REAL ESTATE REVERSION AS AN 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 needs a lot of maintenance, lack of accessibility, and the bank account doesn’t look particularly rosy either: In single-family home-loving Austria, many elderly people find themselves in such a situation.”

As people advance in age, many face the question of how to utilize their property ownership to spend their retirement in comfort and security, fulfill long-held desires, facilitate care, and enhance their quality of life in retirement. In this article, we would like to address some questions regarding living rights, life annuities, and the options for monetizing 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 legal objects on the topic.

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

WHAT DO WE MEAN BY LIFE ANNUITY?

The property-related life annuity is a financial arrangement in which the owner of a property transfers ownership to a buyer in exchange for a lifelong annuity. The amount of the annuity depends on various factors, including the property value, the owner's age, 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 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 generally has no claims 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 regulates how a life annuity transaction should be structured. The conditions can be individually customized 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 where you rent out your house for life while still remaining the owner of the house. In contrast, a life annuity grants you only 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 typically issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT OF LIVING?

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 certain areas and rooms. The legal validity of the right of residence only comes into effect after it has been notarized and registered in the land register.

Important: The right to reside should always be recorded in the first rank of the land register! Only this offers the tenant the highest security to never lose the right to reside.

·       Duration of the right of residence?

The right of residence can vary in its duration – either as a time-limited, 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. Nevertheless, there is the possibility that the right of residence may be surrendered early. Such a surrender can only occur by mutual agreement or at least at the request of the beneficiary.

•       Who bears what costs?

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

WHY INVEST IN A PROPERTY WITH LIVING RIGHTS?

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

        Diversification of the Portfolio: Investors can diversify their portfolio by investing in properties with residential rights to create different income sources 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 increase in value: Just like for buyers, investors also have the opportunity to benefit from the increase in value of the property.

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

Take a look at our current properties with residential rights!