REAL ESTATE ANNUITY AS OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl puts it succinctly: “Sometimes a large house is more of a curse than a blessing. (…) Many empty rooms, a large garden that requires a lot of maintenance, lack of accessibility, and the bank account doesn’t look particularly bright either: In single-family home-loving Austria, many older people find themselves in such a situation.”

As people age, many face the question of how to use their real estate ownership to enjoy their later years in comfort and security, fulfill long-held wishes, ease caregiving, and enhance their quality of life in retirement. In this article, we would like to address some questions surrounding residential rights, life annuities, and the possibilities of utilizing one's home.

The choice of the best model depends on individual preferences, age, and the associated payments.

Elijah Euler-Rolle, our expert on residential property law on the topic.

While these models have not yet gained much traction in Austria, real estate leasing is already widespread in France (Film tip: My Old Lady) and Germany. In Great Britain and the USA, terms like "sell and stay" or "eat your brick" are now essential in the real estate market.

WHAT IS MEANT BY ANNUITY?

The real estate-related annuity is a financial arrangement where the owner of a property transfers ownership to a buyer and, in return, receives a lifelong annuity. The amount of the annuity depends on various factors, including the value of the property, the age of the owner, and current interest rates. The annuity is usually paid in monthly installments and is guaranteed for life, regardless of whether the originally agreed amount has been reached. Often, a lifelong right of residence is also agreed upon for the former owner. This model is particularly suitable for older property owners who need capital, wish to live in their property but are willing to sell it in order to gain financial security and flexibility in old age.

The seller usually has no rights to the right of residence in the property.

A life annuity contract is therefore a sustainable alternative to the classic sale of a house, apartment, farm, or commercial property. In Austria, there is no legal requirement that dictates how a life annuity transaction should look. The terms can be individually designed and depend on the preferences of the contracting parties.

WHAT IS THE DIFFERENCE TO THE REVERSE MORTGAGE?

The essential difference between a reverse mortgage and a life annuity lies in the source of your monthly payments. A reverse mortgage is a loan agreement in which you rent out your house for life while still remaining the owner of the house. In contrast, a life annuity only grants you the right to live in the property for life without you remaining the owner of the house. Repayment of mortgages can occur in installments or as a lump sum, while life annuities are typically issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT TO LIVE?

The right of residence is a personal servitude and is part of property law. It entitles the beneficiary to use a property that does not belong to them. The specific arrangement of this legal relationship is established through an agreement between the parties involved. The right of residence can therefore extend to the entire property or be limited to specific areas and rooms. The legal validity of the right of residence only comes into effect after it has been notarized and recorded in the land register.

Important: The right of residence should always be entered in the first rank of the land register! Only this provides the right of residence holder with the highest security of never losing the right of residence.

·       Duration of the right of residence?

The right of residence can vary in duration - either as a limited time, temporary right of residence or as a lifelong right of residence. In the case of a lifelong right of residence, the beneficiary has the right to use the property for the rest of their life, even after a change of ownership. This means that residents with a lifelong right of residence are allowed to continue living in the property even if the owner changes.

A lifetime right of residence  remains in effect until the death of the beneficiary and cannot be inherited. However, there is the possibility that the right of residence may be relinquished early. Such relinquishment can only occur through mutual agreement or at the request of the beneficiary.

Who bears which costs?

The distribution of costs is negotiable and depends on individual agreements. In the absence of a specific arrangement, the holder of the residential rights must bear the costs for maintenance, including ancillary costs such as heating, electricity, water, gas, and waste disposal, as well as minor repairs. Major repairs or renovation work are the responsibility of the owner.

WHY INVEST IN A PROPERTY WITH A RIGHT OF RESIDENCE?

        Long-term investment: Real estate with residential rights offers a long-term and stable investment opportunity, as the income is secured over time. This is especially an interesting investment option for young investors.

-         Portfolio Diversification: Investors can diversify their portfolio by investing in real estate with residential rights to create various income sources and spread their risk.

        Social Responsibility: Investors can grant housing rights to elderly people or needy families and demonstrate social responsibility while still benefiting from the property.

        Potential for value increase: Just like for buyers, investors also have the opportunity to benefit from the appreciation of the property.

We at AKKADIA are happy to provide you with our expertise and know-how and are pleased to advise you on the topic of reverse mortgage as an opportunity and investment option.

Check out our current properties with residential rights!