inheritance purposes) becomes prohibitively too expensive over the age of about 70, and therefore it decreases the allowed term of the loan.

The meeting went well. As co-borrowers, we discovered that we were each an asset to the other in the mortgage requirements…we each brought some advantage to the table. The life insurance would be placed on my share alone, meaning that in the event of my death, she would receive enough money to make my share of the payments. To compensate for her share, she would have to take out a separate policy outside of the loan, with me as benefactor so that it would accomplish the same goal. We agreed to allow the bank to finance a part of the renovation so that our ‘out of pocket’ expenses would be reduced. With rates as low as 2.4% on a variable 15 year mortgage, the monthly expense for each of us seemed manageable. With this information, we set a budget of 150,000€ for the property with 60,000€ for renovation.

One might think that 60,000€ for a studio apartment valued at 150,000€ is an enormous sum, but our experience proves time and time again that between 2,500€ – 3,000€ per square meter is what it takes to renovate and decorate a luxury property that rents well and one in which the owner would want to enjoy himself. An apartment of a small size costs as much as a larger apartment, assuming one kitchen and one bath — the two parts of the project that make up most of the expense. Plus, a luxury property means installing air conditioning (when possible), well equipping it with appliances such as a washer/dryer, plenty of hot water (a big water tank) and furnishings a few steps up from Ikea.

If you peruse through our pages of Parler Paris and Parler Nice Apartments, you’ll note immediately the look of luxury achieved in all of the apartments. That doesn’t happen haphazardly. Our designer, Martine di Mattéo, uses quality furnishings, lots of one-of-a-kind antiques, beautiful fabrics in custom draperies, custom kitchens and a real sense of design and taste. Therefore, it’s no wonder the apartments rent well to a well-heeled and discerning visitor who appreciates the property as if it were their own. This is an ideal rental situation.

We went to Nice with this in mind and gave our parameters to my best Nice agent to line-up visits. We visited three. One of the properties was one I had seen during my last trip to Nice and one that I wrote about in a recent Nouvellettre®. It had not been sold and still had what I call ‘good bones’ — a great location in Vieux Nice just steps from the beach, Place Masséna, Cours Saleya, the Palais de Justice and across from a public parking lot. It is on the third floor with an elevator, down a short newly-renovated hall, has one large window and glass doors that lead to a balcony. The views of the opposite old Niçois buildings is quite nice and from the balcony there is a sea view. The building itself is in excellent condition and the only negative is the not-so-lovely parking garage that you cannot see from the apartment, but cannot be escaped from when leaving or entering the building. The plus side to that is its existence for renters arriving by car!

The price of the studio was a bit over budget and expensive on a per square meter basis for Nice, but when considering how few apartments in Vieux Nice have the same set of assets…it was correct and reasonable. We left with this apartment in mind.

Back in Paris we visited with our Notaire to discuss the possible structure of the purchase considering our personal situations. We explored purchasing it in our names or in the name of an “SCI” (Société Civile Immobilière — a private limited liability company for property ownership purposes, usually formed by two or more individuals who hold shares in the company) and then we explored the advantage of adding a “Tontine” clause (meaning that the property will pass automatically to the survivor on the first death which reduces the inheritance tax). These are difficult decisions to make when trying to out-guess the future and reduce our taxes and risks as much as possible.

After doing all the due diligence, we determined it would be wise to proceed to make an offer on the property including a “Clause Suspensive” — a contingency on the purchase of a property to obtain the necessary financing. Within 24 hours, our agent informed us it had been accepted. This is when the reality hit us that purchasing an apartment together was a bit more of a commitment than spending three days on vacation.

And now, I’ve come to the point of today’s French Property Insider.

For years I’ve warned friends against purchasing a property together. This is a real partnership — as serious as a business partnership or a romantic one. Both parties must not only understand the ‘entry plan,’ but more importantly, they must have a clear ‘exit plan’ in place to avoid conflict. I have seen arrangements of this kind both work well and work badly. Attorneys who specialize in fractional ownerships will tell you that more disputes arise concerning properties with fewer owners — meaning that with two owners, there could be more serious disputes than a property with 12 owners. With a close friend, one risks damaging the relationship if the interests of both parties conflict.

Fortunately, my friend and I are well aware of the potential issues and we know each other well enough to be very open about how well or how badly this might work. We are committed to being open with one another about our concerns and put everything in writing so that we run the partnership like a business and not just a friendly agreement. We have also agreed to stop, take a deep breath, continue the process of due diligence (evaluate the return-on-investment, etc.) and ‘shelve’ the final decision until Monday after which we have had time to think and discuss all the pros and cons.

Neither one of us can afford to make the purchase without the other. So, if we decide to forego the purchase, the property will be available to someone else! By Monday, we’ll know. If you are interested in purchasing this property should we relinquish our hold on it, email me at [email protected].

And if you’re thinking of forming a partnership to make a property purchase with a friend, let us help you sort it out so mistakes are not made!

A bientôt,

Adrian Leeds

Editor, French Property Insider & Director of The Adrian Leeds Group, LLC

Email:  [email protected]

P.S. Join us on April 9 for the next Parler Paris Après Midi to learn about “The changing nature of diplomacy, what it’s like being a diplomat in a country like France” with William Jordan, Retired U.S. Foreign Service Officer. The event runs from 3 p.m. to 5 p.m. at La Pierre du Marais. Visit Parler Paris Après Midi for more information.

P.P.S When purchasing a property in France, it is possible to get a mortgage — if you know where to go. We can help by introducing you to lenders, assisting you in organizing your loan applications, and explaining the various mortgage options to you. For more information visit French Property Loan or email [email protected].