Buying a home overseas through leaseback can make it easy to find a dream home that's tax efficient and generates guaranteed rental income, says Susan Wright.

Life doesn't get much better than walking up to a vista of snow-covered Alps, stepping out of the door, strapping on your skies and taking off for a day on the slopes. It's why thousands of people return to the Alps every year and why they consider buying a property to rent out and use themselves. But if the thought of managing a rental property (with bookings, voids, cancellations and domestic services to deal with) puts you off then perhaps you should consider leaseback.

Through leaseback the buyer owns the freehold but leases the property back to the developer in return for a guaranteed yearly rental income. Financial analyst Michael Halliday opted for leaseback when he bought a ski in/ski out apartment in Les Arcs in the French Alps four years ago. He and his wife spend one or two weeks there each year, while lucky friends and family make the most of it during a further weeks. "We've been absolutely thrilled with it," says Halliday. "It's gone up in value hugely but the most important thing is it’s beautifully looked after and totally hassle-free."

It costs Michael nothing to furnish or keep his apartment because the leaseback company meets those costs and the rental income he receives covers most of the mortgage. "The term leaseback many be misleading or off-putting for some, but it's really just a fixed rental system," he says. "You could do just as well financially renting a property out yourself but it would be a lot more hassle."

Leaseback originated in France as a way to increase the quality of tourist accommodation available in the French Alps, while also preventing out-of-season ghost towns from developing. It's now become popular around the world in places such as Spain, Portugal, the Caribbean, Dubai, Croatia and, most recently, Montenegro.

When you buy a leaseback property you agree to have the use of it for an agreed number of weeks in the year (although you may be able to buy more time at the discretion of the rental company). This arrangement is ideal for winter sports lovers who can only spend one or two weeks in the mountains. But in case you’re thinking this is suspiciously like time-share, in fact it’s the opposite.

"Timeshare is very much a holiday investment," says Charles Weston-Baker, Director of Savills and Head of its International Residential Department. "Leaseback is a property investment. You buy the freehold of the unit and only use it for part of the year. Subject to the property rising in value, it can represent an excellent investment."

It's important to note that you have to be in leaseback for the long-term. "Leaseback is usually set up for a seven to 10-year term, which is a sensible way of buying property," says Weston-Baker. "It's not a get rich quick thing. It should be part of a bigger plan."

Charles Weston-Baker, Savills: "Leaseback is usually set up for a seven to 10-year term, which is a sensible way of buying property. It's not a get rich quick thing. It should be part of a bigger plan."

Clearly leaseback won't be for everyone. If you want to own a property that you can visit on a whim, then this type of purchase isn't for you.

Weston-Baker recalls a friend who bought a leaseback apartment in the Alps and then found that he wanted to stay at the property whenever he had a free weekend. "He kept whinging, 'What's the point of owning a place if you can't go at the drop of a hat?' Eventually I told him to buy it out. Leaseback obviously wasn't for him."

Breaking a leaseback contract should be a last resort because you're likely to be liable for the future income that the rental company would have earned over the period that you agreed in your contract. It's a high price for a change of mind.

On the plus side, leaseback properties are usually VAT-exempt. This can save you an impressive 19.6 per cent on the price of your property if you’re buying in France. They also offer an opportunity to own a piece of property in some of the most sought after destinations, without the worry of maintenance and running costs.

Indeed, in some places opting for a leaseback property may be the only way to buy, for example, in some cantons in the Swiss Alps. With the scheme's popularity rapidly spreading, the only difficulty may be deciding exactly where in the world you want to buy.

Top five locations for leaseback

Swiss Alps
In Switzerland leaseback is not only a way for those with shallower pockets to sample the snows of top-class resorts such as Verbier, but in some Swiss cantons it's the only way for any foreigner to own property there. Worried at the increases in second home buys and the sudden increase in property prices, 26 cantons in the Valais region (which includes Verbier and the Four Valleys) have forbidden the sale of homes to foreign buyers. Leaseback properties are, however, exempt. Savills and Alpine Homes have launched the second phase of a unique leaseback development in Haute-Nendaz, near Verbier, with 40 furnished ski-in/ski-out apartments starting from £100,000.

Algarve
With sunshine, sea, cobbled streets, twisty hill towns and beautiful beaches, the Algarve casts its spell over visitors with seductive ease and is an attractive year-round location easily accessible from the UK. The last couple of years have seen developments springing up in the various corners of the region, many offering leaseback sales with guaranteed rental returns to attract British investors. Whether you're looking for a beachside villa or cliff-top dwelling, you’d be hard pushed to find a more relaxing spot for your next 10 annual holidays.

Southern Spain
With sand, sea, breathtaking mountain scenery and quaint towns steeped in history, the dusty south coast offers something for everyone to enjoy and explore. As it did in the French Alps, leaseback has created an accommodation supply to meet an ever-increasing demand from visitors keen to make a long-term investment in Spain.

French Alps
There's more to the Alps than winter sports, although that's still the main reason why most of us go there. Year-round activities in this stunning region - including mountain biking, hiking and spa sampling - make the Alps an ever-popular playground for the French and British alike. This means that property prices in the most sought-after areas, such as Val d'lsere, have shot up in recent years. In the top resorts, leaseback may still be a pricey option, but it's a great way to invest in a property while ensuring you have a skiing base every year.

Provence
This region offers so much beauty: long views across the Mediterranean, vineyards that roll across the foothills of the Alps, the twisting streets and lanes of Nice, and the urban glamour of cities such as Marseille. Needless to say it has captured the imagination of countless Brits over the years so it's no surprise that it's a popular area for leaseback property. From restored stone farmhouses to chic apartments in Nice, the rental potential of properties here is huge.

Quick guide to leaseback
It's important to know what you are getting into before you opt for any type of property investment. Here are some tips from Weston-Baker.

Get advice - Always take professional and independent advice before investing.
Go for reputation - Buy from a reputable company that you know will deliver on time and also in terms of quality and specification.
Get in early - You are likely to see a higher return on your investment if you buy during an early phase of development.
Be quick - There are only a limited number of quality leaseback schemes being built at any one time and the best leasebacks can be snapped up in a matter of hours.
Think long-term - Remember that leaseback is a long-term investment. Don't expect a quick, high return on your money.
Know your liability - At the end of your leaseback period, which is typically nine to 10 years, ensure you don’t have to pay compensation back to the company. You don’t want any liability after the term of agreement.
Think universal - To guarantee rent the property must be in a popular location with a good range of facilities. Remember that it has to be attractive to a large number of people, not just you.

Is leaseback for you?
Pros
Pleasure in ownership - You're recognised as the owner of the propert's freehold.
Hassle-free - The rental company furnishes, maintains and rents out the property.
Low risk - The rental company guarantees the rental income you’ll receive.
Tax-efficient - The VAT's taken off the place.

Cons
Property access - Leaseback limits access to your property to a number of weeks a year.
Lower returns - Lower risk means lower return. The value may not rise very much.
Breaking the contract - If you want to break the leaseback contract, you'll have to buy the future rental return from the rental company.

This article originally appeared in Savills' Autumn 2007 magazine. For more information about Savills, visit www.savills.co.uk.

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