What if you bought your ski apartment as a bare ownership property?

Against a backdrop of declining purchasing power and persistently high real estate prices, bare ownership is emerging as an attractive alternative for investing in mountain properties. Monetivia, a company specializing in real estate engineering, explains.

The COVID-19 crisis has reignited the French people’s dream of owning a second home. In addition to the charm of a vacation getaway, a second home offers them the opportunity to build real estate wealth, particularly with an eye toward retirement. In this regard, focusing on vacation destinations such as the mountains—which remain a dynamic market—allows buyers to benefit from an environment where land is scarce but also offers attractive rental potential. 

Against a backdrop of declining purchasing power and persistently high real estate prices, bare ownership is emerging as an attractive alternative for investing in mountain properties.

Buy a vacation home in the mountains at a discount

While the French people suffered in 2023 from the effects of inflation and sharply rising interest rates—which led to a decline in their purchasing power and ability to save—purchasing bare ownership of a property has proven to be a smart way to continue investing in real estate with less capital required.

In fact, with a view to building long-term real estate assets, planning for a second home through a bare ownership investment allows you to benefit from a discount ranging from 25% to 50%, which corresponds to the term of usufruct during which the seller retains the right to use the property—typically between 10 and 20 years. From an economic standpoint, this discount corresponds to the total amount of rent the investor forgoes during the entire period that the seller continues to occupy the property.

A young professional between the ages of 35 and 45 will thus be able to purchase an apartment in a ski resort with a smaller budget, which can make financing the purchase easier, with the prospect of enjoying it upon retirement. For example, instead of spending €1,000,000 on an 80-square-meter apartment in a renowned resort such as Serre-Chevalier, Courchevel, or Megève, an investor could consider purchasing the same property for €600,000 in exchange for the seller retaining a 15-year right of use. This represents a price per square meter that is 40% lower.

A long-term investment that requires no management and offers attractive tax benefits

By investing in bare ownership, the buyer of a mountain apartment avoids the pitfalls of traditional rental investments—such as rent controls or unpaid rent—but, above all, is exempt from any rental management responsibilities (receipts, move-out inspections, repairs, claims handling, etc.), which can be time-consuming or costly if handled through an agency.

In terms of expenses and costs, since the seller—who has become the usufructuary—is responsible for the property’s maintenance (except for major repairs as defined in Articles 605 and 606 of the Civil Code) and the various taxes associated with the property (including property tax and housing tax), the investor is thus relieved of the costs associated with owning the property in full.

The icing on the cake is that, thanks to temporary division of ownership, the investor enjoys tax neutrality for his future second home in the mountains: since he does not receive rental income, he is exempt from property income tax; furthermore, should the property be sold at a later date, the tax authorities will use the property’s value as full owner at the time of the investment—rather than the actual purchase price including the discount—as the cost basis for calculating capital gains. The automatic capital gain realized during the years of the split ownership arrangement is, in fact, not considered taxable.

An investment with multiple exit opportunities

Investing in bare ownership allows for several possible scenarios once full ownership is restored—that is, at the end of the usufruct period. In fact, at the end of the usufruct period agreed upon with the seller at the time of purchase, the investor will then be able to fully enjoy their second home in the mountains, both in summer and winter.

He will then have a choice of several strategies depending on his financial needs or life plans:

   Turn this second home into your primary residence to enjoy retirement in a pleasant living environment—especially if the property is located in a resort with extensive amenities or in a valley near major cities that offer all the services seniors need
Rent out the property as a vacation rental or under the LMNP program for long-term rentals to generate additional income. In this case, property income taxes will need to be taken into account, as the investor will be following a traditional rental strategy.
Resell the property for a potential capital gain while benefiting from favorable tax treatment on that gain.

It should be noted that any investment in bare ownership inherently benefits from a strong “natural” leverage effect, which can boost the investment’s profitability if applicable. Indeed, while the investor initially pays only a fraction of the property’s value, he or she will nevertheless fully benefit in the long run from any future increase in its value. For example, consider a property whose value increases by 20% during the term of the usufruct. If the investor initially pays 50% less than the property’s value, the final gain amounts to 40% of the amount invested. This significant gain adds to the initial discount and boosts the investment’s profitability.

The Mountain: A Market That Remains as Attractive as Ever for Ensuring Long-Term Profitability

In 2023, the mountain real estate market managed to maintain its upward momentum despite the sector’s challenges, with prices per square meter continuing to rise—contrary to the national trend in recent months—particularly in resorts that also offer amenities for the summer season. Investing in mountain real estate therefore remains a safe bet and a great opportunity to purchase a second home.

But the surge in prices may complicate investors' plans in these regions, particularly in the Northern Alps, where the average price per square meter was €7,003 in February 2024 and prices have risen by 20% over the past three years.

Opting for fractional ownership to purchase an apartment or cabin in the mountains can allow them to realize their long-term dream of owning a second home, even on a smaller budget.