If your stay is less than three months, then you're more than likely going to take a chance on the rental from the photos alone, unless you can have a friend visit the property on your behalf…but most of the owners are not receptive to visits for such a short rental period. To protect yourself, ensure that when you negotiate the rental contract, you can cancel it within a reasonable amount of notice to find a more suitable accommodation.

The person who has successfully rented a pied-à-terre doesn't usually go for long without getting the bug to own one himself. They decide that it would be just delightful to spend a few weeks a year in Paris and wouldn't it make sense to make an investment by owning the apartment, using it when they like and renting it the rest of the year? Or, if they've been renting with the intention of a longer stay, they quickly realize that the rent money could be better spent on a mortgage, than contributing to the profits of their landlord.

Yes, owning property in Paris is, without any doubt on my part, a good investment. Statistics published by the Chambre de Notaires de Paris this past summer report property prices on the average in the city up 14.5% from first quarter 2004 to first quarter 2005. 
 

This rising trend of about the same level has been recorded since 1998 and there seems to be no end in sight. Experts say the trend will continue as long as interest rates remain low (under 3%) and lending terms remain long; there is continual revival, renovation and reconstruction of existing properties; and sellers continue to price their properties appropriately to sell quickly.

If your purchasing power is in U.S. or Canadian dollars, even with today's unbalanced rate of exchange ($1U.S. = .80 Euro at the time of this writing), there is justification to investing in Paris property. Lenders will mortgage up to 80% of the price of the property, leaving you with a cash burden of 20% for a down payment and about 7% for closing costs (taxes and Notaire fees). This 27% is the only sum which is directly affected by the rate of exchange and with a currency broker  you can negotiate the best rate.

Interest-only and long term mortgages available on the market today help hedge the bet against a poor rate of exchange. If you plan your finances well, you can minimize the expense and maximize the benefits.

Breaking even or earning a few extra centimes on renting your Paris pied-à-terre makes it doubly financially sound, all while satisfying the emotional urge to call it your home in Paris. In fact, if you buy right, equip it right and rent right, you can earn as much as 10% a year owning a vacation rental in Paris, which has very little non- season to speak of (January and August are the two lowest periods). 

Buying right means purchasing a property that has high rental potential at a low enough price to afford a good return. High rental potential depends on location, size, accommodation, features and amenities. Equipping it right means providing the furnishings a renter expects -- good quality linens and mattresses, fully equipped kitchen, washer and dryer, comfortable furniture and tasteful decor. The more luxurious the apartment, the higher the rent you can achieve. Renting it right means maintaining a high occupancy rate.

Agencies with a large clientele and a substantial presence in the marketplace can keep an apartment rented at least 60% of the year and often much higher. Agencies charge for their service, from as low as 10% of the gross rental to as much as 40%, depending on the level and quality of service they provide -- but the higher the occupancy rate, the better your rate of return, and that usually comes at a price.

Those who are very familiar with the vacation rental market can advise on what part of Paris and what kinds of apartments have the highest occupancy at the best rates. Then, finding the right property is key to a successful investment. This is where having professional assistance can cost you a bit on the front end, but earn you "beaucoup" bucks on the back end.

If the property you're purchasing is for yourself to live in and enjoy, then your choices are much less limiting. Every part of the city is an option for you and that means you can intelligently buy in areas that promise higher appreciation or where you can get more space or amenities for the euros spent. Many prefer to locate near their children's schools or near the Périférique (ring road around Paris) or train station for easy access out of the city.

Finding good property to purchase in France is no easy task. Americans are "spoiled" by a system called the "Multiple Listing Service" (MLS) which enables all properties on the market to enter a pool accessible by all real estate agents. Agents are willing to share commissions, therefore one agent can represent a buyer and have access to all properties.

This is not true in France. There are thousands of agencies in Paris alone, few of which are willing to network with the others much less share commissions. Each represents its own small pool of properties, normally in one particular area of the city. Because of this, generally speaking, agents are working only to satisfy their own pocketbooks and care only about selling the properties they represent to yield a full commission (about 5% built into the selling price). Therefore, to find a really good property, one must canvas many of the agencies and visit lots of properties, all while shielding oneself from the agents' often hard-sell tactics. 

For this reason, property finding services have sprung up for not only foreign buyers, but for the savvy French as well. A good property finding service will recommend that you speak to an attorney or tax advisor to learn how best to structure a purchase, vis-à-vis inheritance and capital gains tax laws that could later cost you or your children lots more than it should. There are legal provisions in France which were created to supercede laws that are burdensome, such as the SCI, Société Civile Immobilier, which acts as a holding company for the property or change of marital status to community property thereby skirting the rigid inheritance laws and reducing potential taxes associated with them.

A finding service will also know how to negotiate the purchase price or to negotiate with the agency on their fees. They will also know how to reduce the officially recorded purchase price on the deed and as a result, the relative taxes. They will have the professionals at their disposal who you can trust to provide advice, homeowner's insurance and have relationships with the lenders to assist you in obtaining a mortgage.

While their fees range between 2% and 5% of the purchase price of a property, their assistance can save an incalculable amount of time and quite a bit of unnecessary expense.

The property finding service will research the market and schedule the visits. They will assist in the negotiation process and prepare the purchase. In France, it is necessary that a Notaire record the property deed. The Notaire drafts the promesse de vente or compromis de vente (promise to sell) contract allowing two to three months to obtain a loan. Normally a deposit of 10% of the purchase price is provided and held in escrow by the Notaire until the completion of the sale. If a loan cannot be obtained and the sale should fall through, the deposit is returned, but only if the promesse de vente does not contain a clause suspensive (contingency clause) stating this condition. If the sale is completed, the deposit is deducted from the final sales transaction.

The Notaire provides a variety of other services, too. He collects all the administrative and town planning documents needed to complete the sale. He checks the seller's financial and mortgage position and repays any bank loans. And, where relevant, pays any sums due the manager (syndic) of the property by deducting the proper amounts from the sale proceeds. The Notaire fees, most of which are actually tax assessments, are added to the cost of the transaction. Be prepared to pay up to 8% of the purchase price in these fees and sometimes more!

It is wise to seek a Notaire who speaks English to get you through the "rough spots." Some Notaires take advantage of foreigners by leading them to believe that their transactions cost additional fees. This isn't true, so be careful whom you choose. Ask your friends or advisors until you find good references and then interview each of them. If you're working with a finding service, then they will provide you with a Notaire. Don't ever allow one Notaire to represent both the seller and you – the two Notaires will share their fees costing you nothing to be properly represented.

The next step is to obtain a loan although it is wise to start the application process long before you search for a property. Commercial French banks are unlikely to give you a loan unless you have a salary deposited in the bank monthly. Your US bank is highly unlikely to lend money on property outside the United States. Fortunately for non-residents, there are now many lending institutions designed to provide mortgages to non-residents at very low interest rates and with creative loan solutions. All have agents who speak English.

You will have two to three months from the signing of the promesse de vente to secure the loan and sign on the final deed, the Acte de Vente. This is done at the Notaire's office. At that time, you must have your mortgage and down payment in full to complete the purchase. The Notaire will record the deed with the state, which could take up to six months. At that time, it is not unusual for a portion of the taxes to be returned as the Notaire generally over-calculates the taxes for surety.

Now that you've found and purchased your pied-à-terre, there may be renovation or decoration work to do. In fact, you can pretty much expect to do a certain amount of work to improve the property. There are architects and contractors at your disposal to do just about anything you want, except change the exterior of the building or common areas, which must be approved by the copropriété (homeowners association). Renovations normally cost approximately 1000 euros per square meter, but of course can vary greatly in range depending on the extensiveness of the work. If real improvements to the value of the property are made, then the costs can be deducted against capital gains taxes, but the laws are rigid in this regard. There is quite a bit of non-taxed undeclared labor available (au noir), but you risk having little recourse should something go awry and this expense cannot be deducted. 

So, now that you've found and purchased your pied-à-terre, decorated and equipped it, you'll be in the position of moving right in and making it home for a long time to come or being the landlord and offering your home in Paris to vacationers, just like you were...once. It's your opportunity now to interview the rental agencies to determine who will represent your apartment, or if you will manage it yourself. This time around, you'll be viewing the agencies from a different perspective, but don't forget which ones impressed you when you were the renter. They will likely be the ones you'll want representing your apartment.

About the Author

Adrian Leeds is the editor of the Parler Paris Newsletter  and the French Property Insider E-zine . She is the coordinator and host of a series of conferences, including the Living in France Conference this coming October 21 – 23, 2005 in San Francisco and the Invest in France Seminar at the Harvard Club of New York City.

She offers private consultation and a full range of property finding services, assistance in getting a mortgage and other related relocation services - see ParlerParis.com  She is in the process of creating her own apartment rental agency under the name of Parler Paris Apartments to be launched before the end of 2005.

She rents her own apartment when she's traveling and a guest room in the apartment when she's not - see frenchpropertyinsider.com. 

For fun and practice, she co-hosts the Parler Parlor French-English Conversation Group  which has been helping people improve their spoken English and French for more than seven years.