Archive for the ‘Internet’ Category

The 7 Questions You Need to Ask Before Buying a Fractional Ownership

January 5, 2009

DO YOUR DUE DILIGENCE

BEFORE YOU BUY

___________________________________________

1.  Who is the Developer?
Before you entrust your money to someone, check out their experience and track record.  It may sound like common sense, but many people are swayed by a slick website with fancy graphics and photos, without a clear understanding who they are dealing with.  Does the developer have the legal, technical and financial strength and experience to complete the project as presented?  What is their track history?  Do they provide the ability to speak with past clients?  These are important questions to ask.
2.  What are the annual costs of ownership?
As a part owner, one would reasonably expect that annual operating costs would bear a close relationship to the annual assessments. Of course, if concierge and hotel-like perks are part of the package, this can raise the annual costs dramatically.  Look at the true per diem cost of ownership (annual fee divided by number of days use) to determine if this is truly a good value. See if these costs are disclosed publicly on their website.  If they aren’t, there may be a reason.
3.  Who manages the property and at what cost to the owners?
Some developers encourage and train the owners on self-management; others have a management contract with sister companies.  This is profitable for the developer, but not always a good deal for the owner.  Find out ahead of time what the annual costs of management are, and whether the management contract is able to be canceled or renegotiated.
4.  How much markup does the Developer charge?
Most developers do not like to disclose their profit margins, sometimes for good reason.  It is not reasonable to expect a Developer to work for free, nor to expect that a fractional interest of a property that has been completely renovated and furnished, is somehow the same as the market value of the same apartment times that percentage.  It costs a lot of money to find, acquire, renovate, furnish, market and complete a fractional project.
Having said that, Paris property prices per m2 are published every quarter and are well known in the local industry, down to each neighborhood.  Anything over 140%  of current market value divided by the number of shares is, in my mind, excessive. Some developers have a markup in excess of 300%. (4 times market value). What can I say, except that, when it is time to sell, knowing this information before you buy can mean the difference between enjoying a profit and taking a major financial hit.  The real estate market is not kind to overpriced property.
5.  What is the legal structure of the Project?
Ask this question upfront if it is not disclosed.  Buying a property in a foreign country is fraught with risks and complexities. A simplistic legal structure may be easier to understand, and inexpensive to form, but could be extremely costly down the road.  Remember, France is not particularly friendly to foreign companies as a general rule, and foreign companies that do business in France without the annual filing of required disclosures and payment of any requisite taxes are dealt with particularly harshly.
6.  Does the Developer offer a rental program for unused time?
This is a harmless question if the property is located in the US, but a deadly one if the property is located in France.  All I can say is, if the Developer is not aware of, or ignores French law pertaining to rental of property, it is the Owners that will pay the consequences.  See my commentary in the FAQ section of this site.
7.  Can I reasonably expect to use the time that I have purchased?
The whole reason behind fractional ownership is that you can purchase just the amount of time that you would reasonably expect to use.  Don’t buy more time than you need, and never buy excess time for the possibility of rental income.
Some developers require that you take your time in 2 different time periods each year (usually high season and low season).  This is fine if you expect to travel to Paris twice each year.  Otherwise, factor in the additional cost to travel to Paris just to be able to use that extra time.
Summary
If you get the answers to these questions and feel comfortable with the answers, then you have done your homework.
Reprinted from the Paris Home Shares website at http://www.parishomeshares.net/7 Questions.html

Social Networking

December 2, 2008

Things have slowed down a bit now that the economy has gone into a temporary permafrost.  So I decided that it was time to try to connect more directly with those of you who have written to me in the past or who follow my doings in Paris.

For me, the easiest way is to connect is via a couple of the various social networks like Facebook, LinkedIn and Xing.  If you are like me, it just feels a little better if you know a tad more about the people you interact with.  On these sites, especially Facebook, I try to share a  piece of my life that is not always about business.  Yes, sometimes it’s a little silly, and sometimes a little personal, and I always worry about protecting my family’s privacy.  But at the same time, I love what I do, and in these difficult times, it helps to be out there sharing experiences, giving encouragement, and helping others through the rough patches.  I have been through times like these before, and ultimately, things will get better.

That reminds of of a cute play on a famous saying that I saw yesterday: “The light at the end of the tunnel has been turned off to conserve electricity.”  I had to chuckle at that one and then I realized how important it is to maintain a sense of humor when times are challenging.

If any of you would like to connect with me on Facebook (www.facebook.com), please do not hesitate.  Drop me a line at steve@navaro.com, or just pop up my page. Maybe we can get to know each other a little better, share stories, laugh a little and find our common ground!

Paris – Safe Haven in a Troubled Real Estate Climate?

September 27, 2008
Autumn in Colorado

Autumn in Colorado

Yesterday, I came across two interesting articles, both British based, about real estate prospects in France, and Paris in particular.  One was a commentary in the Financial Times, which you can read here.  The other was on BBC – America television. Both highlighted the differences between the French real estate market and that in America and the UK.

As is well known, the American housing market is in a severe downturn, resulting from overbuilding, rampant price speculation and lenders feeding the process with poorly underwritten loans to unqualified borrowers.  All of this started to unwind in 2006 and the process could take another year or two to resolve itself – if credit is available to purchasers.  Right now, the credit markets are all but dried up, and if that continues, there will be no loans available under any terms to allow the free market to resolve the situation. Simply put, banks have no money to lend, because all of their reserves have been set aside for the bad loans they currently own. Many are on the brink of failure.

The situation is not much different in the UK, albeit on a lesser scale.  The UK and Ireland experienced their own version of the housing bubble. They are going through the same process of rapidly falling house prices and lack of available credit.  Their banks are looking for government bailouts.  Banks are merging in a last ditch effort to survive. Barclay’s is no more, Bank of Scotland is gone, and the taint of the poisoned US subprime market permeates the portfolios of all of the remaining UK banking institutions as well.

So why has Paris, and the rest of France to a lesser degree, survived this housing meltdown relatively unscathed? There are several underlying reasons, as pointed out by the BBC.  First, there is not the fever in France to get into the “home ownership” game.  France traditionally has been a country of renters, and much of the property that is owned has been in the same family for generations.  Speculative “flipping” is simply unheard of.  Second, the French people have no credit card debt.  They are a country operating under the philosophy that you do not buy something if you do not have the money to pay for it.  Of course, that financial philosophy went out the window long ago in the US.  Most French credit cards are actually debit cards.  If the funds are not in the account to pay for the transaction, it simply does not happen.  Third, French banks are and have traditionally been far more conservative than their American and British counterparts.  Home loans are amortized for 15-20 years and usually require a minimum 20% down payment.  No 125% financing here.  Loan qualification is a rigorous process.

As a result, the financial underpinnings of the French banks and the French real estate market are more along the lines of what we in the US knew in the 1970’s and 1980’s.  This is also why, to a large degree, French real estate has appreciated much more slowly in the last 10 years than, for example, the US or UK housing markets.  The Spanish housing market is a totally different creature, having been overbuilt, rife with corruption and now crumbling.  That reality adds a double whammy to the many Brits who bought a 2nd home in the sun there with the suddenly realized home equity in their homes in Great Britian. Now, they are upside down in both Spain and at home, and for many this represents the loss of their entire pension savings.

The French real estate market is not immune to what is happening in the rest of the world, of course.  Unemployment is increasing, their trade exports are dropping due to the recent strength in the dollar, oil and food price rises are impacting the everyday Frenchman, and tourism is way down.  Home prices in many parts of France have seen a downturn, particularly in the southwest regions like the Languedoc.

In Paris, buyer demand for properties has tapered off dramatically.  Most Parisians cannot afford to live in their own city.  Foreign demand is also down.  However, like London and New York, demand for premium properties continues to remain strong.  Notwithstanding the volume slowdown, the prices in Paris continue upward, to the astonishment of most of the rest of the world. The most recent study shows Paris prices appreciating 9% in the last year.  I do not think this will continue indefinitely.  I would suspect Paris prices to flatten out or even drop slightly in the short term, until the global economy gets back on its feet. After all, Paris is an international city, and international money, particularly oil money at the moment, continues to play a key role in sustaining this market. Paris too is not totally immune to what is happening with the rest of the global markets. However, with beautiful architecture, a rich and colorful history and a fixed supply of real estate, Paris will continue to be in high demand, so long as it does not follow down the road of mistakes made by other real estate markets.

Perhaps, for those of us who feel more comfortable with our investments in real estate instead of the stock market, Paris may be the last truly safe haven for rational long term real estate investment, at least until there is some stabilization in the markets we have been more familiar with in the past, whether they be in the US or elsewhere.  Whether we like it or not, the French got it right, and we didn’t.

TWTWTW – This Was the Week That Was!

May 16, 2008

I am probably dating myself, but a long time ago, there was a TV show called “That Was the Week That Was”, a parody on the week’s recent events.

Well, for me, this was the week that was, and simply because of the convergence of two articles regarding our company, Paris Home Shares LLC, and what we are trying to accomplish with fractional ownership in Paris. It was mind-boggling.

First, our company was highlighted by longtime journalist and Paris newsletter publisher, Adrian Leeds, on her weekly newsletter called Parler Paris.  She focused on our development of an apartment in the Marais, which coincidentally, her property team had found for us 8 months prior.  With the renovation of the apartment complete, and only a few shares remaining to sell, she said many nice things about us to her readership, and we were barraged by e-mails expressing interest in the property.

The next day, Wednesday, the NY Times ran an article on Paris Home Shares LLC, again doing a photo feature on the same property, which we call Jardin Saint-Paul.  Instantly, my e-mailbox gained 50 pounds, and the barrage became a steady avalanche of requests.  Clearly, there is a lot of pent up demand for quality property at a reasonable price, particularly in this economic climate, and especially in high priced cities like Paris.

It is now Friday afternoon, and my ears feel like cantaloupes and my fingers are sore from responding to all of the inquiries.  Yet, this weekend, I feel a little happier that a lot more people know and like what we are trying to accomplish.  On top of that, Jardin Saint-Paul is now sold out, with 12 happy Owners, and Chez La Tour, our newest project, rapidly appears to be heading in the same direction.

If you would like to read the NY Times article, just click here.

Now, I am waiting for the next shoe to drop, as our company will again be featured in the top British travel magazine Homes Overseas in their June issue.

Renovation Update – Chez La Tour

March 12, 2008

We are halfway through Week 2 of our renovation of our newest fractional ownership apartment in Paris which we fondly call Chez La Tour.  At this stage, the kitchen has been completely removed, all of the tile and marble floors removed, as well the separating wall in the bedroom.  Following a run to the trash dump, we have removed at least a mile’s worth of piping that was run all across the walls of the apartment.  Some of the more classic radiateurs are being stored for the moment, and the rest are history.  We will be completely re-piping all of the domestic water and drain lines, discretely hiding them from view for a much cleaner look. High efficiency sleek low profile radiateurs will replace the existing units.

Piping on walls in Entry

Tomorrow, Rich has promised updated photos of the apartment.  Our schedule is to meet with the marble installer and electrician on Friday, to lay out how everything will be done and installed.  Next week, framing will begin on the new walls.  Already, the apartment is feeling even bigger and more spacious than before.