HELOC to buy studio in Paris

11 Replies

I am thinking on buying a studio in Paris with a HELOC of $300K I have on my primary residence in the US. I would then rent the studio in Paris to have a positive cash flow.

- If I use all the $300K HELOC, how much would be my monthly payment with a 4% rate? (I am not sure if HELOC are for 10, 20 years?)
- Anyone has experience on using HELOC vs regular loan? Pros and cons?

You know nothing about financing, yet you are going to buy a rental property in a foreign country? Oh, please keep us posted on how things progress. This is going to be a great lesson for other investors. :)

I didn't know what a HELOC was so I googled it and read up. Can you kind of explain in your own way what a Home Equity Line of Credit is vs traditional financing?

@Marc Dufour

The HELOCs vary by institution. You should call places in your area to see what their rates and terms are. Many HELOCs are variable rates interest so the payment will fluctuate. And unless you know what the payment and the price of the studio, and the rent will be you can if it will be positive cashflow.

I also presume that you will need a manager in Paris. Do you plan to use the unit sometimes yourself? You don't have to go all the way to France to get positive cashflow if that is your quest.

@Marc Dufour

Connaissez-vous bien Paris?

Buying, even renting, a pied-à-terre à Paris is an adventure - either a dream or a nightmare depending on the quartier in which it is located.

The purchasing process and property taxation in France are also different. I presume you are working with a reputable, local agent who knows the City well and will place you in an area where it will be easy to rent - the areas in which you look will differ depending on whether you plan to rent to Parisian(ne)s or short-term rentals to tourists.

I know a fellow who went this route many years ago without sufficient planning. It was an expensive education.

HELOCs typically have a "draw period" when you can pull money out and make interest only payments. Then there's a repayment period when the loan converts to amortizing. These are usually five or ten years max.

I would, frankly, be astounded if you could buy a unit in Paris (France, I assume you mean) on a 10 year note and have positive cash flow. I've looked at prices there a little (I would certainly live there under the right circumstances), but not rents at all. So, perhaps its more profitable than I think. I assume this would be a vacation rental you would occasionally use yourself.

Be sure to include currency exchange rate risk in your evaluation of the deal.

First, you have to get the HELOC before you can go on a buying spree.

And the terms for these from various lenders do vary in many ways. Some have a draw period that is interest only, while others have principal and interest both being paid in the draw period. Some tie the variable interest rate to Treasury, while others tie the rate to LIBOR. Then there is the variable about the margin above those rate standards. Then you have to be concerned about the max CLTV that the lenders will allow for the loan. And to figure out how big of a loan amount the lender will do, the CLTV is really important. I have previously posted example HELOC calculations showing how CLTV and equity set that loan amount, so do some searching.

I have a couple of HELOCs and both have a 15 year interest only draw period, followed by a 15 year pay down period that fully amortized the outstanding balance over the 15 year payment period, so

@Jon Holdman 's durations might not be what you get - but that could certainly be what you get.

@Marc Dufour why not just get a second? HELOCs are for draw down then pay down and rinse and repeat or for emergency reserves. Rates vary as do terms based on the institution. Look at credit unions as well. 2nds have fixed rate and terms so it's one less moving part.

Pluses of both are quick and cheap usually.

Downside higher rates and with the HELOC usuually variable rates and terms. Some they can call the note on the aniversary too. They usually don't but it's there so buy beware.

Also not usually a good idea to risk your primary residence for an investment. Just my two cents.

... Seriously? I know you're not inquiring on investment advice, but...

I tried getting an apartment in Paris for my sister, yet the prices are ridiculous right now. Just google it, especially if you know French (which I hope you do) you'll see prices are set for a big downslide. I went through all the hoops I could - fixer-uppers (yes, they exist), colleagues, befriended brokers, viager, notariat etc. But this just isn't the market for investing anymore.

Expect to pay 10,000 EUR / m² (about 40,000 USD / sqft). If you go to the arrondissements from 10-20, then it's less but you are basically in the banlieues by then. Not recommended. As the saying goes: better to have 100sqft in Le Premier than 1000sqft in Le Vingtième.

Rent for a studio starts at 600 EUR (again, arrondissements 1-10 but you pay the difference in taxis elsewhere), might go up to 900 EUR. But even then, you'll be paying at least 300,000 EUR for a basic studio.

The government knows prices are ridiculous, so they're planning a major "social development" scheme. That'll make prices tumble even more than the market has already induced.

There are hardly any buyers these days for a reason. Unless it's your intention to eventually own the studio as a primary or secondary residence, just leave this market alone, at least for the coming year (see how the market has gone by this time next year).

@Thierry Van Roy

Wow Thierry,

You sure do know the French market well.

Its a magical city but I have heard and seen the same. Very expensive property with minimum returns.

I have a great friend that showed me some figures on property in a town called "La Fleche" which is 3 hrs drive from Paris.

I believe it was 50,000 Euro and showing around 12%net.

Thanks and have a great day.

Oui Oui lol

@Engelo Rumora

Thanks, I keep myself posted on my surrounding markets, I also have read books on the French market from the past two years. (Oui, on peut dire que mon français c'est presque impeccable.)

That place sounds possible if you're really into the market. Three hours can be anywhere, though. You can cross the entire diameter of a country like Belgium or The Netherlands in that timespan. Heck, Brussels is only 1.5 hours from Paris by train (no, Brussels is not the capital of Paris). Doesn't change the fact that France is not a good investment.

As I have said in other topics, many French have put their money in real estate for the last 5 years because of the crisis. Same thing in Belgium. It has artificially ballooned the market and now there aren't any buyers left. Basically, it won't last. The only ones really putting money into Paris (and I really had to look) are big funds who like to advertise how they invest in "London, Paris, NY". Yet they make their money elsewhere, naturally, it's just a bit of prestige to them.

My beef with Paris is this: I can get a nice investment opportunity in The Netherlands for the same price, which covers her rent and then some in Paris. She's obviously fine with that solution, it gets her an apartment of twice what the same kind of money would buy her.

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