Placement: How To Choose The Best Scpis?
Civil real estate investment trusts are the simplest solution for investing in real estate with a modest contribution and few constraints. If you are interested in this investment in paper property, we will explain how to choose the best REITs.
Take into account the performance over time.
The first criterion to consider when choosing the best SCPIs is of course the yield. To guide your choice, you must compare the yield rate also called market value distribution rate or TDVM.
This rate, expressed as a percentage, corresponds to the ratio between dividends (income distributed per share over a year) and the value of a share. TDVM is therefore a very useful indicator for comparing several real estate investment companies with each other.
But this is not the only criterion you should consider. Since investing in SCPIs is a long-term investment, recommended for a minimum of 8 years, you should also consider the stability of the yield.
Check the diversification of real estate assets.
As with any other financial investment, diversification is an important criterion for choosing the best SCPIs. Real estate investment trusts are by definition diversified since they invest in different real estate properties. However, some hold a more varied real estate portfolio than others.
By buying shares, you become a partial owner of real estate properties spread across different geographic areas and business sectors.
To dilute risk, make sure that the real estate investment trust has not "put all its eggs in one basket" but has invested:
• in different geographic areas, in France and/or abroad
• in different types of real estate (offices, commercial spaces, residences...)
• with diversified tenants, such as companies operating in different business sectors.
In general, it is better to favor large companies with a capitalization of at least 100 to 300 million euros. Choosing large SCPIs also facilitates and accelerates the sale of shares.
Another diversification strategy to limit risks is to invest in several SCPIs positioned in different sectors (commercial premises, nursing homes, health and education) and managed by different companies.
Consider the occupancy rate.
The occupancy rate of a real estate investment trust is a public figure that is good to know when choosing the best SCPIs. This figure, also called the Financial Occupancy Rate (FOR), allows you to evaluate the attractiveness and profitability of the real estate portfolio.
As a general rule, it is recommended to favor SCPIs whose occupancy rate is equal to or greater than 90%. A rate between 95% and 100% means that almost all of the portfolio is rented out and therefore optimized.
Decrypt the percentages.
TOF is not the only percentage parameter you should consider when making your choice. In the language of SCPIs, the retained earnings (RAN) refers to the cash held by the real estate investment trust.
This unused cash is a safety net for investors. It allows for anticipating repairs or the departure of a tenant and ensures greater stability in rent payments.
Retained earnings are therefore an important selection criterion when choosing the best SCPIs. In principle, the older the SCPI, the more it has this type of cash. Give priority to companies with a RAN greater than 5% of the dividend: it is a true guarantee of financial strength!
Another figure to take into account is the provision for major works or PGR. As a real estate portfolio requires significant repairs, renovations, or upgrades over time, the PGR is a reserve of money that the company builds up over time. It allows for facing future work while limiting the impact on returns.
In practice, it is preferable that the PGR be greater than 5% of the dividend or even close to 15% if the SCPI has invested in old buildings.
Be mindful of the fees.
As with other types of financial investments, it is important to take into account the fees associated with this investment.
In order to choose the best SCPIs, you should know that there are two types of fees:
• management fees are used to remunerate the activity of the management company and range from 8% to 12%.
• subscription fees which are similar to notary fees are also in a range between 8% and 12%.
Be very careful about these fees as they can have a considerable impact on the profitability of your investment. Note that the returns displayed by different SCPIs are net of fees!
Note: to amortize these fees, it is recommended to keep your shares of real estate investment companies for at least 8 years.
