It may seem like getting together with other people, be it family or friends, to make an investment is an interesting prospect. Unless the project is managed very carefully, however, it can turn into a nightmare. There are several solutions for group investments and there are obviously advantages and disadvantages attached to each. The final decision should be taken based on the real estate project, the context and the situation of the people concerned.
How can several of you invest together?
There are different ways of investing with other people. These vary according to your personal circumstances and financial situation and depending on the real estate project in question. The three most commonly adopted solutions are joint ownership, an SCI property investment partnership and investment by separation of usufruct from bare title.
Joint ownership is the easiest and most widely-used solution. It simplifies procedures especially for couples who are married, in a “PACS” civil solidarity pact or living together. The principle is simple: if two people buy a property together, they own it jointly. Once the apartment has been purchased, the share of each buyer (also known as “joint owners”) is fixed. The shares are proportional to the financial input of each buyer.
Setting up a Société Civile Immobilière property investment partnership is another solution to which investors may have recourse. This structure can be more advantageous than a joint ownership. It is actually considered as a real estate portfolio management tool. An SCI is composed of a minimum of two shareholders. The shareholders must be natural persons or corporations. Investment through this solution provides shareholders with a certain comfort and security.
Investment by separation of usufruct from bare title is an alternative to the other two options set out above, which is attractive in terms of tax, and gaining in popularity. It was actually the flagship investment product of 2018. With this structure, property rights are divided between an usufructuary, that is the person owning the right to use and receive the income, and a bare titleholder or the one who owns the property.
What are the advantages of investing in real estate with other people?
It is obvious that an investment with other people can be interesting, especially as far as the budget is concerned. Studying the different solutions carefully can allow a group of purchasers to find a way around high prices per square metre, especially in big cities like Paris, Lyon or Bordeaux.
The specific advantage of each solution should also be taken into consideration when you take your decision.
For example, the ease of implementing a joint ownership could make it the best suited solution to the investors’ situation. Firstly, with this solution, the share of property owned by each investor is very clear. Also, if the property is subsequently sold, the process is not at all complicated: each buyer receives the sum corresponding to their share of the investment.
As for an SCI, its main advantage is the flexibility of the status. The structure also makes it possible to put tax and legal optimisation strategies in place.
…And the disadvantages?
In the context of several people making an investment together, there are rules to be adhered to, especially in terms of the rights and obligations of each investor. Otherwise, problems can quickly arise.
Let us take a fairly typical case to illustrate that point. Owning a property under a structure of joint ownership means consulting all the joint owners when there is an important decision to be taken: decisions are taken unanimously. A disagreement can create a stalemate situation for the real estate project.
Investing as a group requires very careful reflection about the project as a whole, about the advantages and disadvantages, and the type of structure to adopt.