Now is the Time to Invest in Paris Real Estate

Your U.S. dollars have more buying power in euro-land right now than they've had in two years. And the market in Paris, for both sales and rentals, is soft, down, and falling. Ah, ha, I can hear you thinking to yourself, dear reader. And you're right:

This is the time to buy or to rent in the City of Light.

"By all means," agreed our French friends over lunch today, who themselves are shopping for bigger apartments to rent and to own, "this is a buyer's market."

These past few days, we've been addressing the Paris rentals market from the other side. We're not looking right now to rent a place...we're looking to rent out the place we own. When we took our leave of this city four months ago, we decided not to rent out our apartment. We wanted to be able to return for visits as often as our schedules allowed. Meantime, we've been paying the monthly syndic (building) fee, the local taxes (taxe de habitation and the taxe fonciere), the insurance, the electric bill, the phone bill, the wireless fee...

Paris is one of the most expensive places in the world to carry a real estate asset, so, we've decided (that is, Lief has decided and I've agreed) that we should find a renter.

The way we see it, this isn't any old rental...this is our Paris home. And we don't want any old renter. We want someone who'll appreciate the place as much as we do. OK, that's not going to happen. But I think we've found the next best thing: a rental management agent who seems to respect the apartment almost as though it were his own. Abdy Jouadi just left. His agency, Paristay.com, specializes in high-end and executive rentals in the 5th, 6th, and 7th arrondissements. Even given the current down market, Abdy thinks he can find us a renter "in three to four weeks, maximum"...and at a very appealing rate.

Our conversation with Abdy reminded us that a Paris apartment can be one of the best long-term real estate investments you ever make. Because it's versatile. You can use it yourself and, if you enjoy Paris, yield an incalculable return. And then, whenever you decide you're ready, you can arrange to find someone who'll pay you for the chance to enjoy it for a few weeks or a few months himself.

Paris sees more tourists than any other place on earth, and it's hard to imagine this changing anytime soon. Good times and bad...bull markets and bear...people come to Paris.

"I had a client in October who came to town for a month while her kitchen in Los Angeles was being remodeled," explained a friend over lunch today. "She rented an apartment in Paris for four weeks, an apartment in Rome for two, and another in London for two more."

My friend works for a custom tour agency. "Here in Paris," she continued, "I organized personalized shopping days for her. I don't think the current global market downturn has affected her. People with her kind of money ride this stuff out...and, no matter market cycles, come to Paris."

They come to Paris...and they need a place to stay.

So, when you buy a Paris pied-a-terre of your own, buy first what you like. This is my first rule of real estate investing: Buy what you like.

Then, here in Paris, buy what will rent easily, global market conditions notwithstanding. An apartment in the 1st, 5th, 6th, 7th, or 8th arrondissement of this city will always find a renter. Furthermore, as our new friend Abdy explained to us today, the more bedrooms the better.

Typically, investors choose studios or one-bedrooms. Which means there's no shortage of those. So, if you've got a two- or, better, a three-bedroom apartment, you can command super-premium pricing. A three-bedroom furnished apartment in a prime neighborhood can yield as much as 100% more than a one-bedroom unfurnished over the long term.

That's the second secret Abdy shared with us today: Furnish your place. An investment not only in furniture, but also in décor ("classe," the French call it) can really help to better your yield.

What kind of return can you hope for? You're not going to get rich off a Paris apartment rental, but, with the right rental manager, you should be able to yield 4% to 6% net (assuming no mortgage) on a short-term, less if you rent long-term (three months to a year at a time).

For a short-term rental, you'll pay rental management fees of 25% to 30%.

As I've mentioned, though, if you use a company that specializes in corporate rentals for transient executives, as we are, you pay no fee for them finding you a renter. However, you'll still need a management company—someone to be on call for emergencies and repairs, someone to keep an inventory of apartment contents for you and to check it after every tenant vacates, someone to make sure the local bills are paid, someone to meet new renters, someone to keep track of the keys, etc. This should cost you about 10% of the monthly rent.

Remember: Foreigners can finance in France. You could buy an apartment in Paris with as little as 20% down. If you're buying to rent, you won't cash flow with an 80% mortgage. However, you could borrow up to say, 60% of the purchase price and make enough through rental fees to cover the mortgage, the management fee, and other expenses from day one.

The catch with a French mortgage (as in much of the world) is life insurance. It's required. And, in France, you can only buy life insurance that will cover you up to age 70 or 75, meaning you can take a mortgage that extends only to that age.

France Home Finance can tell you more.