“Point A Begins with a Capital “”M”””
Okay, so you’ve got the bug to own a pied-à-terre in Paris or sweet little stone cottage in the countryside of France. It’s only natural to have such a romantic idea to think about before you leave the earth never having fulfilled some of your dreams.
Some people just keep dreaming. Others act upon their dreams and make them come true.
Which one are you?
The dream of owning a property in France can more easily become a reality than you think. Thousands upon thousands of non-French speaking, Anglophone people do…Americans, Canadians, Australians, South Africans, New Zealanders, British, Irish, Scottish…you name it. These are the people who took action and developed a plan — a methodical smart plan that made it easy to go from Point A to Point B and so on until they reached that pot of gold at the end of the rainbow — a property in France.
I’m here today to talk to you about Point A — BEFORE you begin to look at properties. It’s the first place to start to make this dream come true and it has to do with Money —
“Money” with a Capital “M.”
Without enough money, purchasing a property in France would be impossible. And with today’s weak dollar to the strong euro, it may seem even more impossible than ever. So, perhaps you’ve put your dream aside for another time when the dollar is stronger and buys you more euros.
STOP RIGHT THERE…when is the right time?
Mark my words — you are looking at the picture through the wrong set of glasses. You could make a big mistake by doing nothing. Doing nothing means not only will you NOT fulfill your dream, but it’s going to cost you money, too.
Let me put in all in proper focus for you:
Fact: The dollar has weakened as the euro has gained in strength. Today’s rate of exchange is approximately $1.43 to 1€. One year ago it was $1.21 to the euro.
Fact: Property in France and particularly in Paris, is increasing in value approximately 10%. From July 2005 to July 2006 property increased 11.5% and from July 2006 to July 2007 property increased 8.5%. The market has slowed this past year, but still holding strong.
Fact: When a property increases in value in euro value, it also increases in dollar value based on the disparity in the rate of exchange. For example, let’s use a 500,000€ property as a sample. If purchased one year ago, it was worth $602,000 at the time, but is today worth 542,500€ or $775,775! So, it’s even more valuable in dollar terms!
Fact: When you take a Mortgage in France (“Mortgage” with a Capital “M”) of the standard 80% loan to value, the down payment is only 20%. That’s the only cash you will need to transfer into euros plus closing costs, about 7%. So, using the same 500,000€ property
as our sample, that’s 100,000€ you need to make the down payment, and 35,000€ for closing costs or $193,050 at today’s rate of exchange, not the total price of the property, or $715,000!
Fact: The current interest rates in France (based on the Euribor) vary between 4.1% and 5.1% depending on the lender, the variable rates vs fixed rates and the terms of the loan. Just in comparison to appreciation, interest you would pay on the loan is about half of appreciative value of the property.
Fact: Mortgage interest paid is tax deductible (on a U.S. tax return). Yeah!
Fact: If you buy an investment property and report your rental revenues, you may also deduct from your taxes much of the expenses incurred to oversee the property — such as your trips to France!!!
Stop now. Let me make the picture even clearer for you by taking another look at Point A — “Mortgage” with a Capital “M.”
Lots of people have savings to invest in property and prefer to purchase a property in cash to avoid a monthly payment.
While on the surface that seems like a great idea, there are a number of additional reasons to take a mortgage aside from the obvious necessity for additional funds:
1. You may have other needs for your money! Perhaps you want to renovate to improve the property which will improve your return on investment.
2. Interest rates in France are lower than both U.S. and U.K. rates. At today’s low interest rates, there are other investments which can yield higher dividends and therefore earn more money than the mortgage is costing you.
3. Investing as small amount of capital as possible is a way of leveraging a large mortgage that will be covered by the rental return of the property. As the years go by, your rental returns are likely to increase while your mortgage repayment remains the same, generating a higher return.
4. Any increase in the value of the property also increases the equity you’ve built. With a good track record, the lender may be willing to offer a second mortgage or equity release, facilitating additional property purchases.
5. A mortgage is a great way to reduce the inheritance tax as well as the famous French Wealth Tax liability on your French property by lowering its net value. With inheritance tax rates as high as one-third (to non E.U. residents), this can save an enormous amount of tax liability. And with Wealth Tax applicable on all assets worth over 760,000€, a mortgage can reduce or totally eliminate your tax liability.
But the biggest reason
you will want to take a mortgage is…
The ability to more or less control the risk related to the fluctuating rate of exchange.
If you take a variable rate mortgage, one which allows repayment with no penalty, you can use the rates to your advantage by making payments when the exchange rate is in your favor. The down payment, the taxes and Notaire fees paid at closing are the only amounts subject to the current rate of exchange. And even that, with good planning and a currency specialist, such as HiFX, can further protect you from the risk.
Let’s take that 500,000€ property again as a sample. When you transfer the down payment of 100,000€ and closing costs of 35,000€, you could easily save approximately $1,930! And “Forward” contracts allow you to buy Euros up to two years in advance to protect yourself against these currency fluctuations.
If you’ve read this far, then I can venture a guess as to what your next question is:
How do I get a Mortgage in France?
Simple. Many lending institutions in France now specialize in mortgages designed specifically for non-residents.
You may borrow up to one-third of your disposable income and rental revenue may be considered as income! Traditionally you can borrow up to 80% of the purchase price of the property, but sometimes up to 90% and often it may include renovation costs.
Lenders may provide a “pre-approval in principle” which will enlighten you on just how much budget you really have (most people can afford to borrow more and buy a much better investment property!) and also give you the necessary clout when negotiating with a seller…very important in the final stages of purchasing a property.
So how do you get started on Point A and make that dream a reality?
Contact our Mortgage Manager, John Rule, NOW.
He can assist you FREE OF CHARGE with applications to any of our favorite lenders. Unlike other mortgage brokers, we don’t charge for our service to assist you!
Just click here to send him a message and let him know how he can help: [email protected]
Or, if you want to learn more, visit /frenchproperty/loan for more information.
A la prochaine…
Editor, Parler Paris
P.S. Start with Point A. You have nothing to lose and everything to gain by contacting John at French Property Loan, a division of the Adrian Leeds Group, LLC. Email him today to learn how you can borrow enough money to make your dream to invest in France come true: [email protected]