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Buying a property in France

By Peter Brooke - Topics: France, mortgages, Property, Uncategorised
This article is published on: 8th April 2015

08.04.15

Buying a property is probably one of the biggest financial decisions you will make in your life and one that will obviously have an impact on your finances. It is therefore necessary to look at all your personal circumstances such as marital situation, whether you have children or not, your country of residence, where you pay personal tax and even retirement plans before you even look at mortgage rates.

This week, financial expert Peter Brooke from The Spectrum IFA Group discusses buying a property in France, setting your budget and looking at taxation as an integral part of this buying process.

Producing income from your investments

By Peter Brooke - Topics: France, Investments, Pensions, Retirement, Saving, Uncategorised, Yachting
This article is published on: 9th March 2015

09.03.15

Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.

Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management
charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.

Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but
the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longer term assets (property, equities, etc.) to help grow and replace the funds you withdraw.

Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.

Investments: The Unconsidered Risks

By Peter Brooke - Topics: France, Investment Risk, Investments, Uncategorised, wealth management
This article is published on: 17th January 2015

17.01.15

Many yacht crew have made the excellent decision to invest some of their hard earned money into an investment scheme for their future financial security. There is often much discussion about investment risk, be it bonds, equities, property, commodities or alternative investments.

What is not considered and discussed enough are the structural risks of buying into an investment scheme. It’s important to understand all of the risks to your capital, not just to what can happen to the value through poor investment performance.

Policyholder protection:
Most yacht crew investment schemes are set up via insurance policies; these often have significant tax advantages and offer levels of policyholder protection not provided by banks or investment/brokerage accounts. Unlike a bank the insurance company model means that a life company is required to hold all the assets underlying its clients’ policies at all times plus an additional amount of its own capital for a “solvency margin.” If the insurance company is put into liquidation, then the client assets are ring-fenced, and the company can pay for all of the costs of transferring the “book of business” to another insurance company or return the money to its policy holders.

The better the jurisdiction (eg EU) in which the life company is based, the stronger the regulation tends to be (eg UK FCA or Central Bank of Ireland) and the more capital it must have; therefore the less likely it will be become insolvent. Big is beautiful!

Credit Rating:
When it comes to most financial institutions, it’s important to understand the solvency of the financial institution, i.e. how likely it is to make its financial obligations. This is often measured via a credit rating from one of the rating agencies (eg Standard & Poors).

Custody:
Most life companies and investment “platforms” add another tier of protection by using a third party custodian, which avoids conflicts of interest and helps segregate your assets from those of the company. This custodian should be well rated too.

Investment Fund Structure:
Very careful consideration should also be given to the actual structure of the investment you choose. There are thousands of collective investment funds in the world, and where they are registered and how they are regulated can vary enormously.

Consider liquidity – (daily priced is vital), domicile (EU, inc Lux and UK are normally better regulated) and regulatory structure (look for SICAV, UCITS, OEIC – for most stringent reporting standards).

Rating – check the funds have been rated by one or two independent companies (Morningstar, TrustNet, etc.) and check the fact sheets of the funds carefully for SIF, EIF or QIF; these are Specialized, Experienced or Qualified investor funds that should not be bought by anyone who is not a professional or very experienced investor. If you want to buy one you should sign a disclaimer to that extent.

If in doubt take at least two opinions from properly regulated advisers (oh.. and check their regulatory structure too!!)

Financial success from your yachting career

By Peter Brooke - Topics: France, Investments, Saving, Uncategorised, Yachting
This article is published on: 27th November 2014

27.11.14

RULE: Conceptually plan out different financial pots.

This is a really good way to plan your future in yachting. There is no need to have different accounts for these “pots”, although it may help.

Pot 1 – Emergency fund – we all know how volatile the yachting industry can be in terms of job security. It is important that if you suddenly find yourself without a job you can at least survive for a few months, get yourself to one of the main yachting centres and afford accommodation while looking for work. I recommend having at least 3 months’ salary in a bank account at any time.

Pot 2 – Education – in order to progress your career it is vital to consider the costs of education. Hopefully you will be on a yacht where Continual Professional Development (CPD) is part of the culture but there will still be courses that you need to fund yourself. Start to plan when you will need the money for the next course and how much it will be… then divide the amount by the number of months until the course, and save that amount EVERY month into an account. Remember there may be additional travel or accommodation costs too.

Pot 3 – Exit – you have now saved an emergency fund and are putting money aside for the next course…. now consider what you plan to do when you leave yachting? Are you going to start a business? Return home? Retire? You should now look to save at least 25% of your income for this purpose. It is very easy to go through a yachting career and end up with very little saved for when you want to leave. There is no provision made by your boss for your long term future, it is down to you to save.

Remember if you worked on land you’d lose at least 25% to social charges and tax anyway. As these are longer term savings you can now consider making investments to try and grow your money more. Make sure as your income grows, your savings and investment amounts grow too.

Pot 4 – Property – if one of the investments that you want to make for your long term future is into property, then you need to start planning what you need to put aside every month to be able to save enough for a deposit and legal fees/taxes. In France, for example, a yacht crew will now need at least 28% of the property purchase price to be able to borrow… saving this amount takes discipline and planning.

Pot 5 – Expenditure – all of the above requires a habit of saving and bit of effort to form the best plan… the single best way to successfully save for your future is to be strict with your own expenditure. Look at all of the above and then give yourself a set amount each month that you can spend on having fun and travelling. Do this well and the more difficult disciplines above will be easy. Saying no to another night out is the hardest part!!

This article is for information only and should not be considered as advice.

Health Insurance for superyacht crew

By Peter Brooke - Topics: France, Health Insurance, Uncategorised, Yachting
This article is published on: 7th October 2014

07.10.14

In a previous article I spoke about the list of 10 rules by which we believe you should live your yachting careers. To expand on these rules I have written a series of articles to show the details behind each rule.

RULE #5 – Check the medical cover available to you from the yacht.

YACHT COVERAGE

If the yacht offers (and pays for) your health insurance as part of your employment package be sure that you’re fully covered at work and off the boat. A crew friend of mine got knocked off his scooter and was taken to hospital near Antibes. Because he was not covered by the French state system (he worked on a foreign-flagged boat), the boat’s health insurance provider was liable for the entire amount…or so he thought. As it turned out, he was not covered by the “group scheme” when he was not on board and had to raid his savings for the money. It’s vital to check if the cover provided is as comprehensive as you think it is.

This is also something to check when you are having an interview for the job; make sure you are getting either membership of a group scheme or additional income to fund your own policy.

STATE COVER

Depending upon your nationality and the vessel’s flag, you may be eligible to receive social security cover from the flag state; check with your captain or purser when joining the boat.

JOB SECURITY

Job security in the yachting industry is not one of the great benefits; investigate whether it’s better to opt out of your employer’s cover and have them fund a personal policy that can be taken with you should you move job/yacht. You could build up significant no-claims bonuses.

When researching a policy and the policyholder, consider the following:

GEOGRAPHICAL COVERAGE

Normally divided into Europe, Worldwide, excluding North America (N.A.), or Worldwide including N.A. Think about where you’re likely to be most of the time. Some policies allow trips to N.A. for up to 90 days.

COVERAGE LEVEL

The most important issue – do you want to be fully reimbursed for every eventuality or just “the big stuff”? All insurance companies will produce benefit tables for their different levels of cover, though it’s difficult to fairly compare all plans. It’s about finding the best compromise for your situation.

EXISTING CONDITIONS

If you have an existing chronic condition, it may not be covered although different underwriting forms exist to decide this with different insurers. This is important to raise when choosing a scheme.

EXCESS

You can reduce your premium by taking a larger excess. This is the amount you pay first before the coverage from the insurance company kicks in.

NO CLAIMS BONUS

If you don’t make a claim in a given year, then you’ll receive a reduction on the premiums the following year (just like car insurance). Some insurers don’t offer this.

MATERNITY

If you’re planning a family and want to ensure the costs of the treatment and delivery, you’ll probably need to take out maternity coverage from the beginning. Most insurers will demand that you’re a member (with added maternity cover) for at least 12 months BEFORE getting pregnant.

This article is for information only and should not be considered as advice.

 

Buying property – the alternative options

By Peter Brooke - Topics: France, Investment Risk, Investments, Property, Uncategorised
This article is published on: 10th September 2014

10.09.14

Having a real estate investment is often an excellent decision for any investor, but many don’t have the ability to own a complete house or apartment. They may not have enough capital to buy the property outright, fund a deposit or receive enough income to be able to afford a loan.

For crew, it also can be difficult to get a mortgage due to the offshore nature of their income, though it is possible in some countries. So what other options might there be for having invested capital in the various property markets around the world?

Collective Investment Schemes:

There are many mutual funds that invest into bricks and mortar. Most of these buy into commercial property in developed markets, such as the UK or Europe. They are managed by professional managers and diversify across several commercial sectors, such as office buildings, retail stores (split between “out-of-town” and “high street”) and industrial complexes. They also always hold a portion of the portfolio in cash and property equities, i.e., the quoted shares of building contractors and the like. The cash and shares are to maintain liquidity so funds are available to investors who need to make a withdrawal without selling huge office blocks. The legal structure of property funds is very important to watch. During the financial crisis, several offshore funds (domiciled in the likes of the BVI and Cayman Islands) suspended and have since begun to liquidate, losing many investors their money; some are still suspended. At the same time, there were no UK authorized property funds that suspended.

Fractional ownership:

Although this term has broadened in the last decade, it basically means owning parts of a property. It tends to be most popular in the residential sector and can cover the entire range of property, from distressed sales and repossessions to luxury property clubs. You’re the legal owner of a share in the property; therefore, your name will appear on the deed and you share in the property’s costs and profits and are legally liable. One unique system available is to own “bricks” of property. This is when a company buys real estate at a discount, renovates if necessary and then sells “bricks” for a proportional price. This system allows an investor to own many bricks in many different properties, thereby hugely diversifying their property exposure. Their share of the rent is paid to them (after any management costs), and they can sell their bricks on a specially designed marketplace. An example of a market maker in this sector would be ownbrix.com.

When buying real estate, it’s wise to understand all the legal and tax implications of owning it, as it’s physically located in a jurisdiction and liable to the taxes in that location. If in any doubt, get advice.

Buying property in the UK

By Peter Brooke - Topics: Investments, mortgages, Property, Uncategorised
This article is published on: 21st July 2014

21.07.14

Many crew like the idea of investing in UK residential real estate, not just Brits. The strong legal system, common language, lending availability (although this has changed somewhat) and large population, make property ownership in the UK an attractive option for growth and income investors alike.

The obvious risks are currency, liquidity and “arms-length management.” If you don’t earn in sterling, then owning a large sterling asset can mean large swings in value due to exchange rate changes. Annual liabilities can change dramatically too, so consider this.

Like property everywhere, it’s a highly illiquid investment. If you want to sell quickly, you may lose a lot of value, and it may still take months to get your money out. Although it’s an excellent part of a portfolio, property needs to be just that and not the entire dossier.

Managing a property (or portfolio of them) in the UK when you are based on a yacht in the Med or Caribbean can be very difficult unless you employ a good agent to manage any works or changes in tenants. This cost needs to be built into the figures as to whether or not to buy.

Having said that, if the rental yield is good (and therefore someone else is going to pay off your mortgage or give you a good income), then UK property can be an excellent choice, especially if you know the market. Big student towns still seem to offer excellent yield opportunities, but management costs tend to be high. The UK market is steady in terms of growth potential, but the Southeast and London are described as a “bubble” risk.

Buying property in the UK:
Be aware of the different types of ownership (freehold and leasehold) when researching property; they can have far-reaching consequences and costs. There will be Stamp Duty Land Tax (SDLT) to pay on the purchase, which is on a sliding scale from zero to seven percent for properties more than £2 million. Be aware of the brackets, as a  slightly lower offer could save you thousands in stamp duty. On top of this, you will pay some legal fees for conveyance advice and services.

Borrowing in the UK:
It’s still possible for yacht crew to borrow, but it’s getting a little harder as banks tighten their rules, and the UK government may further legislation to tighten this more. Banks prefer that the property be rented out, as the income can help secure the loan. Interest rates for non-residents, especially yacht crew, also tend to be higher than those for residents. Generally, crew can borrow around 75 percent of the purchase price, and will have to fund the SDLT and legal fees as well. Any rental profit is taxable in the UK, whether you are resident or not, as is capital gains tax and inheritance tax.

There are many considerations when buying property, so good, qualified advice should be sought, especially if it’s part of an overall plan; a mortgage broker should also be able to find the best terms for you.

Should I use a Financial Adviser?

By Peter Brooke - Topics: France, Spectrum-IFA Group, Uncategorised
This article is published on: 24th May 2014

24.05.14

Creating a financial plan is NOT a complicated thing to do; it is an audit of where you are today, financially, and where you want to be at different stage of your life. This requires creating a list of what you have, earn, own and owe and agree with yourself to put something aside to cover different goals for the future.

If we don’t have goals in life there is probably little point in getting up in the mornings; unfortunately most things cost money and so having financial goals is also an important part of life. Money doesn’t buy happiness, as we all know, but it does buy some choice and, to some extent, some freedom. I have met yacht crew who have worked for 20 years without implementing a financial plan and want to leave yachting; as they have no pensions and minimal savings or investments they are left with a simple choice… live on very little or keep on working… I see this as a loss of freedom, and so do they.

So we can agree that having a financial plan, however simple, is a very important thing to have but why have (and pay) someone to help you bring this together?

The process – though doing a plan is quite simple a financial adviser will ensure that all areas are discussed and re-examined so nothing is left out. All of the horrible ‘what if’ questions should be covered:

Implementation – a good adviser will have access to thousands of products from to use with different clients who have different needs. The more choice available the more assistance you will need in choosing the best ones, but also the more independent the advice will be. A small advisory firm is likely to have only a few products to choose from and so will display less independence.

Professionalism – if we are ill we go to a doctor; they have qualifications to diagnose our problems and help to put together a plan to make us better. Likewise with a lawyer. A financial adviser should also have qualifications in his or her trade too. Some advisers also specialise in certain areas, like investment or protection etc.

Regulation – like a Doctor or lawyer a financial adviser will be regulated by a government body and will have to display a certain competency and have insurance in order to practice.

Knowledge – qualifications don’t guarantee knowledge, a good adviser should continually improve their knowledge and should be able to prove this through their ability to explain complex issues.

Humanity and perspective – most importantly you need to trust your adviser, this person or firm should be your trusted adviser for most of your life; they need to be able to empathise with the different situations you will find yourself in over the years. They should be able to draw on experience from other clients to help solve issues you face too; they should be able to offer perspective on the decisions you make.

This last point is the hardest to prove and is probably best achieved through a combination of your own ‘gut instinct’ and referrals from friends and colleagues. Do your own research on the all of the above factors, ask around and keep asking around until you have a short list of advisers to meet… then follow your own feelings as to whether you can trust them; the relationship should be a long term one and you will end up telling them a lot of very personal information over time.

This article is for information only and should not be considered as advice.

This article appeared on the FEIFA website. The Spectrum IFA Group is a member of FEIFA. (The European Federation of Financial Advisers and Financial Intermediaries)

Buying Property in France

By Peter Brooke - Topics: France, mortgages, Uncategorised, Yachting
This article is published on: 23rd May 2014

23.05.14

Buying property is one of the most major investments we make in our lives. For yacht crew, it’s rarely for a primary residence, which makes the considerations for buying a little different.

Location will always come first, but when using property as an investment, yield should be a very close second. This is the net annual rental income (after all costs) divided by the value. One of the biggest reasons why property is considered the best investment is because it’s possible to leverage, or borrow, to buy it, especially when interest rates are low. For example, if you buy property for €200,000, and it gives a rental income of €8,000 per year, a four-percent yield is realized. If you only invested €40,000 and borrowed the remainder at three percent interest, then you immediately double your yield to eight percent. This is a compelling reason not to invest all your capital into a property. Even if interest rates are higher, it may still make sense, as it’s often possible to offset the interest against rental profits to reduce income tax.

Buying property in France is very popular amongst yacht crew, especially near the yachting centers of the Côte d’Azur. This is because the property can be a great escape in the winter when the yacht is in port or the yard, and also gives a great seasonal rental yield in the summer, the time when crew are hard at work.

These areas also are very sought after and selling a property is rarely difficult. The costs of buying in France are quite high; government taxes and notary (legal) fees total approximately 7.5 percent of the purchase price, and agent fees (when you sell) can be five or six percent. This means 13 percent growth on the property is necessary to make any capital profit, which is why property should be seen as a long-term investment and why rental yield is important. Annual taxes also apply and vary depending on where the property is located and its size. Borrowing in France is still possible for yacht crew, although it’s getting a little harder as banks tighten their rules. Generally, crew can borrow 75 (sometimes 80) percent of the purchase price. This means you need approximately 32.5 percent deposit (including notary fees) to start your property portfolio.

French lending laws allow you to be up to one-third of your income in debt, so if you earn €3,000 per month, you cannot spend more than €1,000 on your debt repayments. Over 20 years at three percent, €1,000 per month equates to a loan around €185,000. For tax-resident yacht crew (in France or any other country), the loan-to-value can often be higher as tax documents make banks feel more comfortable about lending. Any rental income is taxable in France, whether you are resident or not, and capital gains tax and inheritance tax will be initially liable in France, too.

There are many considerations when buying property, so seek good, qualified advice especially if it’s part of an overall plan; a mortgage broker should be able to find the best terms for you, often at no cost.

Producing Income from Your Investments

By Peter Brooke - Topics: Investments, Pensions, Retirement, Uncategorised, wealth management, Yachting
This article is published on: 13th April 2014

13.04.14

If you’ve managed to put aside money for your retirement, good job — no one else has been saving for you. But how do you change the balance of your assets to be able to draw an income to supplement a smaller, land-based income or to pay for your lifestyle into retirement?

* Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.

* Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.

* Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longerterm assets (property, equities, etc.) to help grow and replace the funds you withdraw.

Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.