Investments Explained: What is there to like about leaseback property?

Investments Explained: breaks down investment opportunities into bite-sized chunks every week.

This week, looks at leaseback property. What is there to like about them?

Leaseback property is exactly what it says: you lease the property back.

You can lengthen the phrase to “sale and leaseback” to give a more accurate description of the process: a real estate asset is sold and then leased back on a long-term scale, securing the usage but not the ownership of the property.

Does it benefit the seller or the buyer more? In a way, it helps both.

Leaseback property is particularly popular in France. With tourists and sports fans alike flooding French ski resorts, the country was soon faced with a shortage of rental accommodation. The solution? Leaseback schemes.

Sponsored by the state, the French government encourages leaseback schemes by offering tax rebates for VAT if the property is purchased off-plan. The government then leases back the property from the buyer: the government gets it rental accommodation and secures investment in its real estate, which funds developers.

Buyers, meanwhile, have an income generated for them by the ski resort renting out the property. Combined with the leaseback tax benefits for new build developments, investors can stand to enjoy a healthy profit without the worry of managing the property of locating a tenant themselves. The revenue often increase in line with the Index of Construction Cost, promising a steadily rising stream of money.

This income can then be used to pay off mortgage payments on the investment. Many ski resorts also offer personal usage as well, allowing buyers to use the home for several weeks every year for free.

Leases can last up to a decade, at which point they can be renewed or cancelled so that the buyer can either sell the property or own it privately.

Selling the property, though, can require buyers to pay back the VAT and also Capital Gains Tax – a cost that varies depending on how long the property has been owned for. With new build properties in resorts often carrying a premium asking price, buyers should consider whether the hands-off benefits of a leaseback scheme makes up for any potential shortfall compared to straightforward buy-to-let.

Leaseback schemes have now extended to other countries as well as France, with leaseback arrangements often available on units near ski resorts or golf developments in Spain, Switzerland and even in the USA.