Real estate investment trusts (SCPIs) have replaced property companies created in the 1960s. In 1970, they were placed under the supervision of the COB (Commission des Opérations de Bourse) which later became the AMF (Autorité des Marchés Financiers – the French stock market authority); nevertheless, they were not stock market products and depended on collective investment undertakings (OPCs – Organismes de Placement Collectif).
From 1980, the strong development of the real estate market favored the savers’ interest in SCPIs whose offer grew considerably, because of their much higher return compared to that of regulated passbook savings accounts, and with a lower risk.
When you invest in ‘paper stone’, you become the co-owner of a property whose management is entirely organized by the company that bought it. Rental income is prorated to the number of your shares and is paid to you regularly, either monthly or quarterly.
In this article, we will give you five tips and explain why SCPIs are an interesting investment regardless of your investor profile, then we will list their advantages as well as their drawbacks.
1. Choose the legal status of your SCPI
You can either buy closed-end or open-end SCPI shares; it will make a difference when they are sold and whether or not the secondary market is interested.
Open-end SCPIs
You can buy or sell shares whenever you decide. Their price is set by the management company. In order to resell, you do not need to go through the secondary market, given that the company finds a buyer on your behalf.
Closed-end SCPIs
Shares can only be released when the capital is issued or growing, in which case their purchase must respect specific conditions.
To acquire shares outside these periods, it is necessary to go through the secondary market; you will be subject to the law of supply and demand, and the more popular the SCPI, the higher the price.
Open-end SCPIs are the most flexible thanks to their better liquidity; they also represent a less speculative investment than closed-end SCPIs.
2. Choose the SCPI best suited to your objectives
There are three types of SCPIs, depending on their asset type, their investment zones (Europe, France, or worldwide) and their tax system.
Equity SCPIs provide you with a steady income supplement, tax SCPIs participate in your wealth growth while benefiting from advantageous taxation on your property income, and valuation SCPIs allow you to increase your capital over a specified period.
Equity SCPIs
They invest in business real estate where rental return is higher than in residential real estate. Some equity SCPIs are diversified, others are specialized in specific fields: healthcare (nursing homes, laboratories, etc.), logistics (warehouses), shops, hotels, etc.
European SCPIs are also diversified equity SCPIs that invest mainly in the euro zone.
Equity SCPIs are recommended if you are looking for extra revenue, thanks to the rental money that you will receive regularly.
Tax exemption SCPIs
Tax SCPIs invest in new or rehabilitated buildings and are called ‘Pinel’, ‘Scellier’, ‘Denormandie’, etc. They allow a significant tax cut extending over several years.
Valuation SCPIs
These SCPIs are rare. They do not redistribute any income but generate capital gains over the long term. When the property is sold, investors will benefit the significant increase in real estate capital that will have taken place since they purchased their shares.
Buildings are therefore chosen according to their potential revaluation. The interest for heavily taxed investors is to avoid paying annual taxes on their property income: they postpone their payments until they receive their rents.
3. Choose how to invest in SCPIs
You can either buy shares in cash or on credit, provided that your debt ratio is less than 33%. Some SCPIs can be taken out through life insurance or ownership division.
4. Discover the advantages of investing in SCPI
A simple investment
Investing in physical property requires a lot of personal commitment and time, whereas investing in SCPI shares offers an interesting solution for investors who want to enter the indirect rental property market. Once you purchase your shares, you will have nothing to do except keeping track of your investment, collecting your property income and declaring it to the tax authorities.
Indeed, the management company you bought your shares from takes care of finding tenants for the buildings it has acquired, organizing their upgrading, and redistributing the collected rents in proportion to the number of shares you hold.
Reselling shares is simpler than reselling a physical property for which finding a buyer can take several months. Besides, the entrance ticket is cheap and opens the door to the real estate market, at a lower cost.
Un objectif de rentabilité
En 2020, le rendement locatif moyen des SCPI se situe autour des 4,35 % net et est supérieur à 6 % pour les meilleures d’entre elles. Le taux de rendement d’une SCPI, appelé taux de redistribution sur valeur de marché (TDVM), est l’un des plus performants parmi les différentes classes d’actifs comparé à d’autres solutions de placements financiers : Livret A, assurance-vie en fonds euros, actions, etc.
En outre, les SCPI offrent une meilleure rentabilité par rapport à l’achat d’un bien immobilier physique.
A shared risk
The fact that shares belong to various investors minimizes the risks represented by rental holidays, unpaid rents and claims. Risk pooling is calculated according to your ownership rate.
5. Keep control of the drawbacks
Management costs
Management fees charged by the company vary between 5% and 10% of the purchase price.
Taxation
The collected rents are subject to property income tax and are added to your income tax. Nevertheless, you can optimize the taxation of your income by acquiring your SCPI shares on credit and subtracting your mortgage interests from your property income.
The taxation of rental income is therefore reduced.
Market fluctuations
Despite the sharing of risks, fluctuations in the real estate market have a direct impact on the share values; in the event of a collapse, the capital you invested and your income are not guaranteed.
A long-term investment
SCPIs are medium- or long-term investments (about 8 to 10 years). During that time, the invested money is frozen.