PROPERTY REVERSE MORTGAGE 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 requires a lot of maintenance, lack of accessibility, and the bank account doesn’t look particularly rosy either: In single-family-home-loving Austria, many people find themselves in such a situation in old age.”

As people age, many face the question of how to utilize their property to spend their later years in comfort and security, fulfill long-held wishes, ease care needs, and enhance their quality of life in retirement. In this article, we would like to address some questions regarding residential rights, life annuities, and the options for monetizing one’s own 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 subject.

While these models have not yet gained much ground in Austria, real estate retirement has already become 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 an integral part of the real estate market.

WHAT IS MEANT BY LIFE ANNUITY?

The real estate-related annuity is a financial arrangement in which the owner of a property transfers ownership to a buyer and, in return, receives a lifetime 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 sum 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 claims to the right of residence in the property.

A life annuity contract is thus 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 terms can be shaped individually 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 only grants you the right to live in the property for life, without you remaining the owner of the house. 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 TO LIVE?

The right of residence is a personal servitude and is part of property law. It grants the beneficiary the right 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 may therefore extend to the entire property or be limited to specific areas and rooms. The legal enforceability 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 holder of the right of residence the highest security of never losing the right of residence.

·       Duration of the right of residence?

The residential right can be variable in its duration - either as a time-limited, temporary residential right or as a lifelong residential right. In the case of a lifelong residential right, 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 residential right are allowed to continue living in the property even if the owner changes.

A  lifelong 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 relinquished early. Such a relinquishment can only occur by mutual agreement or at least 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 resident has to bear the costs for maintenance, including utility costs such as heating, electricity, water, gas, and garbage collection, 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 LIVING?

        Long-term investment: Properties with a right of residence offer a long-term and stable investment opportunity, as the income is secured over time. Especially 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 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 increase in value: Just as for buyers, investors also have the opportunity to benefit from the increase in value of the property.

We from AKKADIA are happy to offer you our expertise and know-how and to advise you on the topic of reverse mortgage as an opportunity and investment possibility.

Check out our current properties with residential rights!