What is bare ownership?
Bare ownership in Spain is a form of equity release becoming ever more popular with the Spanish market. It has yet to reach the Expat market effectively. With this system of ownership, property owners sell their home to an investor right now and receive payment immediately. The investor will pay a reduced amount for the property and in exchange they will give the owner the right to remain there, in their own home, rent free for the rest of their lives.
What’s an usufructo?
Usufructo gives a person the legal right to use and enjoy the proceeds of another’s property for a given term. This term can be stated in a number of years or can be for the lifetime of the owner.
It means that the owner of a property when they use our company to sell the bare ownership to an investor. They can use and remain in their home for the rest of their lives, rent free, with a cash lump sum to spend.
In Spain, Usufructo is common. It is in fact one of the most usual rights in property present in civil code systems. It is legal, written on their deeds of the property and straightforward, once you use the right law office. There is no grey area, but please only use a lawyer experienced in the process.
If you own an usufructo, you can, as the beneficiary (or the usufructuario) use and enjoy the fruits from the property, without damaging or diminishing it.
Usufructo is defined in Article 467 of the Spanish Civil Code as “rights to use and reap the proceeds from another person’s property. They always have an obligation to preserve the property”.
So, I can sell my property, get the money and remain there in my property for ever?
Yes, that is exactly what it means.
Can i rent the property?
Each deal is done on an individual basis. If it is important for you to rent a room in your property each summer for example, you’ll need to get your investor to agree. We take care of all of these details when we are helping the negotiations right at the start of the process.
How do we value a property?
For the sake of this argument, let’s imagine that the property owner has a home worth approximately 150,000, or so he believes. How do we know what the property is really worth? We must convince our investors it is a good investment. There will always be a difference between the Spanish bank valuations, the local estate agent’s valuation and even more so with the castral or town hall valuation. It is an intelligent market here in Spain. If property number 23 sold for 150,000 euro two months ago and it is identical to property number 24, well then we have our valuation. A property is worth what someone is willing to pay for it. We work with Tinsa, https://www.tinsa.es/, the most trusted valuation company in the country.
In Spain,Tinsa, for the past 30 years, has been a reference in real estate valuations for multiple purposes such as mortgage, general advice, inheritance, accounting records, tax valuation etc. They work under both national and international standards (RICS, IVS, EVS). Every single valuation they write is automatically accepted by every bank in Spain for the purpose of mortgage valuation.
What factors affect the valuation of the property?
We have been valuing properties for years in my old business, Comaskey properties. We also, in our legal department, Spanish Solutions, do valuations for probate, for inheritance purposes, for divorve cases, bankruptcy etc. Investors want to know how quickly they can sell or rent the property on the maturing of the deal.
First, the location of the property is important. How big is it? What condition is it in? How long have the current owners lived there and how well have they maintained it? Does the property have any nice views? Do they have road noise? What is around the property? Is it close to schools, medical centres, amenities, beach walks etc?
Basically the reasons why an ordinary buyer would want to live in the property are the same reasons an investor will get excited by it.
Does the age of the owner affect the attractiveness of the property?
Normally in Spain Bare Ownership is reserved for clients over the age of 60.
We have one client Paul, who is 58. He will sign a legal document in the notary stating that he will hand over possessions of his Alicante apartment in 20 years even if he is (hopefully) alive and well. This a timed usufructo. It suits Paul but would not suit every owner.
Generally though, the investor only takes possession of the property after the death of the original owner. If one owner is 99 years old, and another is 60 years old, the attractiveness of the deal changes things dramatically.
What’s in it for the property owner?
This is a great way for an owner to get into their hands, a lump sum, rather than sitting on a big asset which they cannot cash in. Can they not just sell their house? They can, but then they have to find somewhere to live, they are living at the mercy of the new landlord, they need to move (or store) their furniture, they are meeting new neighbours, they are moving to a new area maybe further away from their favourite bar or stores. Through the use of an usufructo, an owner can remain in their home, where they have lived for maybe 20 years for the remaining duration of their lives.
They can use the equity right now. Perhaps they will give some money to an heir to pay for a wedding /college education. The owner has no upheaval in moving house. Deals are quick, there is no time waiting for multiple viewings and multiple offers. If a seller wants to do a deal for a good price to free up equity now, we can make it happen. I have seen houses on the market for sale in Spain for two years, all the time the owner is getting older! Often they end up selling for a cut price deal because buyers assume there is a problem with the house as its been unsold for this length of time.
The owners usufructo or the ‘right to live in the property’ is a real entity with a real calculable value.
Are there downsides to Bare Ownership?
There are pros and cons to every investment decision. With Bare Ownership, the owner of the property is selling ownership for less than if they just sold the house on the open market.
Negotiating can be difficult if the owner overvalued their home.
Not all properties are suitable; If the property is in a bad area overlooking the motorway, the owner may struggle to get an investor without taking a lower price.
Estate agents are not keen to get involved in selling bare ownership so you need a specialised company to handle the deal.
When the owner of the usufructo passes away, there is no inheritance windfall for the children or heirs from the property.
What information does the investor need?
By the time we speak to a potential buyer, we will have relevant information, photos and a rough guide price for the property.
Is there a mortgage on the property? We need to talk to the banks and ensure there are no debts on the home.
We also need details from the property owner. The age, the state of health and other characteristics of the owner is key.
Once we know this, we can float the deal with our investment clients.
If you are a potential seller, please put together some property details for us. You can then send those details to our sales team 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.
What changes will Brexit have on British people living in Spain?
We asked James Kelly, LLB, Dip L.P, Edinburgh, Scotland.
Ian, When Brexit happens there will be a transition phase during which the UK & EU will negotiate a trade deal. We believe all existing rights and obligations will pertain (at least for a year) After full withdrawal, certain rights will no longer apply to non-EU citizens. None of them will interfere with the validity of the usufructo.
I assume some of these will be owners of homes in Spain and the normal rules against discrimination on the basis of status such as nationality etc etc will no longer apply. In theory, those people will have no automatic protection under Spanish (EU) law.
However, if U.K. (Non EU citizens) already have rights of residency, I cannot see Spain discriminating against them. Indeed, I foresee a derogation from the usual rule.
James Kelly LLB, Dip.L.P.
Will clients be treated differently if they own a property in spain or own an Usufructo?
For an answer to this question, I spoke to Jaime Escrivá Mayor, tax professional in Garrigues, Alicante.
There is no difference between the usufructo and the full ownership, for residency purposes in Spain. In any case we expect that the UK the UE will grant special residency permits to the British people that currently live in the UE and UE citizens that currently live in the UK.
Jaime Escrivá Mayor
Can i just apply for a home loan to release equity?
Unfortunately this is why this whole thing started in the first place for our clients. The Spanish banks are just not lending at the moment for equity release. We are happy to add your details to our waiting list and we will contact you again if they resume lending. We’ll try but as mentioned elsewhere you must prove you don’t need the loan to be able to get it. Also, if you borrow money, you need to start paying it back!
Are there alternatives to bare ownership?
Yes, this may not suit all clients so we explored other options to release equity from their Spanish home.
Remortgage your property. If you have a good income, say from investments, pensions etc. the bank in Spain may be interested in offering you a new and approved home loan.
Transfer ownership to a family member. Do you have a family member who will loan you money in exchange for you passing ownership of the property in advance of your passing?
Downsize. Do you have four bedrooms and you’d be OK with two? Do you really need that big garden and pool? Maybe selling and immediately putting the money back into a smaller property is for you?
Rent out a room. If you are struggling financially but not sure about the benefits of bare ownership, perhaps you can rent a room in your home and get an extra stream of income.
What does it cost me, the Property Owner?
All the investors we deal with are happy to cover your costs as part of the overall deal. Please note though, that the final amount you receive will reflect this.
Example, you are receiving 50,000 for your property.
You’ll pay notary costs, legal costs, taxes, commissions (our partners charge a commission of 5% to get the investor, carry out the due diligence, legal and taxation work etc.). You may, in the notary, on the day of completion, only get a cheque for 45,000 euro for example. All costs and fees will be made clear to you in advance of you signing anything. Good news, you pay nothing up front. If you don’t like the deal at any stage, you can just walk away.
We will help you with negotiation.- we’ve sold hundreds of millions of euro worth of Spanish property since 2001.