In the face of rising prices in the residential market, many buyers and investors are looking for alternatives to traditional property purchases. One of them is bare ownership, a model that allows a property to be acquired at a reduced price in exchange for temporarily waiving its use. From an investment point of view, bare ownership does not generate immediate income, but is based on the future appreciation of the asset, making it a strategy more closely linked to the long term.
Through this system, the buyer acquires ownership of a property, although not the right to use it, because the usufruct remains with the seller.
In exchange for that lower price, the buyer accepts that they will not be able to use or generate income from the property until the usufruct expires, which introduces a key time component into this type of investment.
Bare ownership is one of the formulas for reducing the purchase price of a property and, for this reason, it is becoming increasingly popular in Spain. But what are the pros and cons of this model?
Advantages of bare ownership
Bare ownership can be interesting for certain investor profiles, especially those who prioritise the long term over the generation of immediate income.
– Savings on the property price. Properties sold under this model stand out for having a lower sale price than the one set by the market for a property with the same characteristics. Therefore, the buyer can access residential properties that they might otherwise not be able to afford, saving a considerable amount of money. This initial saving gives investors a unique opportunity to diversify their real estate portfolio without compromising on the quality of the property. This discount is usually between 30% and 50% of the market value, depending mainly on the age of the usufructuary.
– Long-term-oriented investment. The return is not realised until the usufruct expires, so it is not suitable for those seeking recurring income.
– Certain expenses and taxes are avoided. Owners who have transferred the right of usufruct while retaining bare ownership are not obliged to pay property tax: this obligation falls on the usufructuary. In addition, the bare owner is freed from the costs associated with utilities and repairs while the usufructuary lives in the property.
– Possibility of selling the bare ownership. If the buyer does not have sufficient financial resources and needs the money, they have the option of selling the bare ownership to a third party, provided that the usufruct is respected. This possibility provides liquidity, although it may be conditioned by the market and the buyer profile.
Disadvantages of bare ownership
Despite its advantages, this model has important limitations that should be assessed before investing.
– The property purchased cannot be used. The bare owner cannot enjoy the property until the usufructuary passes away. It is therefore important to bear in mind that the price is an indicator of the possible number of years they will have to wait before obtaining the right of use. The younger and healthier the seller, the cheaper the property will be, as the waiting period before being able to use it is likely to be longer. This involves a time uncertainty that is difficult to estimate precisely.
– Purchase costs, taxes and community fees. The purchase costs — notary, registry and property transfer tax — must be paid by the buyer of the property, except for the municipal capital gains tax, which is paid by the seller. Likewise, even if they do not live in the property, as owner they will also be responsible for the community fee and any extraordinary charges that may arise. These costs should be included in the calculation of the real return on the investment.
– New property registration costs. When the usufruct expires, the owner must assume additional costs to consolidate full ownership, which reduces the final return if it has not been properly planned.
– Possibility that the property may be rented out. The buyer cannot do so, but the usufructuary may rent out the property if at some point they are not going to live in it, and they may do so without the bare owner’s permission. This completely limits the investor’s ability to generate income during the term of the usufruct.
Alternative to bare ownership
Bare ownership can therefore fit very specific strategies, such as buying a home on your own, but it is not the only way to invest in the real estate sector.
There are alternatives that allow investors to participate in the market without giving up liquidity or the generation of recurring income. For example, real estate crowdfunding allows investors to invest in projects from low amounts and, in some cases, obtain periodic income or capital gains within defined timeframes.
These types of solutions may be more suitable for those seeking diversification, a lower entry barrier and greater visibility over investment timelines.
In any case, the choice between one option or another will depend on the investor’s objective: capital preservation, income generation or long-term growth.
More on real estate investing
Still have questions about your decision to invest in bare ownership or another investment alternative? Here are some articles that may interest you:
- If you are taking your first steps in the world of investing, we recommend reading our post on investing with little money. This article will provide you with the fundamentals you need to begin your financial journey.
- Choosing where to invest in real estate can be challenging. To help you with this process, we have prepared an article on how to analyse real estate investment opportunities. Discover effective strategies for evaluating real estate projects and making informed decisions.
- Do you have money in the bank but are not sure whether to invest it or save it? In this other article, we explore the perfect balance between investing and saving for your financial situation.
If you want to continue learning more about real estate investing, these contents can help you better understand the different strategies available: in the Learn section, we explain the fundamentals of investing in a relaxed and accessible way for everyone, even if you are a complete beginner. Discover tips, strategies and key concepts. Take the first step on your path as an investor with us!
