An SCPI is a private investment company set up for the purpose of buying and managing real estate.
The initials stand for “Société Civile de Placement Immobilier”. This could be seen as the French equivalent of a real estate investment trust (REIT), though it differs in 2 main ways:
• It is not listed
• SCPI cannot hold equities or bonds, it can only buy properties
The majority of SCPIs decide to invest in commercial and industrial properties, including some investments in new build.
Most of the SCPIs invest in France, mainly around Paris, along with some of the other major cities of France.
Each SCPI will have a different property management strategy, with some that have started to invest abroad in countries such as Germany, Belgium, etc.
How do SCPI work?
The SCPI will collect funds from investors.
Once, it has enough funds to buy a property, the management team will carefully select the desired property to add it to the real estate portfolio.
The management team will then manage all the properties and collect the rents.
In return for your SCPI investment, you will be entitled to receive your share of rents.
The paid rent will depend on the amount invested (pro-rate to the number of shares held).
It is normally paid out on a quarterly basis.
The risk of the investment is thus shared between different investors. Moreover, the portfolio of properties will be diversified geographically and in terms of the type of properties (offices, retail shops, etc.). All of that will result in less concentrated risk than owning a single buy to let investment.
Since most SCPIs invest in commercial estate, offices and other professional properties, observed returns are on average higher than on residential properties.
The average yield currently varies between 4% to 6% net of management fees.
Best of all
The link with real estate is so straightforward that banks can offer mortgages in order to finance the investment.
Currently, the interest in France start from 1% fixed over 10 years and range from 1.4% to 3% fixed over 20 years depending on your situation and on the deposit level.
Banks accept to lend for these investments thanks to the quality of the collateral, be it for French residents or non-domiciled.
It will also improve the profitability of the investment. The leverage gained through the mortgage will also optimise taxes, and lead to a higher yield varying from 6% to 10% net per annum.
Too good to be true?
Obviously, this is not magic.
As the SCPI will generate rental income, the proceeds will be taxed, which is a good reason to borrow to deduct the interest charges from the income (which is allowed under the French tax system).
Also, even if the subscription process is easy, it should not take away the fact that real estate property is being purchased:
• It will give exposure to real estate market risk, hence the capital is not guaranteed
• There is high setting up fee (subscription fee) which forces to aim for a medium to long-term horizon in order to recover this fee
• The liquidity can be impacted in period of stress (economic downturn with fewer real estate transactions)
Conclusion:
The benefits of SCPIs are therefore a diluted risk. This is achieved by pooling investments : sharing the risk with other investors and buying many properties. The net return will range from 6% to 10%, considerably higher than most residential buy to let investments (around 2% to 4% on average).
Finally, the delegated management of the properties will allow you to save time and energy. This makes it a great fit for people who don’t live in France.
Paired with a loan, it will be a great alternative to a Buy-to-Let investment… especially with the low and fixed interest rate environment in France.
How we can help:
There are currently about 200 SCPIs in existence.
They all have different strategies and range from a capitalization of few millions all the way to €3 billion.
OptiFi will help you select the most appropriate SCPI and also secure the best financing (mortgage).
After a discovery call, we will be happy to send you a personalised simulation free of charge.
Feel free to leave your contact below.
