The 7 major drawbacks of an SCI for real estate investment

In an SCI, partners are liable for the company's debts indefinitely and in proportion to their ownership share. If the SCI can no longer repay a loan, the bank can go after you personally, targeting your own assets. This liability is not limited to your initial contribution as in an LLC: it can extend to all of your personal property.

This risk is often downplayed at the time of creation, when everything is going well. But in the event of prolonged vacancy, unexpected repairs or disagreements between partners, reality catches up quickly. If your partner cannot pay their share, you will have to cover the entire debt up to your ownership percentage.

Creating an SCI means creating a company. This involves articles of association, registration at the commercial court, a dedicated bank account and a publication in a legal gazette. But the paperwork does not stop at creation: every year, you must hold a general meeting, draft minutes and approve the accounts.

If your SCI is subject to corporate tax (IS), full double-entry bookkeeping is mandatory, including a balance sheet and income statement. Hiring an accountant costs between €1,000 and €2,500 per year. For an income tax SCI (IR), the bookkeeping is lighter but the tax filings remain demanding.

Every change (transfer of shares, amendment of articles, change of manager) requires going back through the court registry and legal publication. These costs add up quickly and many investors forget to budget for them.

Financing a property through an SCI is harder than buying in your own name. Banks treat the SCI as a separate legal entity and apply stricter analysis criteria. The interest rates offered are sometimes slightly higher, and the guarantees required are more substantial.

In practice, most banks require that the partners provide personal guarantees for the loan. You end up with the responsibility of a personal loan, but without the simplicity of buying directly. Some banks even refuse to finance family SCIs or require a higher minimum down payment.

This financing hurdle can limit your investment capacity, especially if you plan to scale up. Each SCI loan eats into your personal borrowing capacity, without the advantages of a direct purchase.

This is probably the most underestimated drawback of a corporate tax SCI. When you resell a property held by an SCI subject to corporate tax, the capital gain is calculated on the net book value, meaning the purchase price minus all depreciation taken.

Here is a concrete example. You buy a property for €200,000 in a corporate tax SCI. After 20 years, you have depreciated €120,000 on the building. You sell the property for €250,000. Your taxable capital gain is not €50,000, but €170,000 (€250,000 minus €80,000 net book value). At the corporate tax rate of 25%, this amounts to €42,500 in tax.

In comparison, owning directly or through an income tax SCI, you would have benefited from duration-based allowances. After 22 years, you would be completely exempt from capital gains tax. This tax trap makes the corporate tax SCI unsuitable if you ever plan to resell.

Investing through an SCI means investing with others. And when interests diverge, problems begin. One partner wants to sell, the other wants to keep. One wants to renovate, the other refuses to put in more money. Deadlock situations are common, especially in family SCIs.

The articles of association provide majority rules for decisions, but in case of deep conflict, only a court can decide. Legal proceedings between SCI partners are lengthy, expensive and destructive to personal relationships. Meanwhile, the property is frozen: impossible to sell, renovate or refinance.

Even in SCIs between spouses or between parents and children, situations change. A divorce, an inheritance, a management disagreement: these events turn a shared project into a source of permanent tension.

When you want to exit an SCI, it is never simple. Selling your shares requires the other partners' approval (unless the articles state otherwise) and involves heavy formalities: transfer deed, tax registration, amendment of articles and legal publication.

If you want to dissolve the SCI entirely, the process is even more complex. It requires a unanimous decision or as per the articles, appointing a liquidator, selling the assets or distributing them to partners, settling debts, publishing the dissolution and deregistering the company. This typically takes 6 to 12 months and costs €2,000 to €5,000.

By comparison, selling a property owned directly takes just a few weeks at the notary, with no dissolution procedure. This exit rigidity is a real obstacle to asset flexibility.