Investing in bare ownership to diversify your assets
Bare ownership is a form of real estate investment that consists in acquiring the ownership of a property without immediately benefiting from it. This approach, although unknown, offers numerous advantages for investors, such as the constitution of real estate assets, tax optimization and the transfer of assets under advantageous conditions. In this article, we'll discuss the key aspects of bare ownership, its pros and cons, and tips for a successful investment in this area.
1- Understand the principle of bare ownership
Bare ownership is a legal concept derived from the dismemberment of ownership, which divides the ownership of real estate into two distinct rights: bare ownership and usufruct.
The bare property
The naked owner is the owner of the property, but does not have the right to benefit from it or to receive income from it. His right is limited to the possession and disposal of the property.
Usufruct
The usufructuary has the right to take advantage of the property and to receive income (rent, for example), without being the owner. At the end of a specified period, the usufruct is extinguished, and full ownership is automatically transferred to the bare owner.
2- The advantages of bare ownership
Investing in bare ownership has several advantages for investors:
A secure investment
It makes it possible to acquire real estate at a price lower than its value in full ownership (generally between 40% and 60% of the value of the property), thus reducing the financial risk of the investment.
An advantageous tax system
Since property income is received by the usufructuary, the naked owner is not subject to property income tax or social security contributions. In addition, the value of the bare property is excluded from the real estate wealth tax (IFI) base.
Facilitated transmission
Bare ownership makes it possible to transmit real estate to its heirs while minimizing inheritance taxes, since only its value is taken into account in the calculation of rights.
A long-term investment horizon
When the usufruct expires, the naked owner recovers full ownership of the property at no additional cost, which allows him to have a real estate asset valued over time.
3- The disadvantages of bare ownership
Despite its advantages, bare ownership also has some disadvantages:
The absence of rental income
The bare owner does not receive rental income for the duration of the usufruct, which can be a hindrance for investors looking for immediate profitability.
The unavailability of the property
During the term of usufruct, the naked owner cannot live in or rent the property, which limits his ability to derive a direct benefit from it.
Dependence on the usufructuary
He has no control over how the usufructuary manages the real estate. However, the usufructuary has the obligation to maintain the property and to preserve its value.
The duration of the investment
Bare ownership is a long-term investment that requires some patience, as regaining full ownership can take several years.
4- Choosing the right freehold real estate
To succeed in your bare ownership investment, it is crucial to select the right property:
The quality of the property
Opt for a quality property, located in an area with high valuation potential, to maximize the added value at the end of the usufruct.
The duration of usufruct
Take into account the duration of usufruct, which can vary from a few years to several decades. A shorter term allows full ownership to be recovered more quickly, but may result in a higher acquisition cost.
The profile of the usufructuary
Make sure that the usufructuary is solvent and reliable, as he is responsible for maintaining and managing the property for the duration of the usufruct.
5- The key stages of bare ownership investment
Search for real estate
Consult the real estate ads, specialized agencies and online platforms to find freehold real estate.
Analyzing the market
Evaluate the valuation potential of the property and compare the prices of bare ownership in the geographical area in question to make sure you are making a wise investment.
Setting up a financing file
If you need a mortgage to finance your investment, prepare a solid file and consult several banking institutions to obtain the best financing conditions.
Sign the bill of sale
Once you have found the bare ownership property that is right for you, sign the bill of sale at a notary. The latter must mention the distribution of rights between the naked owner and the usufructuary, as well as the duration of the usufruct.
6- Tips to optimize your bare ownership investment
Diversify your investments
Don't just invest in bare ownership. It is important to diversify your real estate investment portfolio by including other types of assets, such as freehold, REITs, or rental investments.
Prepare for retirement
Bare ownership can be an interesting option to prepare for retirement, as it allows you to acquire real estate at a lower cost and to recover full ownership at the end of the usufruct, when your income is likely to be lower.
Follow the evolution of the real estate market
Stay informed of real estate market trends and the prospects for the valuation of your freehold property to adjust your investment strategy if necessary.
Consult professionals
Do not hesitate to consult real estate investment experts, wealth management consultants or notaries to assist you in your bare ownership investment process.
7- Legal and fiscal arrangements related to bare ownership
Dismemberment of property
The division of property is governed by articles 578 to 624 of the French Civil Code. These articles define the rights and obligations of the naked owner and the usufructuary, as well as the modalities of transmission of full ownership.
Gift and inheritance taxes
The value of the bare ownership is taken into account when calculating gift and inheritance taxes, which makes it possible to transmit a property to its heirs under advantageous fiscal conditions.
Real estate wealth tax (IFI)
The value of bare ownership is excluded from the IFI base, which allows investors in bare ownership to benefit from tax optimization.
Property income taxation
Property income received by the usufructuary is subject to income tax and social security contributions, while the naked owner is not subject to these taxes.
Conclusion
Bare ownership is a strategic real estate investment that allows you to diversify your assets and take advantage of significant tax advantages. Although it has some disadvantages, such as the lack of rental income and the duration of the investment, bare ownership can be an attractive option for long-term investors and those who want to transfer their assets under optimal conditions. By choosing the right property and following the key steps of bare ownership investment, you can take advantage of this real estate investment strategy and optimize your portfolio.
