The different types of investments in real estate (SCPI, rental, crowdfunding)

When we talk about investing in real estate in reality this term is very broad. There are many investment vehicles that provide exposure to real estate combined with a financial return, such as real estate investment trusts(SCPI), real estate real estate crowdfunding or even rental property. Through this article we will try to decipher the differences, the advantages and the disadvantages of each of these supports.

The SCPI

SCPIs are commonly referred to as "paper-based". Indeed, when you invest in this type of asset you buy shares of real estate through a management company and not directly. It is an investment in a legal vehicle managed by a management company that will collect funds from different investors to invest in a building that will be rented. The rents are then redistributed to each investor in proportion to the shares held minus the management fees (tax, insurance, company commission, renovation, etc.).

There are different types of SCI: fiscal and linked to the Robien, Duflot, Girardin, Scellier, Pinel, deficit foncier schemes; yield and capital gains.

Advantages and disadvantages of investing via an SCPI

The advantages of this type of investment are multiple. First of all, it allows you to access real estate for a small amount, on average from €5,000/share. Secondly, with the pooling of funds, you can diversify the real estate portfolio and invest in several buildings in different locations and thus diversify the risks. Finally, it is a simplified management of the rental property because the management is delegated and the risks are shared with all the investors. Moreover, you can also invest in SCPIs within the framework of a life insurance contract.

The disadvantages are mainly related to the liquidity of the shares. It is not possible to sell the shares whenever you want. Moreover, the shares are taxed at the marginal tax rate and subject to social security contributions. They are also taken into account in the calculation of the IFI. Finally, the management and entry fees are quite high, which impacts the final profitability of the investment.

Rental investment

Unlike the SCPI, the rental investment concerns the acquisition of the property directly. You actually become the owner of the property in its entirety, possibly with several people through the SARL de Famille or the Sociétés Civiles Immobilières or SCI . Your investment is thus guaranteed by a real asset.

Your return can come in two different forms:

First of all, by renting out your property and earning rent. There are different ways of renting out your property: seasonal, furnished or unfurnished; which bring tax advantages tax advantages. On average, depending on the property rented and its location, returns can vary between 3 and 7%.

Later, you can also make a capital gain when you resell the asset.

Advantages and disadvantages of a rental investment

This type of investment has the advantage of limiting the number of intermediaries and the costs that impact the return. You can also select the property and choose the type of set-up you want. Finally, your initial capital is guaranteed by a real property whose value can cover part of your investment.

On the other hand, you are not assured of rent payments, income is not guaranteed and any problems with the asset can be costly such as renovations, water damage, etc.

Real estate crowdfunding

Unlike the two previous investments, investing in bonds on real estate crowdfunding platforms such as Raizers allows you to gain exposure to the real estate sector without actually owning any assets. Indeed, the bond is a kind of debt issued by the real estate operator who holds real estate assets. You finance part of this debt and in return the operator pays you interest. Your return is therefore not linked to the rental of an asset and the payment of rents but to the financial health of the developer and/or the good progress of the project. The interest is on average between 8 and 12% gross per year and is subject to the common tax rate for all French tax residents, called flat tax (30%). The repayment of your investment can be guaranteed by different devices such as the operator's personal guarantee, First Demand Guarantees on companies, security trusts on company shares or assets, or mortgages on the property at the heart of the financing project.

Example of an operation presented on Raizers:

Advantages and disadvantages of real estate crowdfunding

Real estate crowdfunding has the advantage of exposing you indirectly to the real estate sector with a possible, but not guaranteed, higher return than the two types of investment mentioned above, up to 10% on average. Moreover, you can invest in this type of support generally from 1 000€. You can easily diversify your bond portfolio by selecting various projects: real estate development, property dealer operations; in residential or office buildings and in different locations.

On the other hand, it is a financial investment with risk of capital loss, liquidity risk, tax risk and inflation risk.

Summary

Lot No.	SCPI	Rental investment	Real estate crowdfunding
Investment support	Company shares	Live Well	Bonds
Minimum capital	5 000 €	Price of a property	1 000 € (depending on the platform)
Expected average gross yield	~4%	3 to 7% of the total	10%
Management fees	Yes	Yes if you go through an agency	No (depending on the platform)
Average investment horizon	5 years	9 years old	2 years
Benefits	- Risk pooling - Diversification of the real estate portfolio	- Direct ownership of a property - Expenses deducted from rent - Tax advantages	- Consistent expected return - Diversification of risk possible - Very wide access to investment
Disadvantages	- High entry and management fees - Low liquidity of units	- Risk on the payment of rents - Full exposure to hazards and costs related to the property	- Risk of capital loss, illiquidity, inflation and tax risk - No possibility to exit before the maturity of the loan