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Madelyn Byrne and husband Philippe are passionate about Paris. They own www.ParisPerfect.com, a vacation apartment rental company that specializes in beautiful apartments in Paris with unforgettable views. Their apartments have been featured on The Fine Living Channel, have recently been recommended by Rick Steve’s France 2006 and were recognized by BusinessWeek and the Wall Street Journal for Paris vacation rentals.
Before starting their business, Philippe practiced as a Cardiac Surgeon in the leading hospital in France; Madelyn, an MBA from Stanford Business School, spent most of her career as an investment banker in London and Paris before she turned her interests to their Paris business, allowing her a chance to work from home and spend more time with their two children.
My husband Philippe and I have been investing in Paris real estate for almost 25 years. We love Paris and are lucky enough to have realized our dream of having a business that allows us to share our passion with others. In the process we’ve learned a lot about the Paris real estate market, having bought and sold a number of apartments over the past 25 years; we have made money on some and also lost our shirts on others.
Several of our guests at www.ParisPerfect.com feel the same way we do about Paris and have decided to buy their dream pied a terre in Paris, spending part of each year savoring life and this beautiful city. On occasion we have assisted guests to help locate, purchase and manage apartments. It can be a lengthy and complex process but they were thrilled with the results and they savor every minute they spend in Paris.
In this series of articles, we share key principles we recommend when investing in Paris rental properties. Included will be what we look for in terms of location in Paris, what to look for in an apartment, real estate tricks, remodeling tips and disasters, furnishings tips and mistakes and more.
Where to Buy: Our Most Important Rule Is To Think Defensively
When the real estate market is buoyant and interest rates are low, it’s easy to buy and sell an apartment, any apartment. There are plenty of choices in Paris, lots of new, ‘emerging areas’ and many agents who are eager to help you buy your dream pied a terre. But, as anywhere, there are very few excellent apartments which will sell in any market, good or bad. Before you buy, ask yourself if, “In a slow real estate market, will this apartment ‘fly off the shelves’ or sit there with dozens of other ‘nice, but …’ properties?”
1.) The right neighborhood
The first step is to identify the neighborhoods that you want to live in. There are many beautiful neighborhoods or arrondissements in Paris and each one has unique characteristics and charm. A number of arrondissements are ‘colorful and emerging’ as described by real estate agents — where apartment prices tend to be cheaper as a result. A few neighborhoods, such as the 4th, 6th and 7th are more expensive, unquestionably the most sought after and highest priced.
It’s hard to find a balance, but we advise clients to think long and hard about the price versus defensiveness of the purchase. Our advice is to think of all scenarios; in a weak market, which arrondissements will still be sought after by Parisians themselves as well as foreigners? As in any city, the best neighborhoods tend to hold their value when prices decline. Most importantly, when transactions numbers shrink you want to be in the neighborhood that is still experiencing buying activity.
For example, we read an interesting article last summer in a leading US newspaper about the 17th arrondissement; the price per square meter is more affordable than in some Left Bank neighborhoods; it’s a large area and there is a lot of choice. We enjoy the 17th, particularly the area around the Park Monceau — there are some beautiful buildings and apartments there. But we suggest that it is not the first choice for a foreigner searching for that special pied a terre in Paris, which can mean a trade off of current lower price/square meter for best liquidity should you need to sell. If you plan to live in Paris for many years to come, by all means consider the 17th for the value it offers and the lovely apartments you can find. But, as anywhere, make sure it’s the choicest location, not in a ‘dead zone’ with crowded apartment buildings far from the village feel of good market streets and specialty stores.
Emerging neighborhoods are another option; they offer a lot of charm and prices are obviously lower than elsewhere. For pioneers, it can represent an excellent long term investment; but we stress long term. It’s great to buy there if you plan to ‘buy and hold’. But we ask our clients to consider the unexpected; if they need to sell, are they in a neighborhood that still attracts conservative foreigners and Parisisans?
Philippe’s grandfather owned a small building in the 19th arrondissement in the 1920’s. It was a constant problem; the neighborhood was marginal, many tenants refused to pay the rent and could not be evicted due to protective rental laws. Finally, in the 1970’s Philippe’s father, Pierre, made an appointment with the building manager and drove from Normandy to visit the building. Pierre is an extremely old fashioned and conservative person; he still talks about his shock when he met the manager, who wore a floor length fur coat made of wolf and looked like a pimp. The whole situation was fishy with illegal tenants, under-the-table-payments and Pierre realized they were never going to turn it around. They sold the building for a pittance.
Pierre decided to use his share of the proceeds (about $40,000) to make another real estate investment in Paris. Philippe found a small apartment on the Left Bank and negotiated a good price for it. While it would need to be remodeled and had no elevator, the location was ideal in the lively neighborhood of rue St. Dominique in the 7th arrondissement. However, his father’s accountant (and fellow Rotary member) told him he was crazy to spend that kind of money on a single apartment in the overpriced Left Bank. ‘Invest with me in the 18th arrondissement where I’m buying 3 apartments for the price of the single apartment your son has found!’
After long arguments, Philippe won out and Pierre bought the single apartment in the 7th arrondissement. Philippe worked with the other owners to install an elevator, remodeled the apartment and the value has compounded at a 14.5% rate. When Pierre visits from Normandy, Philippe teases him that instead of enjoying the beautiful apartment views and the wonderful rue Cler and shops in the neighborhood, he could be enjoying his ‘bunker’ in the 18th if only he had followed his accountants advice. Pierre is not amused. As to the accountant, the 18th did not ‘emerge’ as hoped; he rented to students who refused to pay the rent and who trashed the apartments – and he finally sold them. His return was lower than if he had invested in money market funds.
The 18th has finally experienced good appreciation over the past eight years – but we are not smart enough to have guessed the exact moment the market turned in order to buy at the bottom. … And we still don’t like to walk there at night.
Whenever Philippe wants to tease his father about an investment idea, he brings up the disastrous 3 for 1 idea in the 18th arrondissement.
‘Everyone is talking about…’ is another thing to watch for, which I saw over and over again in the stock market. It’s very difficult to be on the leading edge of real estate trends – being one of the first to buy at bottom dollar. If you are searching in a neighborhood touted as the next great area to live in, check whether it has already experienced a sharp appreciation in prices. Consider whether most of the appreciation has already occurred and whether you are truly getting a bargain.
Our rule of thumb in the stock market was when taxi drivers started telling us what a good investment XYZ company was, it was too late to invest and the smart money was probably already selling.
That is what some of the advice has sounded like to us in recent years. An example that stands out is the Marais which has seen a number of ‘Buy here, we’ve made a fortune!’ headlines in recent years. In reality, based on data from the Chambre des Notaires in Paris, prices in the Marais have performed in line with the other 19 arrondissements in Paris, neither better nor worse As to predictions of future returns based on the past few years, the law of compounding makes it difficult to achieve the same returns based on these higher prices. If you love the Marais, by all means buy there – it’s a ‘defensive neighborhood’ where likely buyers could be foreign or Parisian. In this arrondissement, we advise clients to view apartments in buildings with elevators, frequently an issue due to the age and size of the smaller buildings in this arrondissement. For their own enjoyment, we tell clients to view the apartment morning and evening to be sure the apartment gets plenty of light — the streets in the Marais are narrower than much of Paris which can block it out. The issue of light may not occur to you if you are viewing the apartment on a sunny day in May, but when it gets dark at 3:30 pm in January, you want as much sunlight as possible streaming into your living room!
For ‘colorful and emerging’ neighborhoods there is also a safety factor which remains an important consideration: Our quick check is to ask: ‘Would we let our adolescent children walk around here at night?’ If the answer is no, we say no.
So take walks during the day and at night, listen to the advice, walk around the neighborhoods at night and ask loads of questions.
Don’t get discouraged; keep your eyes on the best area (and apartment) you can afford. Take your time and negotiate well, find a motivated seller in the best neighborhood; we believe you will do far better over the long time.
2.) If this apartment is for sale in a city you know well, would you choose this location? You can generally make this handy comparison if you have spent any time in Paris. Picture a comparable neighborhood in a city you know, such as San Francisco, New York, Boston or London. Is the Paris location comparable to the best neighborhoods in these Cities, which have held their values the most or are their newer neighborhoods that have not withstood the test of time (and higher interest rates). Our advice is to go for the best area you can afford, because they tend to hold their value in bad markets.
We recently sold a small studio that we have owned for years – an average apartment in an excellent neighborhood. We asked a high price for it, well above the market and were warned by two agents that we may have set too high an asking price, especially because the market had hit a temporary air pocket in terms of activity. The apartment ended up in a bidding war between an Italian buyer and a French one and we achieved a record price for it. Yes, the apartment was turnkey and well remodeled, but if it had not been in a top location in a desirable neighborhood, no agent would have managed to schedule a visit.
So think hard about whether your apartment is in an ‘unquestionably sought-after’ neighborhood, one that has stood the test of time. We love several emerging neighborhoods in Paris, but we want to be sure that this is a high demand location should we decide to sell.
3.) Other Questions to Ask:
o How much has the neighborhood appreciated in the past 5 years? These numbers are readily available from any real estate agent or the Chambre des Notaires– ask to see them. Our logic may be the reverse of what you think: if the area’s prices have exploded in the past few years, there is usually some ‘air’ in the numbers. If interest rates rise, the economy weakens and you may be the last buyer in to pay the top price.
o Will Parisians buy in your neighborhood if the market weakens?
If the market is weak, what are the neighborhoods that Parisian real estate ‘bargain hunters’ will migrate to? This is important to consider – there are some neighborhoods they won’t touch and others where they would love to buy in at the right price.
For example, we bought an apartment in the 7th arrondissement in 2002. We realized later that we had made a mistake on the apartment – it was missing that special factor for consistent rentals. We took the hard decision to cut our losses and sell it a year later. While the real estate market in Paris was stagnant that quarter, the location was highly desirable — and it was bought by a Parisian within two weeks of our listing it. We lost money due to the transaction fees, but we more than made up for it with the apartment that we found to replace it.
4.) Remodeling Costs Are The Same
When calculating the total cost of your pied a terre, the costs of remodeling do not vary by neighborhood. This is Philippe’s motto and an all-important tip. Our experience of completing over 30 projects in the past few years is that to fully gut and remodel a 70 square meter apartment, the remodeling costs range between € 80,000 and € 110,000. This is for a high quality project that includes all electricity, plumbing, new bathrooms, new kitchen, restoration of features, carpentry, architect supervised, builder guarantees, quality materials and workmanship. The projects were delivered on time and on budget and the most important measure is that there were no surprises or problems of significance after completion. If your remodeling costs range from € 1,150 to € 1,700/ square meter, there is no point in trading down on the apartment and location if you have to spend the same, significant amount to bring it up to your standards.
Yes, we have seen apartments that have been remodeled for less (and some for much more), some acceptable and many, many disasters. We offer our tips and suggestions about remodeling after the next article — finding the right apartment.
When choosing a neighborhood, our guiding principles are to consider the liquidity if you need to sell; stick with the best you can find. When you have narrowed your selection, walk around the neighborhood both day and night to get a good feel for it, the liveliness and the safety element. Don’t be pressured by ‘Everyone is buying…’ and remember the taxi driver motto from the stock market. Remember that remodeling costs can represent a high percentage of your all-in costs – and they are the same in a good neighborhood as in a bad. Be patient and go for the absolute best neighborhood you can afford; with persistence you will find the right apartment at an affordable price.
Next article: The Paris Apartment: Essential Features & Wish List of What to Look For When Buying A Paris Apartment.