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Real estate: investment in “royalties” explained in 5 questions

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Real estate: investment in “royalties” explained in 5 questions

Will real estate investment in “royalties” one day be an Eldorado for astute savers? The vein, in any case, whets the appetites. Among the companies seeking to emerge in this niche: Parcels, Tokim, Fundr.immo, Ronto, Blockshare, Cazapart, Cazinvest, or even Bricks.co… A final internet platform whose ambassador is none other than the former champion NBA Tony Parker, also himself a shareholder. And the list here is far from exhaustive.

Through this ecosystem, savers finance the purchase of real estate which will then be rented out. With a minimum entry ticket of just a few euros, they get a percentage of the future rent(s) collected, in proportion to their bet. As a bonus, some platforms also promise a percentage of the potential capital gain on the resale of these goods. These different revenues are also sometimes called royalties. On paper, these companies project up to 7% or even more annual profitability to their customers. Stunning returns for real estate investment… which however raise questions.


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Indeed, the Financial Markets Authority (AMF) placed the ecosystem in its sights last December. The stock market policeman first publicly warned savers against the “commercial, sometimes misleading discourse” of the platforms, which is likely to mask several risks. But above all, the institution calls into question the very legal framework in which these companies operate. “Failing to comply with the financial regulations in force, these platforms […] will be likely to be considered as carrying out their activities in an irregular manner”, threatens the AMF outright. To better understand this new type of investment and its risks, here are five simple questions that savers must bear in mind.

What is future revenue sharing?

Future revenue sharing follows a fairly simple logic. A company, via an internet platform, offers various savers the opportunity to invest in a building for rent, in exchange for the promise of receiving a percentage of future rents. “I launched a project to buy a building near Albi. I donate 88% of the rent excluding charges that I receive to my clients. With the remaining 12%, it is up to me to maximize the investment to cover my management fees and my various expenses”, describes Damien Andrieu, co-founder of Tokim and co-president of the Federation of Revenue Sharing Platforms ( F2PR). A federation which currently has eleven member companies, and is now seeking to moralize this nascent ecosystem.


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What is the advantage of investing on these platforms?

The promised returns, mainly. The platforms indeed promise savers returns that would make bankers green with envy: 7%, 9%, 10% depending on the platform… While delegating tenant management and property maintenance! Even if in reality, it is probably necessary to temper these figures. “The initiators of these offers generally put forward financial returns that are too optimistic or even unrealistic”, judges the Autorité des marchés financiers.

“Some players, to carry out their calculations, integrate a potential capital gain on a ten-year resale… And there, we find ourselves faced with a wacky calculation, because past performance does not predict future performance”, also supports his Damien Andrieu side. The founder of Tokim thus explains that his federation considers the communication of certain non-member companies to be misleading. Be wary therefore, and above all do not hesitate to ask questions to the platforms so that they provide all the explanations concerning the calculation of their rent forecasts.


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What are the differences with SCPIs or real estate crowdfunding?

To put it simply: with real estate crowdfunding, an operator (often a promoter) agrees with a “crowd” of savers who will lend him the funds necessary to launch a real estate transaction. Once these funds have been collected, the development project (or the property trader operation) is finalized, fully marketed, and the fruits of the sale allow the operator to proceed with the reimbursement of the interest and the capital collected. This repayment takes an average of twenty months. The sharing of future income, on the other hand, consists of betting on rents (and not on an immediate sale, therefore) which will potentially be paid over longer periods. This arrangement therefore involves other types of risk, such as unpaid rent.

By buying an SCPI share, the saver becomes the owner of a share corresponding to the value of the property purchased. This is not the case with rental revenue sharing. The AMF is very clear on this subject. “The promise of income made to investors is characterized by the attribution of financial rights […]. These financial rights correspond to a debt”, explains the organization. In the event of bankruptcy, therefore, there is no guarantee that the saver cannot be reimbursed for his stake. But the returns promised by rental revenue sharing platforms are also higher. “The disadvantage of the SCPI is the heaviness of subscription, and lower returns. Even if its setting is better marked out,” said Damien Andrieu.


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What are the risks for investors?

Unfortunately, there are many of them, and this is precisely the meaning of the AMF’s warning. First of all, the sharing of rental income is by nature subject to the same risks as traditional real estate investments: insolvency of tenants, rental vacancies, uncertainties about changes in rent, capital loss on resale… But above all, the AMF note of major risks linked to the creditor status of the company owning the property. In the event of default by the company, this may pose a problem of non-reimbursement for the saver who cannot claim title to the property purchased. Last big pitfall: the opacity in the communication of certain companies. The AMF thus observes that “certain platforms do not comply with the regulations in force, the purpose of which is in particular to protect investors through the quality of the information provided.”


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Is this setup really legal?

This is one of the central questions raised by the warnings of the Autorité des marchés financiers. For now, there is still some vagueness about the legal framework for this new type of investment. Without going into too technical details, the AMF now considers the sharing of rental income as a kind of claim whose outlines are defined by the Commercial Code… A code which, in the eyes of F2PR members, is unsuitable to their activity. The federation thus acknowledges exercising, for the moment, in a very uncomfortable “unregulated sector.” Sector that it nevertheless seeks to structure on the basis of its internal regulations published in October 2022, applied to its eleven members. “We are working with regulators to create a framework that will allow this type of investment, which is still very new, to be regulated,” explains Damien Andrieu.

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