Sale with a life annuity: a method worth studying
Sale of a property with a life annuity may prove to be an interesting option seniors who only have real estate in their wealth portfolio. It’s an opportunity to generate income with few restrictions.
A source of income
With the Global Financial Crisis, shrinking pension funds, and longer lifespans the sale of a property with a life annuity has once again found favour with the elderly. What’s more, this option is not only available to single people without descendants. The reason? It offers a number of advantages to people in need of cash who only have property in their portfolio (with limited liquidity). It’s a way of “putting to work” their principal (secondary) residence without having to turn to their relatives for financial assistance.
Thanks to this arrangement, certain seniors have income at their disposal to maintain, even improve, their lifestyle, renovate their property, or even finance home help. In the long term, it’s also a means of self-financing their eventual need for full-time care. iI is even possible to have the notary draft a provision for an increase in rent from the initially agreed sum in the event that they vacate the property and move into a retirement home.
Thanks to the annuity, the seller (the creditor) may continue to live in their apartment even after the agreement. On signing before the notary, they receive a “bouquet” (a significant sum). After which, they receive a quarterly annuity until their death.
These two amounts and calculated by reference to the seller’s age, their life expectancy, and the “unoccupied” value of the property.
It is generally more interesting for a seller to cash in a high value “bouquet” in order to immediately benefit from a significant influx of funds. On the other hand, the flipside of an elevated “bouquet” is a lower rent.
Note: as an irreversible transaction, such a sale constitutes the definitive transfer of the property. There is no way that the heirs may recover it on the death of their parent.
Sale by way of life annuity represents 1% of property transactions in France.