There are 2 factors that influence buying power when purchasing property overseas:
1. Currency exchange rate
2. Cost of money
At current exchange rates, $750,000 buys you €653,000. At face value, that may seem a disincentive to buying in Paris; why would you purchase a property where your currency buys less, instead of more?
The answer lies in the cost of money.
In Boston, the interest on a 25 year fixed rate loan is 4.78%.
In Paris, the interest on a 25 year fixed rate loan is 1.8%.
Do we have your attention now?
When purchasing as a foreign national without employment in France, you would have to put a minimum of 40% down payment, so we will use that as our basis for both scenarios.
In Boston, financing 60% of $750,000 at today’s rate of 4.78% on a 25 year fixed rate loan produces a principal and interest payment of $2,573.30.
In Paris, financing 60% of €653,000 at today’s rate of 1.8% on a 25 year fixed rate loan produces a monthly principal and interest payment of only €1,623 or $1,862.80.
This $710 difference translates to 38% more buying power.
Put another way, using the current exchange rate, a $2,573.30 monthly P&I payment translates to €2,242.62 which gets you €900,000 of Paris home.
Bottom line: For the same monthly payment on a $750,000 condo in Boston you can own an apartment in Paris worth €900,000.
In our next post we will cover the rents you can achieve for this same set of comparison apartments, where the markets are heading and why purchasing investment properties in Paris now is where smart money is heading.
À bientôt
Aaron
