Life annuity in vacant property, life annuity occupied or free… What to choose?

Are you planning to buy or sell a property with a lifetime annuity? Before you begin, did you take the time to explore the various options available to you? To help you with your project, we interviewed Philippe Buens, Managing Director of Capifrance, France’s leading network of independent real estate consultants. These answers will allow you to see more clearly and act according to your needs and your personal situation.

Philip Buyens. Life annuity is a solution that allows the seller to to live better or more peacefully:

Living with real estate is ethical and responsible. This is another way to invest and buy, with favorable conditions for buyers and benefiting others. A real win-win solution.

At Capifrance, lifetime annuity consultants are specially trained to fully understand the needs and best support the seller’s project. They are committed to finding the most suitable solution at every stage of the project and to offer a personalized study.

In the context of a life annuity, since the debtor (buyer) does not immediately use his property, he benefits from real estate price discount. This is proportional to the age of the seller. The younger he is, the higher the discount, because his life expectancy is statistically greater.

Life annuity with occupied, free, bare property: what makes them different

Planet. What are the differences between these three annuities?

Philip Buyens.Purchasing an occupied life annuity, the seller retains the right to use and reside in the property until death. Thus, the buyer becomes the naked owner. That is, he will be able to use the property only after the death of the seller or in case of waiver of the right to use and reside. When a life annuity contract is signed, the contract between the two parties provides for the distribution of costs, which are usually shared between the seller and the buyer.

Purchasing a lifetime annuity, the buyer disposes of the property immediately after signing the contract of sale. He has a choice: live in it, rent it out or resell it. Since the buyer becomes the new owner of the property, he thereby assumes all costs, including property tax and labor costs. The seller has nothing more to pay. The main advantage of this lifetime annuity is that the buyer has the full right to use the property and does not need a bank loan, hence no interest or commissions. This type of sale is still quite rare on the market.

In a free or busy life annuity salethe buyer must pay the seller at the time of signing, a fixed amount, called a “bouquet”. Then he pays monthly, quarterly or annual life annuity. The frequency of this annuity, as well as its size, are determined when drawing up the contract.

The bouquet usually represents 20 to 30% of the net worth of the property. But this is optional . Only if the buyer makes this contribution is it deducted from the amount of the property when calculating the annuity.

This calculation is carried out by a real estate agent and under the auspices of a notary. It is based not only on the seller’s life expectancy, but also on mortality tables established by INSEE. Other criteria are taken into account, such as the value of the property and the type of annuity. At the time of signing the deed of sale at the notary, the seller will receive a substantial amount, which corresponds to the borrowed value of the property and is not taxed.

As usufructuary, the seller will continue to use his property. He may well live there or rent it out. The seller retains the usufruct for life, the latter terminates only after his death. As part of a nursing home move or move, the seller may rent the property. Thus, he becomes a landlord and receives monthly payments from the tenant. Unlike a life annuity, the usufructuary (seller) is responsible for all fees and taxes except for major repairs. The buyer also finds his account here: he pays an amount corresponding to the borrowed value of the property. This amount is therefore below the market value of the wholly owned property. On the other hand, the buyer does not pay any annuities and is only liable until the seller’s death for major repairs as defined in articles 605 and 606 of the Civil Code.

This type of sale allows for a very attractive profit because when the buyer becomes the full owner of the property after the death of the seller, the real estate market will also develop and therefore the value of the property will increase.

Life annuity: what forms to choose?

Planet. When should you opt for one or the other?

Philip Buyens. In the event that the seller wishes to remain in his property until his death and receive capital and then an annuity, the best solution is an occupied annuity. Moreover, in case of early departure from the seller, Annual income typically increases by 35%. That is, if the seller leaves his home to go to a nursing home, he therefore waives his right of use and residence, so he will receive his original +35% pension. This is the most common type of life.

It is useful for the buyer to purchase a lifetime annuity if he wants to receive a discount of about 30% on the real price of the property, which corresponds to the unpaid rent. Therefore, this is a good way to become the owner of the desired property when he initially does not have the necessary funds. It is suitable for buyers who want to invest at an attractive price, without a loan and who initially do not want to live in a hostel. Obviously, this solution is also more interesting than a classic mortgage-financed purchase, since the buyer does not see himself as applying the interest rate.

Furthermore, the purchase of an asset that is freely available is of particular interest to the buyer (debtor): the property is free from any activity, the buyer benefits from the full enjoyment of the newly acquired property. Therefore, he can live in it or rent it. Renting the property allows him to recoup the rent paid. Buying a free annuity remains interesting for a buyer who wants to make a rental or personal investment and does not initially have the necessary funds. He will therefore pay the capital both for the annuity occupied for life and for the annuity until the seller’s death.

Finally, buying real estate in bare property allows you to create a legacy at a lower cost, forecasting retirement income, optimizing taxation, or preparing for a transfer. This type of investment is of interest to buyers who wish to buy at an attractive price, no fees, full ownership for free and no tax on exit, exempt their property income from tax, reduce their FFI base, or transfer at a lower value. tax.

Planet: How long does a buyer have to wait to become the full owner of a lifetime property?

Philip Buyens. Under a lifetime annuity, the buyer becomes the full owner after the death of the seller.

As part of a lifetime annuity, the buyer becomes the full owner after signing the deed at the notary.

In the context of the sale of bare property, the buyer becomes full owner upon the death of the usufructuary and therefore the seller.

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