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Each situation is different, this article was written for informational purposes only and the opinions mentioned here do not constitute financial advice.
Historically, building an estate in France has been synonymous with buying property. This idea is reinforced by multiple real estate laws that allows people to save on taxes through different schemes. Unfortunately, these fiscal bonuses are mostly available only to people living in France.
If you want to build an estate here in the US, you will have to think more broadly.
Culturally, building an estate in the US has been a mixed approached of real estate and investment in the financial market. Here, tax advantageous accounts are linked to the stock market (401k, IRA, Roth IRA etc.).
Buying for oneself vs investing
With my clients who want to buy in France, I always make a distinction between buying for pure investment as opposed to buying for themselves.
A pure real estate investment shouldn’t include any emotions in the buying process. It’s not a question of whether you would live in the place or not. It’s a financial question of profitability. In any case, you should get help from a professional. I work with a partner in France www.epargneplurielle.Fr, who work with expats.
Buying a property with the plan of living in it either at some point in the future, or a few times a year is not purely an investment. That will involve some level of emotion; you have to like the place, at minimum.
One of the most common mistake that I see from my clients, is when they invest in a property as if they would live in it.
Regardless of the reason, buying real estate should be done in a broader context of your overall financial landscape. I usually recommend spending no more than 30-40% of your liquidity as a down payment for an investment property. The leftover should be invested in the stock market with a mix of bonds and stocks, depending on the level of risk you are willing to take.
It’s advantageous to finance your property with a French mortgage (interest rate between 0.8 -1.8% for non-residents). You will need a down payment between 20-30% and it’s not as hard as you may think to qualify. Here is a list of the financial institutions who lend money to “US Persons:” https://www.ouifinancial.com/post/prets-aux-non-residents
Real Estate market volatility
French/European real estate market is usually less volatile than the American real estate market. This is partly due to the rules applying to renters which are more stringent in France than in the US. Another reason is that French people don’t lose their jobs as easily as in the US and are more protected overall.
If you are hesitating between real estate investment in the US or in France, it’s probably less risky to invest in France.
You will pay taxes in France on rental income (between 37.2% and 47.2%), but you won’t pay taxes in the US at the Federal level (thanks to the French-American Treaty). Some states, like California, don’t have a treaty with France, so you will pay taxes at the state level.
As mentioned earlier, there are fewer possibilities of tax optimizations in the US than in France for non-residents. If you buy a property in France, the one thing you need to do from a tax perspective is to rent it furnished (LMNP – Location meublée non-professionnelle). You will be able to amortize the value of your property, deduct some expenses, and pay little or no tax in France.
Before investing in real estate, make sure that you understand the profitability of your property. It’s a calculation that I do with my clients. It should include your mortgage, closing cost, local taxes, insurance, maintenance, other cost, income (rent, vacancy rate, management fees, value appreciation, holding length) etc. It’s the IRR (Internal Rate of Return) of your investment.
Better real estate alternative than buying a property
There is a lesser known alternative that involves buying shares of multiple properties. It’s called REIT (Real Estate Investment Trust) in the US and SCPI (Société Civile de Placement Immobilier) in France.
It allows you to buy shares of multiple properties. It’s a cheap way to diversify and you don’t have the headache of having to manage the property yourself. Everything is included in the price of the share and you receive a share of multiple rents and the appreciation of the property. Because you own multiple properties, if renters don’t pay their rent for one property, you still have the rental income from the other properties. In France (not in the US), you can even have a mortgage to buy this type of investment. My partner Epargne Plurielle can help you set this up.
As you can see, there are some things to evaluate before buying a property in France. Don’t forget that this kind of purchase needs to make sense in your financial landscape. If you get $10,000/year from your property in France but you overpay $10,000 because you don’t optimize your taxes, your net worth increase is…zero.
Guillaume Decalf from Oui Financial – firstname.lastname@example.org – After a 15-year career in Tech, including nine years in the United-States, Guillaume switched careers by obtaining his Financial Advisor’s License and starting Oui Financial, a firm specialized in financial planning and investments for French people and French-american families in the United States. He is based in San Francisco, California but serves clients throughout the US.
MerciSF is not responsible for the advice provided in this article.