REAL ESTATE ANNUITIZATION AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

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

As people age, many face the question of how to utilize their property ownership to enjoy a comfortable and secure retirement, fulfill long-held wishes, facilitate care, and enhance their quality of life in retirement. In this article, we would like to address several questions regarding living rights, life annuities, and the options for capitalizing on home ownership.

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

Elijah Euler-Rolle, our expert in housing rights objects on the subject.

While these models have not yet gained much ground in Austria, real estate reverse mortgages are already widespread in France (Film Tip: My Old Lady) and Germany. In the United Kingdom and the USA, terms like "sell and stay" or "eat your brick" are now indispensable in the real estate market.

WHAT IS UNDERSTOOD BY LIFE ANNUITY?

The real estate-related life annuity is a financial arrangement in which 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 property's value, the owner's age, and current interest rates. The annuity is typically 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 for the former owner is also agreed upon. This model is particularly suitable for older property owners who need capital, wish to live in their property, but are willing to sell it to gain financial security and flexibility in old age.

The seller usually has no rights to live 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 conditions can be individually tailored and depend on the preferences of the contracting parties.

WHAT IS THE DIFFERENCE TO A 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. The repayment of mortgages can be made in installments or as a lump sum, while life annuities are usually issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT TO HOUSING?

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 design of this legal relationship is established through an agreement between the parties involved. Accordingly, the right of residence can 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 registered 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-term, temporary right of residence or as a lifetime right of residence. In the case of a lifetime 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 lifetime right of residence are allowed to live in the property even when ownership 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 a relinquishment can only occur by mutual agreement or at the request of the beneficiary.

Who bears which costs?

The cost distribution is negotiable and depends on individual agreements. In the absence of a specific arrangement, the rights holder must bear the maintenance costs, 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 RESIDENTIAL RIGHTS?

- Long-term investment: Properties with a right of residence offer a long-term and stable investment opportunity, as the income is secured over time. This presents an interesting investment option, especially for young investors.

Diversification of the portfolio: Investors can diversify their portfolio by investing in properties with residential rights to create various sources of income and spread their risk.

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

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

We at AKKADIA are happy to assist you with our expertise and knowledge and are glad to advise you on the topic of real estate annuity as an opportunity and investment option.

Check out our current properties with usufruct rights!