In her article in the Standard, Bernadette Redl hits the nail on the head: “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 also doesn’t look particularly rosy: In single-family home-loving Austria, many elderly people find themselves in such a situation.”
As people age, many face the question of how to utilize their property to enjoy their later years in comfort and security or to fulfill long-held wishes, ease care, and enhance their quality of life in retirement. In this article, we would like to address some questions surrounding residential rights, 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 property law on the topic.
While these models have not yet gained much traction in Austria, real estate rent-to-buy 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.
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 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 sum 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 to gain financial security and flexibility in old age.
The seller typically 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 dictates what a life annuity transaction should look like. The terms can be customized individually and depend on the preferences of the contracting parties.
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 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. Mortgage repayments 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.
The right of residence is a personal servitude and is part of property law. It allows 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. The right of residence can therefore extend to the entire property or be limited to specific areas and rooms. The legal binding nature of the right of residence comes into effect only after it has been notarized and recorded in the land register.
Important: The right of residence should always be registered as the first rank in the land register! Only this offers the tenant of the right of residence the highest security of never losing the right of residence.
· Duration of the right of residence?
The right to reside can vary in duration – either as a limited-term right to reside or as a lifelong right to reside. In the case of a lifelong right to reside, 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 to reside are allowed to continue living in the property even if the ownership 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 is relinquished early. Such relinquishment can only occur through 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 rights holder 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.
Long-term Investment: Real estate with residential rights offers 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 show 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 at AKKADIA are happy to offer you our expertise and know-how and to advise you on the topic of real estate annuitization as an opportunity and investment option.
Check out our current properties with right of residence!