Real Estate: Why Invest in Bare Property

Choosing to invest in real estate in bare property allows you to develop your assets. What you need to know.

Operation of the property division principle

The acquisition of bare ownership of real estate is the result of the dismemberment of property. This division consists in dividing wholly owned property into two separate parts: the right of use, also called usufruct, and the right of ownership. Usufruct is the ability to enjoy and use property. Bare property represents the ability to own real estate and the right to dispose of it.

The interest of this approach is the result of a tax or legacy strategy. This legal tool is used to optimize real estate investments, plan the transfer of its assets, or for tax exemption purposes.

Operation of the property division principle

The dismemberment of property is always carried out within a certain period. Then this mechanism is temporary. At the end of the dismemberment period, which can last from 10 to 20 years, the usufruct ends and thus the absolute owner becomes the full owner of the property. This step is then carried out automatically without compensation at the end of the period.

Why invest in bare property?

Investing in bare property is an excellent lever for developing and investing in below market value real estate. This heritage decision requires that the property not be occupied or rented for the duration of the dismemberment. This solution will be even more effective in municipalities with a high price per m². Therefore, it is wise to invest in property in Greater Paris!

What are the benefits of investing in bare property?

1) Reduced acquisition cost

Investment in uncovered property offers a discount of up to 40% on the value of the property. This reduction occurs because the bare owner does not own 100% of the property. Indeed, the usufruct is held by the institutional lessor. The value of the usufruct is then the sum of the rent which the net owner does not receive during the whole period of dismemberment.

2) No fees and commissions

The dismemberment of property does not give the bare owner any fees or taxes associated with its acquisition. The usufructuary then must collect rent and pay various dues. The latter ensures the good condition of the housing and undertakes to keep the property in proper condition. Various works and repairs, as well as the day-to-day maintenance of the dwelling, will be left to the usufructuary. Property tax and co-ownership fees will be borne by the landlord and not the bare owner.

3) At the end of the dismemberment, no reward is expected

At the end of the division, ownership is consolidated and full ownership is returned to you at no additional cost.

4) Percentage of passing through bank financing

Among the many benefits of investing in bare property, we can name 2 favorable levers:

No property tax: During dismemberment, the property is not integrated into the heritage, as the owner owns only part of the dwelling. This leads to an increase in assets taken into account in the calculation of the MFI. The bare owner is also not responsible for the MFP. In inheritance, ownership is fully integrated.

Optimized property income: The dismemberment of property leads to the absence of rent and, consequently, of income from land for the bare owner. For certain profiles of investors, this effect is desirable because it does not increase their taxation. Besides, who said that no rent means no rent risk.

However, when investing in the form of a bank loan, the interest will be deductible and will create a land deficit associated with various income from the land. Building major renovation bills can be deducted from your income from other property.

Inheritance and dismemberment

The dismemberment of a dwelling can be carried out according to different scenarios. We also find this in the case of a donation to bare property. In France one can then foresee one’s own succession. To this end, the mechanism of dismemberment makes it possible to retain the usufruct of the parents and transfer bare property to the children. This is often the case for primary or second homes, or even rental investments. Upon inheritance, the fees paid will be calculated solely on the value of the bare property. The calculation is based on the scale set by the tax authorities and takes the form of a table showing the distribution between the usufructuary and the owner’s holding/capital. The share of the usufruct will decrease according to the age of the usufructuary. With a communicating vessel, the share of the bare owner will also increase.

When inheriting, the usufruct gives way to the nominal owner, who becomes the full owner. This step is then performed automatically at no additional cost.

How to choose good in dismemberment?

The acquisition of bare property is primarily a rental investment. Therefore, it is advisable to invest in an attractive city where the real estate market is healthy and dynamic. Successor cities with a high price per m² should be retained. Investment in property in Strasbourg, Cannes, Paris or Nice, for example, are suitable options.

You have two options:

  • Choose a municipality with more jobs to facilitate long-term rentals
  • Choose a tourist city to facilitate short-term seasonal rentals

Once you have identified an attractive municipality, you should carefully select the area. It would be advisable to maintain a clean environment provided by local shops and services. Don’t forget to remember the places served by various public transport.

It is important to remember that residents are very sensitive to their immediate surroundings. The living environment should be pleasant and have green spaces.

Bare property investment, what is the investor profile?

There is no typical investor profile with bare property. The type of investment is aimed at a wide range of investors. Everything will depend on the buyer’s asset strategy. Indeed, it is very important to approach real estate investment strategically and not in terms of the product.

Investing in bare property will serve different purposes. It will be wise to choose a dismemberment mechanism in preparation for retirement and regain full ownership in order to enjoy it in its beautiful days. Subsequently, the owner can live there as a primary or secondary residence, rent it out, for example, furnished, or sell the property. Thus, this solution offers a wide range of solutions in the long run. Other investors will choose this solution to avoid IFI. Indeed, this mechanism provides an opportunity to take advantage of the tax advantage.

Investing in bare property is a long-term investment. The first advantage is the reduction given to the bare owner and no charge for it. If the location is strategic, the value of the land will increase over time, and eventually the value of the title will follow this increase.

An example of a net investment in property

Mr and Mrs Otto bought the apartment for 200,000 euros. The mechanism for dismembering ownership by acquiring pure ownership then allows for a discount of 40% on the cost of full ownership. Thus, Mr. and Mrs. Otto only invest 80,000 euros, i.e. 200,000 euros X 40%. This therefore represents a savings on the purchase price of 120,000 euros.

Then this dismemberment will take place within 15 years. At the end of the fifteenth year, Otto will regain full ownership of the property and will be able to:

  • collect rent
  • live in good
  • resell the property