The acquisition of real estate in life can become a good financial transaction. By taking a few precautions, it’s a less risky bet than you might think.
[Updated on October 5, 2018 at 5:12 p.m.] In a classic real estate transaction, the buyer pays the total amount of the price of the property at the conclusion of the sale and immediately disposes of the property. With a life annuity purchase, the new owner cannot take possession of the property until the transferor dies or leaves his home. The amount of the sale is divided into two parts: the bouquet paid at the conclusion of the sale in life and the annuity paid until the death of the seller (hence the term life annuity).
“The amount of the bouquet and that of the annuity must correspond to the value of the property and the age of the sellers”, explains Benjamin Mabille, founder of the firm BM Finance specializing in advice on tax and heritage strategy. It remains for the buyer and the seller to agree on the amounts. The counterpart of a very high bouquet is a low rent. The seller has little interest in it. It seems reasonable for him to collect at least 500 euros. And above all, the buyer may be put off by the amount to be paid for the sale. This does not mean that the seller sets an amount that is too low for the bouquet, because suddenly the buyer will run away from the amount of the rent.
The transaction price is set according to a specific method. “It is first of all a question of making an expertise of the free value of the property, that is to say its value at the time of the signature of the contract, explains Hervé Lapous, director of the firm Viager Lapous. A discount is then applied, which can go up to 10% depending on the age of the seller”. The older it is, the lower the discount. Moreover, at the time of the transaction, the buyer does not know the duration during which he will pay the annuity.
However, this uncertainty can be limited for two reasons. On the one hand, “after the age of 92, people no longer stay at home, notes Benjamin Mabille. They are either cared for by a family member or by a medical establishment adapted to the loss of autonomy. Thus housing becomes free and can be rented or resold in certain cases.” On the other hand, respecting a twenty-year age gap between buyer and seller prevents the buyer from falling into an unfavorable longevity case. If the buyer is 30 years old, the seller must be at least 50 years old. If he is 50 years old, the seller must be at least 70 years old… So the life annuity can be a convenient technique for an individual who invests in stone.
In the end, the negotiation should not call into question the advantages that the life annuity brings for both parties. The seller, often a retired person, needs to supplement his income. As for the buyer, he can consider becoming the owner without advancing too large a sum: no more than half the amount of a normal transaction. This allows him not to take out a bank loan, and since the price of the property is discounted, he can even hope to acquire it at a price lower than its real value as long as the duration of the life annuity does not exceed 25 years. and that the monthly payments are equal to or less than those of a bank loan.
Please note, if the seller dies by illness within 20 days of signing the life contract, the heirs can cancel the operation. And beyond this period, it is still possible to proceed with a cancellation by providing proof that the buyer knew the seller was sick at the time of the sale and that the value of the property was unfairly discounted. On the other hand, an accidental death does not call into question the real estate transaction.
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