Life annuity investment is on the rise! In recent years, many future buyers have been interested in purchasing real estate on an annuity basis, but is it a good deal?
The purchase of real estate with a life annuity interest is of increasing interest to the general public. For Sophie Richard, founder of Viagimmo, this is a promising market: “pension reform, inflation, the difficulty of accessing property, energy-strain rentals and even the non-recourse to borrowing make life annuity investment a growing market.” But, if most interested people know the broad outlines of the concept, the advantages of purchasing a life annuity often remain unknown, as do the risks. “Unlike a traditional sale, payment will be made in installments over the life of the seller”, reminds us of the founder of Viagimmo. Note that there are two types of life annuity:
- The occupied life annuity (80% of transactions): Here, the seller lives at home and the buyer buys a discounted property. It’s like real estate savings, the buyer buys a home which he will not have use of straight away.
- Free life annuity (20% of transactions) : Here, the seller leaves his home to go to a retirement home or simply because he no longer wishes to live there. The buyer will thus be able to immediately occupy the accommodation or rent it out.
LThe main advantage for the buyer is the avoidance of borrowing: “Banks often look for a typical profile among borrowers, many drastic conditions are put in place, which is why one in two loans is refused today. With life annuity purchase, you avoid all of this.”
In addition, the financial expense is less significant when purchasing a life annuity purchase than during a traditional purchase. The founder of Viagimmo explains: “if you buy an occupied life annuity from a 74-year-old woman, whose value of the property is estimated at 300,000 euros, the occupancy discount will be 50%, so the purchase will be made on an occupied value basis of 150 000 euros. Thus, if you pay a bouquet of 50,000 euros, i.e. the amount paid to the notary, the life annuity will be 553 euros per month for the entire life of the seller. SAt these same prices, for a classic purchase, the monthly loan payment would have been 1,791 euros with current rates, or three times more. As part of a free life annuity, you also avoid the substantial costs linked to the loan: “the life annuity would be 1,381 euros per month, for this specific case, instead of 1,791 euros per month in the case of a bank loan”, specifies Sophie Richard.
Furthermore, if this 74-year-old woman dies after 5 years and we take into account the revision of the life annuity as well as the average revaluation of the housing each year, the life annuity will have cost you a total of 85,020 euros, in other words, you will have made a capital gain of 222,480 euros and if she dies after 20 years, the life annuity will have cost you 186,762 euros, or a capital gain of 148,238 euros.
But purchasing a life annuity is not without risks: “The risk is the longevity of the seller in the hypothesis of a free life annuity”, warns the specialist. “If the 74-year-old woman exceeds her statistical life expectancy of 17 years, you will pay beyond that.” Moreover, Sophie Richard recommends evaluating future work: “these must be listed in the contract and it must be mentioned who will take care of them”. Finally, be sure to check the substantial clauses in the contract: “remember to plan for the seller’s early departure, possible recourse and under what conditions”she adds. “Whatever happens, it is necessary to contact an advisor”.