Bare ownership, usufruct and full ownership

Bare ownership, usufruct and full ownership are three mortgage concepts that are closely related to each other and today we are going to explain what each one consists of.

Usufruct

Usufruct is the right to use and enjoy property that belongs to someone else. Imagine someone lends you a bicycle. You don't own it, but you can use it, ride it, and enjoy all its benefits. However, you can't sell it or destroy it because it's not yours. This right can apply to properties such as houses, land, or even invested money.

Example:

• GrandfatherHe has a house.

• Father: He has the usufruct of the house (he can live in it, rent it out and receive the rent).

• GrandsonHe will become the definitive owner when the usufruct ends (for example, if the grandfather dies).

Bare Ownership

Bare ownership is the part of ownership that includes the right to own the property, but without the right to use or enjoy it directly, as that right belongs to another person (the usufructuary). Returning to the bicycle example, if you have bare ownership of the bicycle, you are the owner, but as long as another person has the usufruct, you cannot use it.

Example:

• GrandfatherHe gives the bare ownership of the house to his son.

• FatherHe has the bare ownership, but he cannot use the house because his grandfather has the usufruct.

• Grandson: He expects to receive the house when his grandfather passes away and the usufruct ends.

Full Ownership

When someone has full ownership, it means they possess both rights (bare ownership and usufruct) over the property. This person has total and absolute control over the property.

These concepts are useful in situations such as inheritances, where an elderly person may want to continue living in their home (usufruct) while ensuring that their children will be the future owners (bare ownership) without having to wait to secure their inheritance.

Once these terms are clarified, we focus on the advantages of bare ownership as an investment. 

Buying bare ownership can have several advantages, especially from a financial and long-term planning point of view.

1. Reduced Purchase Price

When you buy a property with bare ownership, you generally pay less than you would if you bought the full ownership (usufruct + bare ownership). This is because the usufructuary has the right to use and enjoy the property for a certain period, which reduces the current value of the bare ownership.

2. Potential for Appreciation

Over time, the property tends to increase in value. When the usufruct ends (for example, upon the death of the usufructuary), the buyer of the bare ownership becomes the full owner without having to pay anything more. The property could have increased considerably in value by then.

3. Long-Term Investment

Buying bare ownership is a long-term investment, especially attractive for people who don't need immediate use of the property. It's a way to invest money in real estate with the expectation of acquiring full ownership in the future.

4. Tax Benefits

In some countries, there are tax benefits associated with purchasing bare ownership. For example, less tax may be payable at the time of purchase because the value of the bare ownership is less than the full value of the property. Furthermore, during the usufruct period, the usufructuary is responsible for the expenses and taxes related to the property.

5. Lack of Management and Maintenance

During the usufruct period, the usufructuary is responsible for the maintenance, repairs, and other costs associated with the property. As the bare owner, you don't have to worry about the day-to-day management of the property until the usufruct ends.

6. Estate Planning

Purchasing bare ownership can be part of an estate planning strategy. It allows parents, for example, to transfer ownership to their children while retaining the right to use (usufruct) during their lifetime. This simplifies the transfer of assets and can reduce inheritance-related problems and costs.

Buying bare ownership can be an excellent long-term investment opportunity, offering advantages such as a reduced purchase price, potential for appreciation, tax benefits, and no maintenance costs until the usufruct ends. It is especially useful for those planning for the future who do not need immediate use of the property.

The profile of people interested in acquiring a home in bare ownership generally includes those with a strategic and long-term focus on their investments and financial planning. 

1. Long-Term Investors

2. Young Professionals and Families

3. Children or Grandchildren of Current Owners

4. Investors with a Tax Focus

5. Experienced Real Estate Investors

6. Companies and Investment Funds

7. People Who Do Not Need Immediate Residency

 

We have briefly and simply explained the differences between bare ownership, usufruct and full ownership.

If you're interested in buying a property with bare ownership, the best way is always to hire a mortgage broker. Contact us for a free consultation!