That’s it, we are owners!

I posted on my Facebook account (private) the photos of our first real estate acquisition. And everyone asked me if we were planning to move to France etc. But no but no, we continue to travel. Our apartment is a rental investment, and will serve as a home sweet home… one day, maybe when we retire.

I tell you here how we bought our first apartment while traveling.

As we are novices in this field, it is not necessarily advice (there are surely more profitable things to do) but feedback. Our goal was not to maximize returns but to start building our wealth for retirement.

Background

Did you know that going around the world was not our number one priority?

For 10 years, we were putting money aside to buy our main residence in Paris. Because at that time, it was MY dream to have an apartment of my own in Paris. We were aiming for an F3. And in spite of our active research, we did NOT find ANY apartment to our taste (there is always something wrong, and as we aren’t too much connected works, imagine redoing entirely the bathroom we get drunk in advance), for the riquiquiqui budget that we had.

JB is more and more dissatisfied with his work and tells me more and more about going around the world and a life as a digital nomad. By listening to him dreaming out loud, one day I give him an ultimatum :

• either we go into debt for our Parisian apartment so minimum 500,000€ and we stay here all our life to pay back the loan
• or we say fuck and we go around the world. Farewell to the Parisian apartment

Well, he chose option 2…

We count our money, we make a forecast with a ladle for the world tour. And we realize that there is still money left.
What do we do with it? It would be a shame to let it sleep on an A-leaflet at less than 1% per year
.

The financial advisor 1

JB contacts a wealth advisor he found on the Internet. He asks us questions about our trip around the world and proposes a rental investment, Pinel law, in Nantes, F3 with a huge balcony.

The Pinel scheme, is a provision that offers the possibility of benefiting from an income tax reduction on a rental investment if the investor undertakes to rent the bare dwelling as a principal residence for a minimum period of six years.

We are super seduced by the project. The following week, he proposes us another rental investment, in Toulouse, a house with a small garden. We like it too much. The idea is to have a maximum of contribution (with what remains of the saved money), to borrow the rest (since we still have 2 CDI and nobody knows that we are going to go around the world), and to calculate intelligently so that the rent totally finances the monthly repayments and the charges. Then he tells us that if we do well, we can have 2 loans at the same time for the 2 apartments. And then, if we don’t get a loan, we can cancel the purchase without any charge. We sign for the purchase of 2 apartments. Anyway, the stakes are low, isn’t it?

And then, I have like an alert in my head. Signing the purchase of 2 apartments in 2 weeks, but what happens to us?

I know, we were dumb, inexperienced and stupid.

We harass our friends who already have several apartments, show them the apartments we have bought, show them the financial plan we have planned etc. and one of them directs us to another estate advisor.

Lesson 1: Don’t sign too quickly. Your apartment won’t leave overnight (especially for apartments on a plan), take your time to think about it.

The financial advisor 2

This 2nd advisor looks at the plans and puts a warning : the apartments we buy are in areas where there are too many Pinel law constructions. There are programs nearby that offer better prices to people who want to live there (and not invest). When they want to sell their apartment later on, they will put a lower price than ours (because they bought cheaper) => risk losing money and not finding a tenant

Lesson #2: Don’t buy in areas where there are already too many Pinel buildings.

In fact, we saw on the Internet that the two apartments in question were located in an area with a lot of Pinel law constructions.
Neither one nor two, the purchase is cancelled. Luckily we do it early because for one of the apartments, a penalty of 1000€ applies incase of cancellation more than 7 days after the signature (
whatever the reason) – something we didn’t see the first time. Because I can assure you that the contracts are so long (about a hundred pages per apartment) that we skipped this point.

Lesson #3: Read the hundred pages in question

It is then that the n°2 adviser proposes us a rental investment in La Rochelle (and other riskier investments but we are too cautious to subscribe to that).
Here are the arguments he puts forward:

• District at the top: very much in demand, safe, 10mn walk from the old port. Only one Pinel construction in front of our building, but low risk to have more than that because the neighborhood is residential and composed of small surfaces. Neighborhood not appreciated by students (good, that means we won’t have to find new tenants every summer)
• Estimated rent = Monthly loan + real estate agency management fees + miscellaneous charges. Basically, this apartment does not bring us anything during the duration of the real estate loan, but it will not cost us anything either if everything goes well (except the initial contribution of course)
• Great potential for seasonal rentals (when you are old, you can live in it and rent it very expensive per week during the summer vacations because the building is only 10 minutes walk from the old port – and the beach)
• As a bonus: the possibility of tax exemption for the current year, whereas for the Pinel law constructions it would have been from the following year (when we will be around the world, without income…)

Now with hindsight, this adviser advised us very well on the two points that we skipped completely (for lack of experience):

• the apartment plan: there are many apartment choices in this building, but the plan of our apartment was one of the best. I can see this now by visiting the apartments of my “neighbors” of investors. Because their apartment has unusable and illogical spaces, whereas ours is perfect. 0m² lost.

Lesson 4: When the financial advisor suggests a specific apartment in the building, feel free to go to the program’s website and look at the plans of other apartments with the same surface area to see if they are better or not.

• the seriousness of the companies that run this program: we are neither in the business nor in the region and do not know the most serious companies in the sector. In any case, after hundreds of emails exchanged with the different protagonists involved in this program, we can tell you that their service is exceptional. The program’s law firm helped us fill out our tax return. The company in charge of the work gave us a very detailed visit of the construction site. The after-sales service sends us within the hour all the necessary information for the rental of our apartment etc. Everything is done in such a professional, reactive and smooth way that we are surprised to have such a service after signing the check, you know what I mean?

Lesson n°5: Find out as much as possible about the seriousness of the companies and structures involved in this program. And above all the project manager (Google is your friend)

Well, the only snag is that the key delivery date, scheduled for the end of 2017, has been postponed many times. Finally, bought in December 2016, the apartment is only delivered in July 2018 for a rental from August/September 2018. That is a little more than 6 months late.

And the loan?

It’s not easy either my friends!

We had a dream file (2 permanent contracts with good salaries, a rent below 30% of our income, an important contribution, no debt, …).

Our historical banks did not respond (so we said goodbye to them).

There, once again, we had to activate our networks to find us a nice adviser, in a very nice bank (in Normandy!), who fought to get our project validated. Besides, we are so grateful after that that we send her chocolates every year to thank her.

JB fought to get his bank to transfer money to buy the apartment (because the money you give to the bank doesn’t belong to you completely anymore, they won’t even let us transfer our money as we want).

It was all the more stressful because we had to close everything before the end of the year to be able to benefit from the tax credit. In the end, the purchase transfer took place on December 26, 2015 😀

Since this is a rental investment, the bank agrees to charge us the equivalent of 1/3 of the monthly payments until we find tenants. However, this fee does not reimburse the capital, only the interest. So after a year and the apartment being in arrears, we decided to pay the monthly payments immediately, even if the rent isn’t yet due.

Lesson #6: Have money to pay the monthly payments in case the apartment is delivered late, and during the months without tenants.

Be aware that the loan is cheaper for a principal residence than for a rental investment. The disadvantage is that you aren’t eligible for late repayment (i.e. only when the first tenants move in).

But not living in La Rochelle, we can’t lie either and say that it will be our main residence to get a better loan rate. Because it will ask the question “ah yes? and how do you manage to find a job in La Rochelle? In short, I let you calculate all this if you are interested (rate reimbursement or immediate reimbursement) because there are still fees related to this late reimbursement and the bank takes time to validate this condition.

In short

• We have opted for a rental investment in La Rochelle, with contribution, in a high-potential neighborhood.
• We applied for a property loan while we were still on a permanent contract, without specifying our upcoming departure on a world tour
• The idea is that rent = loan repayment + management agency fees + other fees . Thus, during the duration of the real estate loan, the apartment does not bring us anything, but will not cost us anything either (no taxes on the rent because we always have an outstanding loan of the same amount). But at the end of the loan, the rent will go directly into our pocket (- taxes of course). Until then (in 15-20 years), if we have no more income, we can perhaps count on this rent to live (in a not too expensive country in Asia for example or in South America).
  • A little clarification on the confusion I made regarding taxes and the loan – thanks to Olivia, our reader, who pointed this out. I put her detailed explanation here:“Only the loan interest is deductible from your property income, not the part corresponding to the repayment of the capital. The fact of having a loan of the same amount as the rent does not necessarily imply a land deficit (especially with low interest rates), all the more so as the more you advance in the repayments, the more the share of interest will decrease in favor of the repayment of the capital, therefore the less interest you will be able to deduct. In case of land income, if the tax exemption will reduce your taxes to zero, be careful not to have any bad surprises with the social security contributions which will remain due”
• It is only after the visit of the building site and the district in La Rochelle + the visit of a sample apartment, that we signed the purchase
• This apartment, which we like very much, may serve as a home for us when we retire – because as you know, we don’t rely on the state for our retirement. We are digital nomads and have to rely on ourselves.

Looking back, you think you’re very lucky. Every time there is a difficulty, or we take the wrong path, someone is there to help us. Our friends have been great, and have been very supportive, with business cards 😀 My best friend even turned down his referral fee at the bank to give us the best loan rate and the lowest fee possible (too much money).

And here, the best for last, the pictures of our magnificent apartment (F2, 52m²) in La Rochelle.

M/s: we aren’t brokers or financial advisors, this article only relates our experience. Every experience is personal and because it is a large investment, we will not be able to advise you on a particular bank or provide you with contact information for our advisors. Thank you for your understanding.

Update September 2018: That’s it, after a month of searching for tenants (by our manager) & validation of the file so that we can benefit from the insurance against unpaid rent, our apartment has been rented! youhouuuu!

For those who are interested, we made an article on how we manage this apartment remotely thanks to our rental management agency: Ma Gestion Locative.