It is a form of equity release that is proving to be very popular in France, Italy and the UK. Now, bare ownership is becoming very popular with Spanish property owners too.
What is it?
With bare ownership, the property owner sells their home to an investor who will either be a family member, or a complete stranger. A family member may do it to help out a parent while ensuring that they eventually inherit the property. An investor will look on the deal as any other- what’s in it for them?
For the sake of this argument, imagine that the property owner has a Spanish home worth approximately 150,000. Here, is problem one. How do we know what the property is really worth? The difference between a Spanish bank valuation, the local estate agent valuation and the castral or town hall valuation could be 50,000 euro in any direction. If the property was in London we would not have this issue so finding out what the owner would put in their pocket if they sold today is step one.
We think that our estate agent contacts are the best valuers,but both buyer and seller need to get valuations. In this example, the price of the property is 150k, after all valuations have been done.
Next, how old is the owner? Remember, the investor only takes possession of the property after the death of the owner. Whether the owner is 99 years old, or 59 years old changes things dramatically. In this case, I’m saying that the owner is 75.
Now back up briefly. Before finding the buyer we use a simple formula to work out how much of the value of the property the investor will/should pay. If the returns are not high enough, the investor will not be interested.
If buyer and seller agree to the sale with the buyer paying 50%, then we move on to the next step.
Terms: the amount of the purchase is 75,000 euro. Perhaps, the owner needs half now, half over the next few years or whatever the case may be. Spanish Solutions will work out the points but is important that its fair for everyone. Offering a 99 year owner 1,000€ per month is not fair. Similarly if a 59 year old owner wants or expects a lump sum of 100k, today of course no investor will agree.
In many cases, the investor will pay the complete amount on signing of the deeds and this is the cleanest way for Spanish Solutions. If the owner wants all the cash up front, then they can expect to get slightly less. This is a negotiation and should be win /win for everyone involved.
Advantages of bare ownership in Spain.
It’s a great way for an owner to have a lump sum in cash rather than sitting on a big asset which they cannot cash in. The owner through the use of a usufructo, can remain in ‘their house’ for the duration of their lives.
Investors gain a property for up to a 50% reduction. The owner can use the equity right now and perhaps gift it to an heir to pay for a wedding /college education etc. The owner has no upheaval as opposed to actually moving house. They keep the property, and their neighbours. There is a legal way to ensure that everyone is protected. The increasing popularity of bare ownership in Spain, means that it is easier to work out terms and legal implications in advance.
The deals can be done in a tax efficient manner.
The owners usufructo or the ‘right to live in the property’ has a real calculable value. They can cash in early and sell it or indeed renegotiate with the investor to sell it to the investors. It’s simple to get an engineer to give a totally independent report on the structural issues or lack of. There are Spanish estate agents in the major cities of Spain who deal exclusively with these deals.
Disadvantage of bare ownership in Spain.
The owner of the property is selling ownership for considerably less than if they just put it on the open market. An investor only cashes in when the owner passes away. Negotiating can be difficult. Often owners over value their property. Additions such as new furniture, gardens etc can add enjoyment to the property yet seldom add real capital appreciation. If the property is in a ‘bad area’ , the owner may struggle to get an investor and if they do, it will be at a considerable cost. Estate agents are not keen to get involved, preferring a clean purchase. Investors are cold. Their interest is in their returns rather than what’s best for the property owner. There is no inheritance from the property on the death of the original owner. The original owner is still responsible for the upkeep of the property.
These are just a few of the points we discuss with both sides of the usufructo /bare ownership form of equity release.
In our opinion, the first step is always with the property owner. They should talk to their family so that they know the situation. Share some blog posts with them. Spanish Solutions have spoken about it a number of times on our blog.
Once this is done, we need property details. We must know where the property is, the condition, approximately the value etc. Is there a mortgage on the property?
Are there any issues we need to know about?
Getting some high quality photos is a great way to get the interest of an investor. Remember, we need them and need to make the deal attractive to the person with the money.
Without a client, nothing happens.
We need details on the owner. The age, health and other characteristics of the property owner is key.
Once we know this, we can float the deal with our clients, trusted estate agents and other parties who may have a buyer. When we find one, assuming the negotiation goes smoothly. We advise both parties to not try to negotiate directly. It is very easy for an investor to scupper a deal before it begins by ‘insulting’ the owner with a low ball offer. Owners can just as easily cost themselves the deal before it begins by looking for too much.
If you are a potential seller, please gather up some property details for us, send those details to Nicola and we will see if we can find you a buyer. If you are a potential property investor, send your details through to us, and we will guarantee that you will receive the opportunities as soon as we have them.
Contact Nicola to explain your circumstances and interest in a bareownership to see if we can help you.
Brecht Van Acker
How does being a bare owner of 50% of a flat in Spain affect your status as a first time buyer?