REAL ESTATE ANNUITY AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl sums it up: “Sometimes a big 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 account doesn’t look particularly rosy either: In Austria, where single-family homes are adored, many elderly people find themselves in such a situation.”

As people age, many face the question of how they can utilize their real estate ownership to spend their retirement in comfort and security, fulfill long-held wishes, facilitate care, and enhance their quality of life in retirement. In this article, we would like to address some questions concerning the right of residence, life annuities, and the possibilities for capitalizing on 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 subject.

While these models have not yet gained much traction in Austria, real estate reverse mortgages are 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 indispensable in 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 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 well-suited 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 does not have any rights to residential occupancy in the property.

A life annuity contract is therefore a sustainable alternative to the traditional sale of a house, apartment, farm, or commercial property. In Austria, there is no legal requirement that regulates what a life annuity transaction must look like. 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 where you rent your house for life while still remaining the owner of the house. In contrast, a life annuity merely grants you the right to live in the property for life without you remaining the owner of the house. Repayment of mortgages can be done in installments or as a lump sum, whereas life annuities are typically issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT TO RESIDE?

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 determined by an agreement between the parties involved. The right of residence may therefore extend to the entire property or may only be limited to specific areas and rooms. The legal validity 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 in the first rank of the land register! Only this offers the right of residence holder the highest security of never losing the right of residence.

·       Duration of the right of residence?

The residential right can vary in duration – either as a limited-term or 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 may continue to live in the property even if the owner changes.

A lifetime right of residence remains in force 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 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 RIGHT OF USE?

        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.

-         Portfolio diversification: Investors can diversify their portfolio by investing in real estate with residential rights to create different sources of income 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 Value Increase: Just as for buyers, investors also have the opportunity to benefit from the value increase of the property.

We at AKKADIA are pleased to offer our expertise and know-how to you and are happy to advise you on the topic of real estate reverse annuity as an opportunity and investment option.

Check out our current properties with residential rights!