Property vehicles: Shares, a loan, securities, a right

Investing in property does not have to mean buying a whole flat. There are other ways in.

The first: property without the notary. Shares in a large property portfolio, bought as an investment.

In France, these are SCPIs. They own offices, shops, warehouses, and pass the rent on to their members.

In the United States, the equivalent is called REITs, created in nineteen sixty. Most trade on the stock market, like shares.

The price to pay: entry fees, often high. Say ten per cent: out of ten thousand euros, nine thousand are really invested.

And an SCPI share cannot always be sold quickly. To get out, someone else has to come in.

Second vehicle, the most common: the mortgage. A loan secured by the property itself.

If the borrower stops paying, the bank can have the home sold to get its money back.

In France, a guarantee is often used instead: a body guarantees the loan, and turns to you if you stop paying.

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Third vehicle, less visible: securitisation. A bank does not necessarily keep the loans it grants.

It bundles thousands of them and sells them to investors, as securities. Borrowers' monthly payments become their income.

On paper, it is useful. The risk is shared, and the bank can lend again.

But if the lender does not keep the risk, why would it check that the borrower can pay?

In the United States, before two thousand eight, millions of fragile loans were granted, then resold, sliced up, mixed together.

When borrowers stopped paying, nobody knew who held what. That is the thread leading to the crisis of two thousand eight.

Last vehicle, more discreet: bare ownership. A property is split into two rights.

The usufruct: the right to live there, or collect its rent. Bare ownership: the right to own it at the end.

Say a home worth three hundred thousand euros. You only buy the bare ownership, for fifteen years.

For the example, at sixty per cent of the price: one hundred and eighty thousand euros. For fifteen years, someone else lives in it or rents it out.

After fifteen years, the usufruct ends. You get the whole property, without paying anything more.

If the price has not moved, you have earned a little under three point five per cent a year. Without a single tenant to manage.

So, four doors. Shares, a loan, securities, a right. They all lead to the same bricks.

And each has its trap: fees, repossession, hidden risk, locked-up money. Read it before going in.