All You Need to Know About SCPIs: Investing in Real Estate Made Easy

Three years ago, I wrote an article briefly describing what we do to prepare for retirement. That article was shared with our relatives who are interested in the topic.

While stock market investing or employee savings plans don’t interest many people, we regularly get questions about SCPI.

Since the topic deserves more than a 10-minute chat over dessert, I’m diving into it in this article. I’ll deliberately simplify some things to make it accessible to beginners, while trying to be as accurate as possible.

This article is not investment advice. When it comes to money, more than anything else, advisors aren’t the ones who pay. I strongly encourage you to seek multiple opinions to form your own views and make informed decisions.

A SCPI: What Is It?

A Société Civile de Placement Immobilier (SCPI) – not to be confused with a Société Civile Immobilière (SCI) – is a real estate investment structure.

Investors (soon you?) decide to entrust their money to a management company that will buy real estate properties. It then handles all property management (possible renovations, finding tenants, collecting rent, etc.). During the life of a SCPI, the management company may decide to sell some buildings and buy others.

That’s the huge advantage of a SCPI: you don’t have to do anything at all, except invest your money.

If you buy real estate directly, you’ll have to find a property to buy, do viewings, negotiate with the seller, contact your bank, go to the notary, do renovations, find a tenant (or a property management agency, etc.). None of that with a SCPI. You put your money in, and you quietly wait for your rent.

By investing in a SCPI, you become a co-owner of the property portfolio of the SCPI. If I’ve invested €10,000 in a SCPI that has raised €10 million in total, I own 0.1% of the portfolio.

Management companies are regulated by the AMF (Autorité des Marchés Financiers) and have an obligation to communicate with shareholders. You’ll receive a quarterly newsletter and an annual report.

So, What Does a SCPI Actually Invest In?

First thing to keep in mind: a SCPI invests in multiple different properties. That’s the other advantage of SCPIs: diversification.

When you invest directly in real estate, your risk is highly concentrated. Even if you do well and have 5 properties, in case of a problem (fire, non-paying tenant, vacancy, etc.), you could lose 20% of your income overnight. There are insurance policies to reduce risks, but you get the point.

In comparison, a SCPI aims to invest in dozens, even hundreds of different properties. There will always be issues with some properties, but they’ll concern a small percentage of the SCPI’s portfolio.

The vast majority of SCPIs focus on so-called “commercial” real estate. You’re probably thinking of office buildings, which indeed represent a large share of SCPI investments. But it can also be retail spaces, supermarkets, warehouses, hotels, shopping centers, retirement homes, etc.

As far as I know, only one SCPI buys residential real estate (housing for individuals). This is due to the amounts to invest. When a management company has €10 million to invest, it’s “simpler” to buy and manage a single office building rather than 100 residential apartments.

Thanks to our SCPI investments, for example, we are co-owners of Google’s premises in Ireland or a Tesla showroom in Norway.

While there are “generalist” SCPIs, most specialize in a particular theme or geographic area.

For example:

• The SCPI Pierval Santé builds a healthcare real estate portfolio (clinics, nursing homes, medical offices, etc.) in France and abroad.
• The SCPI Activimmo builds a logistics-related real estate portfolio (warehouses, storage centers, etc.).
• The SCPI Kyaneos Pierre specializes in residential real estate.

Since you can invest in multiple SCPIs at once, it’s very easy to invest your money in real estate in a highly diversified way:

• By choosing several different management companies
• Geographically: if your primary residence is in France, it might be interesting to invest in SCPIs with assets abroad.
• By sector: if you think logistics, healthcare real estate, city-center shops, offices in the Greater Paris area, etc., have a future, you’ll find a SCPI specialized in that sector.

How Do I Make Money? What Are the Returns?

When you own SCPI shares, there are three ways you can make money:

• Rental income
• Selling a property at a profit
• Reselling your shares at a profit

Rental income is the most common way. It can be paid out monthly, but most SCPIs distribute it quarterly. Interestingly, unlike residential real estate, commercial rents are often indexed to inflation. This is a significant point in the current economic climate.

The management company may decide to sell a property acquired a few years earlier. The proceeds from the sale are then reinvested, but if there’s a capital gain, it’s distributed to the shareholders.

Each year, the management company commissions independent experts to appraise the SCPI’s portfolio. Its value can go up or down, and this change can be reflected in the share price. After a few years, you can decide to sell your shares and potentially realize a capital gain.

In 2021, SCPIs generated an average return of 4.49% before taxes (see below).

How much does it cost?

When an SCPI is created, the management company sets the price per share. This price then fluctuates up or down based on the annual appraisals of the portfolio’s value.

For example, as I write this:

• One share of SCPI Pierval Santé is worth €200, and you need to buy at least 5 shares on your initial subscription.
• One share of SCPI Activimmo is worth €610, and you need to buy at least 10 shares on your initial subscription.
• One share of SCPI Kyaneos Pierre is worth €1,080, and you need to buy at least 10 shares on your initial subscription.

What are the fees?

When you buy an SCPI share for €1,000, not all of that amount is invested in real estate.

The management company charges subscription fees of around 10-12%.

These subscription fees cover:

• The costs of researching properties to buy
• Notary fees
• But also the commission for the “salesperson” who sold you the shares

These fees are high. For comparison, brokerage fees when buying a stock are less than 1%.

It therefore takes 2 to 3 years of rental income to recoup the subscription fees (not accounting for taxes). Investing in SCPIs is a long-term investment—if you sell your shares a year after buying them, the impact of the fees means you’ll lose money. The minimum holding period generally recommended is 8 years.

Additionally, the management company charges management fees of around 8-15% on the rents collected. This is equivalent to what a property management agency would charge to manage a rental property you own.

In recent years, some new SCPIs have been advertising that they don’t charge subscription fees (and trying to make those that do seem outdated). Be skeptical. It’s obviously great not to pay subscription fees, but if the management fees are twice as high as average, it’s pointless.

Also note that you won’t start receiving rental income until after a waiting period of 3 to 6 months on average, which corresponds to the time the management company needs to invest your funds in a property.

Taxation and income reporting

SCPI rental income is considered property income. And in France, property income is heavily taxed.

Specifically, you will have to pay on your rental income:

• 17.2% in social security contributions
• Plus your marginal tax rate (TMI), which depends on your income and family situation.

Personally, my marginal tax rate is 30%, so I pay 17.2 + 30 = 47.2% in taxes on the rental income I receive from my SCPIs.

The marginal tax rate for the wealthiest is 45%, so the tax on SCPI income can go up to 62.2%!

That’s why you need to think seriously, even though the topic is complex, about the ownership structure I’ll discuss in the next paragraph.

I won’t go into detail, but it’s important to know that it can be worthwhile to invest in SCPIs that own properties abroad. Taxes are withheld at the source in each country, and the tax burden is generally lighter than in France. Thanks to “non-double taxation” agreements, you won’t have to pay additional tax on the French side.

Unlike your salary, the amounts you receive from your SCPI shares are not pre-filled on your annual tax return. You need to fill out form 2044 for property income. The management companies will send you an IFU (single tax form) to guide you. Let’s be honest, it’s a pain and complex. If you have multiple IFUs (one per management company) with properties abroad (for which you need to handle tax credits), expect to tear your hair out for 2-3 hours a year during tax season. Console yourself by thinking it’s the only effort you’ll have to make—the management company handles the tenants and maintenance 🙂

The different ownership and financing structures

I hope you’re still with me; we’re now entering the most complex part, but perhaps also the most important.

My first purchases of SCPI shares were made in cash. When I say cash, I don’t mean a suitcase full of bills, but rather savings that were available in my bank account. Today, I consider that a mistake, or at least not optimal.

I would have been better off going to my banker and asking to borrow money to buy SCPI shares, using my cash as a down payment for the loan.

If I have €10,000 as a down payment and the bank lends me €40,000, I’ll earn rental income on €50,000, not €10,000. That’s what’s called the leverage effect. The €40,000 borrowed from the bank can earn me 3% in net rental income after tax, while I’m borrowing at a 1% rate. So I profit from the difference.You’ll have a monthly savings effort to repay the principal of your loan, but it’s crucial to understand the concept of leverage, which is the simplest way to build wealth with very limited risk.

As I write this (November 2022), banks are much more reluctant to grant loans, on much less favorable terms than in the last 15 years. However, there are other solutions to consider.

If I consider my cash investment a mistake, it’s partly because I didn’t benefit from the leverage of debt. And also because I created an additional income (rent) that is heavily taxed, even though I don’t need it now (I earn a decent living) but will need it for retirement.

I could have invested in SCPIs through life insurance. I won’t go into the details of life insurance, which would require a whole article. Just keep in mind that life insurance is a “tax wrapper” in which you can place money. This money can be invested in various assets (including SCPIs). The income generated by these assets is not taxed at all as long as it isn’t withdrawn. If you wait at least 8 years before withdrawing money, there will still be a small tax liability, but much more favorable.

So life insurance is very interesting if you want to invest to reap the benefits “later.” Your SCPIs will generate income that can be reinvested without “tax friction” (the 47.2% tax in my case). This will promote the “snowball effect”: my year 1 rental income will be reinvested 100% in SCPI shares, which will themselves generate rental income in year 2, which will be reinvested again…

Take a deep breath, and we’ll discuss the last solution, trying to avoid a headache (by simplifying as much as possible).

In the vast majority of cases, when you buy a property, you own it in full ownership..

Full ownership is made up of two things:

• Bare ownership (owning the property)
• Usufruct (using it or renting it out and receiving the rent)

When you buy a property, it’s possible to separate bare ownership and usufruct for a set period, from 3 to 20 years. This is called temporary demerger..

What’s all this for?

In my case, I’m interested in investing, but I don’t need to receive rental income (which would be heavily taxed) right now.If I can buy SCPI shares with a discount, I’m willing to forgo the rent for X years. I would then be a bare owner temporarily before regaining full ownership after X years (and hopefully the share price will have increased during that time).

That’s exactly what temporary demerger allows.

You then need to find a counterparty, who has exactly the opposite objective. That is, to become an usufructuary for X years and receive a higher rent. These are usually companies looking to invest their available cash.

Let’s take an example to make things clearer 🙂

Say you want to invest €10,000 in shares of the SCPI Corum Origin but don’t want to start receiving rental income until 15 years from now. For this timeframe, the management company’s discount is 40%.

• You’ll therefore only invest 60% of the €10,000, which comes to €6,000. You become the bare owner for 15 years and receive no rent. After 15 years, you regain full ownership of the €10,000 (or even more if the shares have appreciated in the meantime). You’ve made a profit without paying a cent in taxes.
• The counterparty, on the other hand, will pay €4,000. They’ll be the usufructuary for 15 years and receive rental income, not on the €4,000 invested, but on the €10,000. At the end of the 15 years, the usufruct expires, and they no longer own anything.

Hope that’s clear—if not, feel free to ask questions in the comments after reading it over a few times.

How you hold the investment is key to optimizing it, and that justifies the headache it can cause.

In my opinion (though this is just my take), it’s not worth buying in cash to hold SCPI shares in full ownership directly.

If you can’t (or don’t want to) buy SCPI shares by taking out a loan, seriously consider buying them through a life insurance policy or via temporary split ownership.

Can I resell my SCPI shares?

Yes.

However, there’s the question of liquidity —that is, how easy they are to resell. If you want to sell, you need to find a buyer.

You need to distinguish between the two types of SCPI:

• Variable-capital SCPIs
• Fixed-capital SCPIs

Simplifying: variable-capital SCPIs constantly raise new capital. When an investor wants to buy shares, the management company will first sell them shares “pending withdrawal” (from an investor selling their shares) before creating new ones.

Fixed-capital SCPIs are “closed” and don’t create new shares. The management company runs a “secondary market” to connect buyers and sellers. But unless the SCPI has a very high yield, it can take months to find a buyer, unless you’re willing to sell at a price below the share’s value.

So far, it’s been quick to resell shares in a variable-capital SCPI, but it’s not impossible that in a context of economic crisis, for example, there are more sellers than buyers. If shares remain “pending withdrawal” for several months, the management company is supposed to sell one or more properties to buy back the investors’ shares. But selling an office building or a hotel doesn’t happen in 15 days.

Either way, it’s crucial to keep in mind that investing in SCPIs is a long-term commitment. If you might need the money within six months, you should look at other investments.

What are the risks?

The risks in SCPI investing are inherent to real estate risks.

• Risk of damage (fire, water damage, etc.)
• Rent defaults
• Difficulty finding tenants
• …

With the benefit that these risks are spread across a large number of properties. If your SCPI owns 100 buildings and one is ravaged by fire, it’s dramatic, but it only impacts 1% of the portfolio.

In France, there’s a mistaken belief that real estate prices can only go up. That’s false, and we’re likely to see it soon due to rising interest rates.

Moreover, there’s the question of evolving usage. Since COVID, remote work has grown significantly. Will we need as much office space in the future? I’m not sure. It might become harder to lease, and rents may need to come down.

Here too, you need to think about diversification and take advantage of the diversity of SCPIs to avoid investing solely in one type of asset or one geographic area.

Finally, there’s a risk at the level of the management company. It could go… bankrupt. That would be a nuisance, but not a disaster. The real estate assets belong to the investors, not the management company. Investors would then agree at a general meeting to hand their assets over to another management company.

How do I choose SCPIs?

This article is already too long, but here are a few things to look at when choosing which SCPIs to invest in.

• Is the yield steady over several years? Is it declining?
• What is the occupancy rate of the properties? (In other words, what’s the vacancy rate?)
• What is the tenant diversity? If one tenant accounts for 50% of the rents and they go bankrupt, that’ll be a problem.
• What’s the size of the portfolio? The more properties there are, the more likely the yield will remain stable, without big swings up or down.
• …

Can you give me some examples?

Here are a few SCPIs I hold shares in. Again, this isn’t investment advice, but it can point you in the right direction for your research.

• Corum Origin
• Corum Eurion
• Pierval Santé
• Interpierre Europe Centrale
• Immorente
• Sofidy Europe Invest
• Kyaneos Pierre
• PF Hospitalité Europe

How to buy?

If you’ve already made your choice of SCPI, you can directly contact the management company on their website to subscribe to shares.

But I’d rather recommend going through a wealth management advisor or a specialized firm. You’ll pay exactly the same (they are compensated by the management companies, who give them a portion of the subscription fees), you’ll benefit from their advice, and they’ll handle part of the administrative paperwork.

Write to me if you’d like me to give you the contact details of the people I’ve worked with.