Want to start investing in French real estate … here is what you should know!

Investing in French real estate is a very attractive option for investors worldwide. I am a US resident, I have been living in California for the last 8 years, and I decided to invest for the first time in the French Alps in 2021. This article aims to provide a roadmap for those looking to embark on this lucrative journey, with a special focus on a strategic starting point: the LMNP status.

🙋 If you don’t know… ask for help!

Many “all-in-one” companies can help you find and buy a property in France from abroad. My favorites are Bevouac, ImAvenir (Paris) and Artae. I went with Artae, a smaller company based in Toulouse. I also tried MyExpat, a company that does not exist anymore.

The big disadvantage is that they are going to take a fee between 6 to 8% of your total project, which can lower your rentability…. but they will take care of everything so you can sleep peacefully at night. I do recommend them for a first acquisition.

🔥 Get to know the basics

Do you have an idea where you want to invest? As a French non-resident, I did not care much about the city where to invest, even if I had a preference for the cities I have been to previously: Lyon, Toulouse, Montpellier, Angers, and Paris. Ask yourself this question … where would you like to buy? If you have a precise idea of the location, then it’s easier to find a local expert in the city, such as a real estate agent or real estate promotor. Not all French people speak English, but you can always try to send an email and see if they answer it! Most will make the effort if they can don’t worry. As you are living abroad it is important to find someone that you can trust to search for you.

Next, you need to understand what is your budget, and what kind of properties fit in it. If you want to buy a historical building with 5 apartments in the center of Paris, it’s going to cost you way more than a single apartment in the countryside. How much money do you think you will be able to borrow from the bank? Also, what kind of investment do you want to make — is it a patrimonial investment (good location — big cities, low risk but lower rentability — < 3%) or a growth investment (medium to rural cities, higher risk but higher rentability)? It’s a trade-off return vs risk that you need to understand.

Getting a loan is an important part of the process, however, in this article, I won’t go into too much detail because there are many “courtiers” that can help you find a loan, even if it’s very often harder for non-residents.

💰 Fees associated with real estate acquisition

When you buy a property in France, several fees are going to be paid to you:

• Notaire Fees: In France, the notaire plays a crucial role in the real estate transaction process, and their fees are an essential consideration. Counts 3% for a new property and 7 to 8% for resale.
• Bank Loan Fees: You will need to pay for loan insurance (mandatory, usually less than 0.2% for basic death coverage), a guarantee called a hypothèque (in case you cannot pay the loan, about 1.5% of the loan amount) and processing fees (from 500 to 1500 euros). The current rate as of February 2024 is 4.35% for 20 years for a US resident. My favorite bank is Credit Agricole.
• Courtage Fees: if you need the help of a “courtier” to find a loan for your real estate project, you will have to add its fees (usually 1% of the loan amount).
• [LMNP] Furniture: There is a strict list of furniture to add to the apartment.

🛠️ Charges and maintenance of the property

• HOA or “Syndicat de copropriété”. Simple rule: the larger the copropriété, the higher the HOA charges! If there is an elevator in the building, or gardens it can also increase the HOA.
• Property Tax. Higher in big cities, depends on the surface of the apartment.
• Agency management fees (about 7% of the rent, plus about half of the monthly rent for each turnover).
• Property insurance (PNO — Propriétaire Non Occupant).
• Insurance for non-payment of the tenant (GLI — Garantie Loyers Impayés, about 2.5% of the rent). This insurance is optional but recommended.
• Bank account fees (about 2.5 euros per month to maintain a bank account in France, it’s not free like in the US!).
• [LMNP] CFE (Cotisation foncière des entreprises), depends on the location of the property.
• [LMNP] Accounting fees (in France about 250 euros per year for an LMNP, in the US I do it with TurboTax).

⚜️ LMNP… THE status to start with!

There exist two types of rental: furnished (meublé) and unfurnished (nue), with each of them having a different status and taxation associated. If you live in the US, like me, you will want to rent furnished apartments to start with. Why? Because you will be able to deduct all the charges, acquisition costs, and interests and amortize your property if it is furnished only. Take a look at the LMNP régime réel, it’s a great status to start with. Basically for the next 10 to 12 years, you will not have to pay taxes because of the deduction/amortization and you will not be penalized when you sell.

You can choose to rent long-term (8 months to 1 year lease) or short-term (like AirBnB). I do prefer to rent long-term as I don’t have to pay for a conciergerie.

This status is only for you to start investing in real estate, it is limited to 23k of revenue per year, over this amount you will need to switch to an LMP status or create a company.

An example of one of my apartment

To finish here are some data about my investment in the French Alps that you may find interesting to go through as an example.

Two-bedroom apartment, 56m2, new construction. Rented furnished, long-term rental.

• Apartment price: 220k, Notary & Guarantee: 3k, Furniture: 11k
• HOA: 600, PNO: 185, GLI: 255, Property tax: 521, Accounting: 250, Agency management: 946, Bank account fee: 24.
• Loan of 190k for 20 years, 0.99% of interest rate, 0.7% of insurance rate. I took this loan back in 2019, that’s the reason why it is so low. But what I want to show here is that even if I was a non-resident and US person, I was still able to get a loan in France! And I did not have any specific requirement, no minimum downpayment… can you believe it?
• My tenant is currently paying 925 euros/month (charges are not included, they have to pay for water and electricity on their own).

Summary of my investment

A small mistake I made was to not play with my downpayment to make the cash flow close to 0 every month. This would have changed my ten-year annualized return to 9.03% instead of 8.09%.

If you want to make more than one or two financed investments in France, you need to know that most banks will apply a 20% on the rent you are receiving to compute how much left you will have at the end of the month (rent * 0.8 — loan payment). In this case, I would be at -143 euros per month, which is not a great start to scaling up the real estate investment business!

As you can see 8.09% is a great annualized return for the first 10 years (tax-free, with the LMNP status!). But I want to emphasize that this was made possible due to the low interest rate of 2019, today it is still feasible but much harder to find a great deal.

Conclusion

Investing in French real estate can be a rewarding venture, offering both financial returns and the joy of owning a piece of one of the world’s most beloved countries. Here are some of my recommendations, I hope you will find them valuable and that you will be empowered to start your French real estate journey soon!

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