The advantages of investing in a bare property are several, such as improving the expected return, saving on a secure and stable investment, safeguarding capital, diversification and access to properties at well below market value. If you want to understand what this type of investment is all about, you can also take a look at this article. However, when faced with a new type of investment, questions and queries arise, both from an owner/seller and an investor/buyer. In this post we will answer the 8 most frequently asked questions related to this type of operation. 
1) How is the value of the bare ownership calculated? As we know, in this type of transaction the ownership of a property is split, i.e. we will have the bare ownership on the one hand, and the usufruct (use of the property) on the other. In order to calculate the value of the bare ownership, the value of the usufruct must first be known, which is estimated with the age of the usufructuary. Typically the calculation is 89 (life expectancy) minus the age of the person, e.g. if the person is 76 years old, the usufruct will be 89-76=13. Therefore, the value of the right of bare ownership is the difference between the value of the usufruct and the total value of the property, in this case it will be 100-13=87.
Example: If the property is worth 300.000€
The usufruct (13%) is 39.000€
The bare property (87%) is 261.000€
2) What taxes are paid? The taxes are the same as those applicable to a traditional sale and purchase transaction, both for the buyer and the seller. The most significant difference is that, for the buyer, the calculation of the base on which the ITP (Transfer Tax) is applied must take into account that only the bare ownership of the property is being acquired. This calculation has certain variables that we will not go into in this article, but your tax advisor will be able to make this calculation without any problem, knowing the cadastral value of the property and its geographical location, among other things.
3) Who is responsible for the expenses of the property? The expenses for the use of the property (gas, electricity, internet, etc.) will always be paid by the usufructuary. Similarly, whoever enjoys the property will typically also have to bear the (ordinary) community fees and IBI, although these items could be negotiated. However, the investor as the bare owner will have to pay the expenses derived from improvements to the building, normally reflected in the extraordinary expenses of the property.
4) What are the requirements to buy a freehold property if I am a foreigner? The requirements are the same as those required to purchase any property in Spain. A NIE (Foreigner’s Identification Number) must be obtained in order to be able to buy a property. Likewise, it is always advisable to have a Spanish bank account, to facilitate the management of the property, payment of expenses, rents, etc.
5) What is the most frequent economic structure in bare ownership transactions? There are three most frequent transactions: – Purchase of bare ownership with a one-off initial payment (without subsequent rents) – Purchase of bare ownership with advance payment + annuity for life (until the death of the usufructuary) – Purchase of bare ownership with advance payment + temporary rent (after which rent will cease to be paid) In any of these cases, beyond the economic structure of the agreement, it is important to clarify that the usufruct will always be for life in the vast majority of cases, i.e. the bare owner will only be able to dispose of the property upon the death (or resignation) of the usufructuary.
6) What kind of guarantees can I have that the property will be kept in good condition? Certain conditions may be set out in the deed to ensure that the property is maintained in good condition, beyond normal deterioration.
7) If my situation changes in the future, can I re-sell my freehold to another investor? Yes! The bare ownership is transferable to any other interested investor, through a new deed of sale.
8) What happens on the death of the usufructuary? Upon the death of the usufructuary, the usufruct is automatically terminated and the bare ownership is transferred to the bare ownership. What has to be done on death is to file a cancellation at the Land Registry, enclosing the death certificate of the usufructuary as support. It should be noted that the heirs of the usufructuary for life cannot inherit the usufruct: the usufruct is cancelled with the death of the usufructuary.
Do you have further questions regarding this type of operation? Contact us without obligation by email at info@inversionesbcn.com or by telephone on 931 748 705.