Those who live in their own property in old age can usually consider themselves lucky. In many cases, however, owning your own home also becomes a burden. Depending on its condition, it consumes costs for maintenance and renovation, the pension is reduced and the belt is tightened. If one’s own financial assets are not adequately secured, this can lead to bottlenecks and sacrifices in the quality of life have to be accepted. Or long cherished wishes such as a trip around the world are pushed back further and further until they have become unrealistic. In many cases, a real estate pension can be the solution. Preferred models of a real estate annuity are the partial sale as well as the sale with right of use. What are the advantages and disadvantages of real estate annuities, as well as what types of real estate annuities there are, we explain in the article.
Table of contents
- Advantages and disadvantages of real estate annuity: What exactly does real estate annuity mean?
- Different forms of real estate annuity
- What are the advantages and disadvantages of the real estate annuity?
Advantages and disadvantages of real estate annuity: What exactly does real estate annuity mean?
Real estate annuity models become interesting for homeowners from the age of about 65. A real estate annuity opens up the possibility for seniors and retirees to cash in on their condominium or house during their lifetime without losing the right to live there and use it. The equivalent value is converted into a lifetime annuity or a lump-sum payment.
Different forms of real estate annuity
The basis of most models of real estate annuity is the so-called reverse mortgage. In contrast to the conventional mortgage, the debt burden increases with the duration of the contract. After death, the property then passes completely into the possession of the creditor.
Care must be taken to ensure that all agreements are entered in the first place in the land registry so that no irritations can arise over the years. The real estate annuity is offered by the providers in different models:
The partial sale of real estate
A popular option is the partial sale. In this case, only as much of the property is sold as the pensioners concerned are expected to need for their retirement, up to a maximum of 50%. The seller receives a one-time payment. In return, a monthly fee is payable to the buyer.
The seller continues to determine the use and design of the property. This model has two advantages. The seller continues to participate in the booming real estate market. In addition, the buyer usually comes from the real estate industry. If the house is sold, he or she helps the seller or his or her heirs to achieve a good price.
With a life annuity, the property changes hands immediately. Instead of the sale price, the seller receives the lifelong right of residence and monthly annuity payments until the end of life.
All obligations and costs are transferred to the buyer. This includes possible expenses for maintenance and renovation.
The time annuity
In this case, the monthly payments to improve the annuity are limited in time. After expiration, the seller pays the buyer a rent, if this can be arranged.
However, a time annuity also means that after the contract expires, the buyer can freely dispose of the property. In the worst case, the seller must move out if the buyer wants to use the house himself.
The sale with right of use
In this case, the house is sold in the normal way. The payment is usually made by a lump sum. The seller is allowed to remain in the property until his death and is responsible for the costs of maintenance during this time.
The sale with subsequent lease
The seller receives the purchase price and a subsequent lease for the same property. Thus, the original owners remain living in the old place, but no longer call the property their property.
What are the advantages and disadvantages of the real estate annuity?
For seniors, the real estate annuity can be a charming solution. The persons concerned remain in the familiar environment. The lifelong right of residence is secured with the entry at the land registry. The statutory pension is topped up. Everyday life can be financed more comfortably, long cherished wishes can be realized.
However, the various models also have a disadvantage. Since the buyer does not know when the real estate becomes free and he can use it only at a later time, he sees his net yield reduced. This means that the sales price is usually much lower than the market value of the property. This makes the real estate annuity less interesting for retirees with heirs, but it can remain an option depending on the situation. Before taking out a real estate annuity, it is advisable to obtain comprehensive advice that examines the advantages and disadvantages of the individual case.