Investing in real estate in a civil property company or in your own name: what to choose?

Investing in real estate in a SCI ( Société civile immobilière ) or in your own name? This is a question that comes up frequently from investors. However, it seems difficult to provide a clear-cut answer on the best method of ownership. Each option has its respective operational, legal and tax advantages. In your own name, you will be able to earn significant rental income and consider a resale in the future. In a SCI, you will have the possibility of investing with several people, reinvesting your rental income and planning a transfer. The choice will depend in particular on your situation, your objectives, your desire to structure the assets and your TMI ( Marginal Tax Rate ). So, how do you decide? After reading this article, you will be able to choose the method of ownership suited to your rental investment project .

Investing in real estate in SCI

The SCI is a civil company composed of at least two people. This legal regime is normally used to acquire real estate in order to rent it unfurnished.

The SCI for greater financing leverage

Creating an SCI presents a serious advantage for financing the purchase of one or more real estate properties. For a real estate loan in an SCI or SARL, you can subscribe to it in the name of the company or the partners. In any case, the bank will be able to estimate the borrowing capacity of the company with the debt capacity of each partner according to their income.

The SCI for the protection of real estate

Creating an SCI has certain advantages for the protection of your real estate assets. This company represents a legal entity. Thus, its assets are different from the personal assets of the partners. In the event of financial difficulty in your investment project, creditors only seize the shares of the SCI. 

In addition, its creation can facilitate the transfer of your real estate assets while avoiding joint ownership. It is true that its creation cost is expensive and its administrative formalities complicated. However, the SCI can prove to be an interesting way to distinguish the real estate assets of a company from those of its partners.

The SCI, tax regimes

In terms of taxation, you can distinguish between SCIs with IR ( Income Tax ) and SCIs with IS ( Corporate Tax ). SCIs with IR concern in particular bare rental. Considered as a commercial activity, furnished rental is only permitted up to 10% of the SCI's turnover.

If the result is positive, the income will be taxed at the IS rate of 15% to 25%. This is the first tax. Note that the profit threshold is 38,120 euros. A second tax will be applied to dividends at the IR. The latter are subject to the PFU (Single Flat-Rate Withholding Tax) of 30%. However, if this option is more favorable, taxpayers can opt for taxation at the IR scale. In this case, they will continue to benefit from the 40% reduction and a deductible portion of the general social contribution (CSG). This is 6.80% on a total social security contribution of 17.20%. The SARL, for its part, is a company dedicated to an industrial, commercial, agricultural or craft activity. As with the SCI, you can also create an SARL taxed at the IR or an SARL taxed at the IS.

Real estate purchase in SCI

A real estate purchase is generally formalized in three stages with the seller. These are the offer, the signing of the preliminary contract (sales agreement) and the authentic deed (handing over of keys). If in SARL, you can buy a rental property alone or with others , you will have to have at least 2 partners by investing in SCI. This method of ownership allows you to have more means. With your partners, you can easily acquire entire buildings. Note that the latter are more profitable than individual apartments.

Whether in a civil property company or an SARL, the withdrawal period (10 days) depends on the company's corporate purpose. When the corporate purpose is the acquisition of a main residence by cohabitants or the transfer of family assets, the company can benefit from the period. If it involves renting buildings in a civil property company, whose corporate purpose is the acquisition, management and administration by rental, it will not be entitled to do so.

Property management in SCI

Once the acquisition is completed, you must rent out, operate or manage the property. Generally, the conditions for managing a property in a civil property company are more restrictive than in your own name. In a civil property company or non-family SARL, the duration of a bare lease is 6 years.

In furnished rental, the duration of a classic furnished lease is 1 year minimum with automatic renewal. That of a student furnished lease is 9 months non-renewable. If it is a mobility lease, the duration is 1 to 10 months, renewable with the agreement of both parties.

In the event of unpaid rent or damage, the request for a deposit is not authorized for all tenants in a SCI or SARL (non-family). This particularly concerns student tenants without a scholarship. This is not the same case in a family SCI, whose partners are members of the same family (grandparents, parents, children, etc.). For this company, asking the tenant for a deposit is entirely possible.

To declare the start of the rental activity, you must register your activity in SCI using an M0 form. This is more specifically CERFA No. 13958. This form allows you to determine the choice of tax regime (IR or IS).

Resale in SCI

If you are considering reselling your property, you may realize a capital gain or a capital loss. Unlike a capital gain on the resale of a primary residence, the capital gain on a rental property is taxed. There are indeed several tax regimes for capital gains on resale depending on the tax regime adopted during the management of the property.

Among them, you can distinguish the capital gains of individuals that apply to the IR in SCI or SARL. These real estate capital gains are equal to the difference between the sale price of the property and its purchase price. The capital gains of professionals, they apply to the IS in SCI or SARL. Before calculating them, however, you must determine the capital gain base. It corresponds to the difference between the transfer value and the book value of the property.

Transfer of real estate in SCI

Holding shares is a good legal way to organize the transfer of your real estate assets. In order to facilitate this transfer between generations, many mechanisms are currently provided for by law. As part of a donation, parents can give up to 200,000 euros to each of their children, without paying gift tax. Beyond this amount, called an allowance, the amounts can be taxed at a progressive rate ranging from 5% to 45%. Note that the allowance is renewable every 15 years.

Another device is the dismemberment of shares. It effectively allows the separation of bare ownership and usufruct (income and enjoyment of the property). It is entirely possible for a child to become a bare owner. The parents, for their part, will retain the usufruct. In a company, this practice allows the parents to always manage the property.

Investing in real estate in your own name

Investing in rental property in your own name implies that you are making a commitment alone and in your name. In concrete terms, you are responsible for the purchase of the property, its maintenance, its rental, tax declarations, etc. 

A good solution to start investing

Buying in your own name is often recommended for beginners. This regime will effectively allow you to familiarize yourself with real estate investment. By investing in your own name, you will not need to create a company. 

This is also the major advantage of this type of ownership. Thus, you do not have to carry out any administrative formalities such as drafting statutes, general meetings, publications in the legal notices journal, etc. You will also not draw up annual accounts.

Rental property, unfurnished or furnished

Before investing, however, you must choose between unfurnished rental and furnished rental. For unfurnished rental property, you will have to declare your rental income in the property income category. As for the returns from furnished rental property, they will have to be declared among the BIC ( Industrial and Commercial Profit ) income. If you choose the classic furnished rental, the furnished lease will only last 1 year compared to 3 years for unfurnished rental.

Acquisition in own name, tax regimes

In terms of taxation, buying in your own name has certain advantages, including the LMNP status ( Non-professional furnished rental ). Under the first status, the BIC income ceiling is 23,000 euros per year. As for the tax regime, a company and a real estate investment project in your own name are generally subject to income tax (IR). In order to optimize the taxation of your income, you can opt for the “Micro” or “Real” tax regimes.

In the micro regime, you must deduct a flat-rate allowance from your rental income to calculate your net taxable income. In a rental investment in bare rental, the allowance is 30% of your rent, excluding charges if it is a micro-land regime. For this tax regime, the income ceiling is €15,000 per year. In classic furnished rental, the micro-BIC allowance is 50%, and 71% for furnished tourist premises or a guest room. Here, income is capped at €72,500 per year.

By opting for the actual system, you must calculate the taxable net income by deducting the charges and depreciation from your rental income. In the real-estate system (unfurnished rental), these charges include insurance, agency management fees, renovation work, etc. In the real-estate system (furnished rental), all expenses incurred in the interest of your project will be deductible, either as charges or as accounting depreciation for several years. By deducting depreciation from your real estate, you can often obtain a taxable net income of 0 euros for at least 8 years.

On the other hand, your income will be heavily taxed at your marginal tax rate with a rate of 17.2% for social security contributions (PS). This is also a major disadvantage of investing in your own name. If, for example, your marginal tax rate of 41% is added to this PS rate of 17.2%, your taxable real estate income will be taxed at 58.2%.

Real estate purchase in one's own name,

In your own name, you can buy alone or with others in joint ownership. Joint ownership refers to a situation in which two or more people own the same property. For example, a couple who buy a rental property. Most investors often avoid this joint ownership regime. In the event of a dispute, a joint owner will indeed be entitled to force the other joint owners to sell the property. 

Regarding the withdrawal period, you have 10 days from the day after signing the preliminary contract (sales agreement). Also, most real estate investments are made on credit. The real estate loan effectively allows the investor to benefit from the leverage effect and optimize the tax advantages. In your own name, it will be in the name of the purchaser. By investing in your own name, you will be solely responsible for losses on your personal assets.

Property management in one's own name

In your own name, the duration of a bare rental lease is 3 years. In order to be able to take notice at the end of the lease, resumption for occupation is a valid reason. In furnished rental, you will be subject to the same lease durations as in SCI and SARL.

In the event of unpaid rent or damage, you can ask the tenant to find a guarantor (individual or legal entity). The latter undertakes to pay his debts. To declare the start of a rental activity, you must also register it, regardless of the tax regime. In a bare rental property investment, no form is to be completed. However, for furnished properties, you must complete form P0i if it is your first property and form P2-P4i for other properties.

Resale in own name

In own name, capital gains are also taxed. In this mode of ownership, the capital gain of individuals applies to the micro-land, real-land, micro-BIC regimes in LMNP and to the BIC - real in LMNP. As for the capital gain of professionals, it applies only to the BIC-real regime in LMP (Professional furnished rental). In own name as in a company, the formulas are the same to calculate these capital gains.

Transfer of real estate in one's own name

In your own name, you will not be able to make successive transfers. It is the property as a whole that will be transferred. If the value exceeds 100,000 euros (for one parent) or 200,000 euros (for two parents), gift tax will be payable.

The dismemberment of a property also proves to be a good alternative to optimizing its transmission. In one's own name, this system requires shared management of the dismembered real estate between the parents and the children.

Investing in real estate first in your own name, then in SCI

A strategy often adopted by investors is to start by investing in their own name in BIC-real. Then, they evolve with investments in SCI. This technique will allow you not to exceed your income ceilings in LMNP status and thus avoid LMP status. This method can also facilitate obtaining real estate loans, by collaborating with less indebted partners, who will subsequently be able to optimize the borrowing capacity of the SCI. 

Investing in real estate in a civil property company or in your own name: what you need to remember

The choice between investing in a civil property company or in your own name mainly depends on your wealth, tax and management objectives. The civil property company offers a more flexible structure for investing with others, facilitating the transfer of assets and benefiting from certain tax advantages. It is ideal for long-term investors seeking to optimise succession and collective management of assets. Conversely, investing in your own name is often simpler and quicker to start with, while being advantageous from a tax perspective in certain cases. The choice of regime therefore depends on your personal situation and your real estate ambitions.