Creating a fund in real estate allows to create a company which will gather capital to invest in the stone. The SCPI and the OPCI are the two main types of structure that are aimed at individuals. If they have in common to unload them from the rental constraints by investing, the prospects which they offer to them differ much in terms of profitability, liquidity of the saving and tax profile.
What is a real estate fund?
When we talk about a real estate investment fund, we are talking about an investment fund made up mainly of real estate assets (e.g., real estate investment trusts, real estate investment trust). Funds can be of several kinds, but all are strictly regulated by law. Their real name is FIA (alternative real estate funds). These investments must be declared to the AMF (Autorité des marchés financiers) which must approve them.
The non-trading company of investment allows investors, for an often modest capital, to invest in the real estate. It is the company which will acquire and manage in its name a real estate property intended for the hiring. SCPIs often focus their investments on business properties. The shareholders receive shares in the company according to their participation, and receive rents in the form of dividends.
Any investor can have access to an SCPI. It is not a publicly traded investment fund and shareholders are not subject to corporate income tax, but simply to income tax.
SCPIs are real estate investment funds made up almost exclusively of real estate. There are 3 types:
The SCPI of return
This investment fund consists only of professional real estate: stores, offices, warehouses, service residences, etc. One can expect a very honest return, often around 5%. An SCPI can have a fixed capital: in this case, the shareholders can only buy shares when the capital is issued or when it is increased. Conversely, variable capital SCPIs allow shareholders to buy and sell their shares at any time. Their price will simply be indexed to the value of the rental assets on the market at that time.
The capital gains SCPI
It is an investment fund built on a rental portfolio with strong potential in terms of value and added value on resale.
The tax SCPI
Is an investment fund set up for tax exemption purposes, to take full advantage of existing schemes such as the Pinel plan or the land deficit. There can be as many tax SCPIs as there are schemes on the market.
Unlike a simple SCI, the SCPI is managed by a professional and has a much larger portfolio of properties. Its shareholders do not take part in the life of the company, do not know each other and are content to receive their dividends.
Another structure to be part of the real estate investment funds:
the Organismes de Placement Collectif en Immobilier. It is still open to all investors and considered, since its creation in 2005, as a form of SCPI with an improved tax regime.
The type of funds of OPCIs differs from that of SPCIs. They are made up of 60% real estate, the rest being provided by a portfolio of shares and bonds, and a 10% share of cash. This makes the OPCI a more liquid investment, which guarantees the redemption of shares at the request of a partner. This is not the case in SCPI, where you have to wait for another shareholder to buy them back. The real estate fund of an OPCI is often made up of professional real estate, but also of health, hotel or logistics real estate. The OPCI are of 2 kinds:
- REITs: real estate investment trusts subject to the taxation of property income;
- The SPPICAV: real estate investment companies with variable capital, subject to the tax regime of securities.
An OPCI must be managed by a specialized management company approved by the AMF, on which investors rely. This company is in charge of the rental management of the real estate assets and also ensures an important financial aspect, since it determines a strategy and ensures risk management, while covering the accounting and tax aspects. In return for its services, investors will pay several commissions: at subscription, during the holding period of the securities and at resale.
It is more difficult to get an idea of the performance of an investment fund such as an OPCI, as this is more closely linked to the performance of the stock market and financial markets. The risk category of an OPCI is higher than that of an SCPI, for a slightly lower return on average.
An Organisme de Placement Collectif Professionnel, is a real estate investment fund reserved for professionals. It does not concern individual investors.
Creating a fund: focus on the SCPI
The better yields of the SCPI are now encouraging investors to turn to the creation of this type of structure. The first step is to determine the type of SCPI you want (yield, capital gain or tax), before taking the following steps.
Filing of the legal announcement
The creation of the company will be published in a newspaper of legal announcements. It mentions: the company's form, the dated articles of association, the amount of the share capital (minimum or maximum if it is variable), the company name, the address of the head office as well as the identity of the manager and the duration of the company's life.
Filing of the file at the registry
Then you have to file the creation file with the clerk of the competent commercial court. It includes numerous documents such as: the appointment act of the manager, the signed and dated articles of association, certified proof of identity of the manager and the partners, proof of use of the premises, as well as many other documents.
Why invest in a real estate fund?
There are many reasons to invest in a real estate fund, depending on the investor's financial situation and assets. Let's look at the main ones.
Preparing for retirement
The investment funds are seen today as one of the means which makes it possible to anticipate the announced melting of the retirement pensions. The simplest strategy is to create a good reserve of money to be used later. A part of the savers in OPCI buy moreover securities, without ever having the intention to resell them, so as to create a capital likely to generate them incomes continuously during the retirement.
Another existing strategy today: to buy shares of real estate funds on credit, financed by banks at very low rates, and, a significant advantage: without personal contribution! The end of the loan must coincide with the retirement of the saver, so that he finds himself in possession of income likely to supplement his pension.
Create additional income
Investment funds are irresistibly attractive to investors seeking to increase the share of income from capital in their overall income. Indeed, the importance of income from work is declining and becoming increasingly uncertain today. Investors also often want to finance life projects, such as travel or simply pay for their children's education.
This is one of the reasons why real estate investment funds are so popular, with the best ones offering rates of around 6%. However, these are the best SCPIs, whose rankings are published on specialized sites.
The performance of an OPCI is generally lower on the financial level (it is often around 3%). Its evolution over time is linked to the economic performance of the assets, real estate and others, in which the OPCI is invested, as well as to the quality of its management company. The latter must be competent in real estate and financial asset management.
Good to know:
There is an index to track the performance of OPCIs.
Passing on a legacy
Real estate investment trusts allow for the protection of loved ones, such as children or surviving spouses, through the transmission of active capital.
It can be an inheritance, or the sale of a property or a business. Investment funds will turn them into regular cash flow. In fact, they are preferred to stock market assets, which are much more volatile.
Some SCPI shares start at 200 euros (with a minimum purchase of 10 shares). A very large public, with a minimum of liquidity, can therefore turn to this investment. The "entry ticket" of an investment in OCPI is also much lower than that of a real estate investment and has the advantage of being able to adjust flexibly to the financing capacity of investors. They can, according to their needs, seek to increase their share of capital, or on the contrary, dispose of part of their investment when they wish.
Avoiding the constraints of current real estate
Real estate investments require time and preparation, especially in finding profitable properties. So investing is not for everyone! The big advantage of real estate investment funds is that they give you access to a share of a real estate portfolio that brings in rental income, without having to make the slightest effort! Rental management is indeed a mine of trouble for those who have neither the skills nor the patience to deal with tenants' requests, draft deeds, regularize charges, settle disputes, etc. Generally, investors in SCPI are former owners who have thrown in the towel and preferred to fall back on lower rates of return, to be relieved of a burden. Moreover, today, it is possible to subscribe directly online and become a shareholder of several investment funds in just a few clicks!
Dilute the risks
Real estate investment funds generally hold a large number of properties, which are not all of the same nature, and are spread over different territories. The rental risks associated with vacancy, non-payment or claims are thus better diluted.
In an OPCI, the decline in value of a more volatile asset is better compensated by the value derived from many other assets not affected by the same economic cycles. And it is possible to take full advantage of this risk pooling by investing simultaneously in several real estate investment funds.
Access to other real estate markets
The real estate investment of individuals concerns, given their resources, residential property. One of the attractions of investment funds is that they open the door to other real estate markets in which SCPIs or OPCIs are authorized to invest: warehouses, tourism, business premises, health buildings, etc.
Be careful, however, as an investment in SCPI is never guaranteed, both in terms of capital and dividends received. The same is true for an investment in OCPI. The performance of investment funds is subject to market fluctuations. These investments are considered, moreover, in the medium or long term, for several reasons:
- The purchase of shares in SCPI has the disadvantage of being accompanied by a rather high entry fee (count 10% of the investment) that will take at least 2 years to amortize. In addition, the amount of tax to be paid must also be taken into account.
- The investment in OPCI is conceived on the long, even the very long term, to first of all, give sufficient time to the management company to obtain the valorization of the goods. It achieves this through renovation work, sales and re-rentals.
- Next, you need to think about the amortization of the contributions paid at the time of subscription and the length of time the shares are held.
- Finally, some OCPIs are integrated into the units of account of life insurance contracts which are part of long-term investments.
Taxation of a real estate investment fund
Although investment funds allow access to the profits of rental investment by limiting the constraints and the risk, their income does not escape taxation. Let's see how SCPI and OPCI are taxed.
- SCPIs are part of the investment funds that are not taxed. The partners are taxed individually on their share of the profits. The tax can be levied according to the income tax system or the corporate tax system.
- For individuals, the profits will therefore be accounted for in the category of property income, exactly as is the case for direct rental income.
- Companies may be subject to the real income tax system and to income tax. Companies are subject to corporate income tax under the industrial and commercial profits regime (BIC).
And the added value?
In case of resale, the capital gains tax rule for individuals also applies (19%, plus a tax of 2 to 6% if the capital gain exceeds 50,000 euros). Let's see what happens with the capital gains SCPI.
In the event of a capital gain of less than 15,000 euros, the tax is waived. If it is higher, a degressive system applies, depending on the length of time the shares are held.
For securities less than 5 years old, no reduction applies, but count 6% per year, for a duration between 6 and 21 years, and 4% for the 22nd year. If the securities have been held for more than 30 years, the exemption becomes complete and even covers social security contributions.
Taxation of OPCIs
The tax regime that applies depends on the form of the OPCI.
Under certain conditions, the SPPICAV is exempt from corporate income tax (impôt sur les sociétés). In this case, it is subject to a distribution obligation of 85% of the net income from its real estate assets, 50% of the net capital gains on its asset disposals and 100% of the dividends from unlisted companies subject to the SIIC regime.
This investment fund does not have a legal personality in the eyes of the tax authorities, which again allows it to escape the IS. However, the REIT is also subject to a distribution obligation on its net income, capital gains and other income, within 5 months of the end of its financial year. The FPI is an investment fund which is also subject to VAT.
Creating a real estate investment fund is one of the best ways to approach the benefits of rental investment, with smaller means and without the constraints. To determine your investor profile and find the right fund for your needs, always consult a professional.