SCPI-Rental investment with a difference!

Ok, let’s face it, these days; it is difficult to find a safe and performing investment. There is a temptation to go back to the old and trusted property investment. So how can we get a rental income without having to deal with difficult lodgers and having to invest a huge amount of money to buy a house or a group of flats?? In France, we have an investment called SCPI- Société Civile de Placement Immobilier which enables you to invest as little as 8000 euro and get a return of between 4 and 5% per year without dealing with dodgy lodgers!!

• Why choose rental income:

Rental investment has stood the test of time and has been chosen by many as a good investment to prepare their pension. When you are working and earning enough money, you buy a property with a mortgage which is then partly paid up by the rental income and when the mortgage is paid up, the rental income will top up your pension (which will be much less than what you are earning now). Or you have a capital lump sum and want to use it to complement your income/pension and find that safe investment these days don’t perform enough for you (around 2%) so you buy a property with the lump sum and rent it. If you choose well, you can get a return around 6 to 7%. Egg: You can buy a property in the Poitou Charente at around 100 000 euro and get a rental from it for around 600 euro per month so a return of 7.2%. If you keep the property long enough, you might even get some capital gain.

• Problems with traditional renting investment:

Well, first of all, not everybody has 100 000 euro to buy a property!! So if you only have 20 000 euro, good luck in finding a property ready to rent!! Secondly, the problem with owning a house is that there is always some work to do on it! So be ready for maintenance cost. Thirdly and more importantly, you become dependent to your lodgers!! Who, in France, are in my view, overprotected!! You can’t get rid of them during winter months even if they don’t pay. And you can only expel them on the anniversary date of the contract (2 years contract) by registered mail 6 months prior!! And hope they have not damaged the house too much!! So if you are unlucky and can’t get a good lodger for a long time, you end up without income.

• What is SCPI:

SCPI is a civil society who buys and rent commercial properties. So in effect you buy shares of this society and get dividends (rental income). It’s what we commonly call paper stone investment! The Allianz Pierre SCPI has a capital of 1 090 548 725 euro with 16 611 investors and 143 properties, mostly offices and commercial centers based around Paris (80%). The occupancy rate of those properties is 87.74%. The price of the share is 340 euro with a minimum of 25 shares so 8500 euro investment.

• Why choosing SCPI over traditional rentals:

Because, you can invest from as little as 8 500 euro. You share the risk of no occupancy with others so you don’t have the risk of losing your income. It is commercial property so safer than individual people renting. You have no maintenance of properties to do and no taxe fonciere either! And you can also do a mortgage for it (75 shares minimum) in order to prepare your retirement. Finally, if you want to get your capital back, you sell them back to Allianz! No hassle of finding a buyer, estate agent fees and showing the house. Still count 2-3 months to get your money.

• How much income?

In 2017, a 340 euro share got you 13.92 per year so 4.22% return. In 2018, it has gone up to 4.25%. The rental income is given to you quarterly.

Allianz Pierre has been voted in 2015 best SCPI in France by 3 different investment magazines.

• Tax:

Well, that is the good part, you have nothing to calculate, Allianz send you a yearly statement telling you where to put the figures of income on your tax form. But I can’t tell you how much tax you are going to pay as it depends on your total income as the revenue from the SCPI will be added to your other earning/pensions/etc. In 2017, a couple who declare less than 27000 euro did not have to pay income tax.

If you sell them, it is the same as selling a secondary property so subject to capital gain tax. No tax after 22 years. No social charges after 30 years.

• Disadvantages:

There is a 10% penalty for selling it. So, you buy it as 340 euro and sell it at 306 euro. But note that it is based on the actual price of the share when you sell it and not when you bought it. The prices of the shares do increase year after year. In 2003, the selling price was 168.39 euro. It is now 306 euro.

The other disadvantage is that if you invest it today, you only get the first dividend 5 months later. The process of setting it up takes time.

The final disadvantage is that nothing is guaranteed, same as any property investment in fact. Finally, you must remember that it is a long time investment, just like a property!

Conclusion: This is a no hassle rental income investment so if you like renovating a house in order to rent it, this is not for you. It is also not an investment to have compound interest. Here, you get the interest quarterly so it is an investment to complement your revenues, not increase your capital. But it is less risky than owning a property directly so why not contact me for any further information.