Invest in a Student Residence through French leaseback

Student residences are becoming increasingly popular with investors attracted by good returns with low risks. This is one of the most profitable real estate deals but investors must pay attention to the reliability of the management company and the location.

This market, neglected in the mid-1990s, has rebounded in recent years in the context of a shortage in the housing market. Today, France has approximately 340,000 designated student properties, whereas each academic year sees  more than one million students seeking accommodation in the rental market.

Simplicity and efficiency

Mainly composed of studios, student residences are equipped with amenities designed to make life easier for their young occupants such as breakfast, laundry, meeting room or work space dedicated to sports and recreation, broadband Internet connection and sometimes parking. The advantage is that the end investor does not have to worry about the management of the residence as each property comes with a commercial lease of at least nine years with a management company which then sub-lets to students giving an average yield to the investor of 3.5%-4.5%. The company is also responsible for the maintenance of the building and the payment of rents to the owner. The investor is not responsible for any departure of a tenant, unpaid work to be done… but still gets the same rent every month whether the accommodation is occupied or not.

Of course, to keep on paying the rents on time, the management company must have a good occupancy rate. So if the residence is not well located or poorly maintained, investors eventually will suffer from the consequences. However, this investment does have a few risks due to the short duration of the rental agreements and the low rental amounts. However, most well located student property performs well as parents often pay for their children and the occupancy rates are very high due to the high demand on the market.

An attractive tax and finance system

Several tax advantages exist. First, the 19.6% VAT of the purchase price of the property can be  refunded. French student residences are also eligible for the tax system called Louer Meublé Non Professionel (LMNP) which allows owners to amortize the price of acquisition over 30 years. Each year, it enables to the buyers to deduct 3% of the purchase amount to decrease the amount of the taxable rents. Generally through French Leaseback, a foreign owner does not pay tax on rental income. Non-residents can also find a mortgage in France for up to 85% of the purchase price. French Private Finance offer a range of services and specialise on finance for international investors into France so contact them if you would like to find out more about mortgages in France.

The management company

Be careful of management companies which promise high returns and which mean they charge high rents as it may, sooner or later, have difficulties to fill its residences. They may be unable to provide the promised return and so decide to reduce it without the owner’s approval. Always ask if the management company has the means to pay the rents and make sure that the lease provides a clause that indexes the rent to inflation.

The location is a key factor

The location is the key point for a good rental investment in a student residence. The residence should be located close to universities, transport, and in the best case, be located in a major French student city to ensure the performance of the asset.

The prices of these 15 to 20 square metre studios are high and vary regarding the region. In Paris, prices per square metre fluctuate between €550 and €800, €630 in Nice, €500 in Marseille and only €250 in Troyes. The supply of student accommodation remains too low despite the tax incentives granted by the French government. Only 15% of the requirement for student accommodation is met. This very low rate promises good return for investors who are not likely to see the demand for student property decrease any time soon.

Posted in: