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Buying life annuity: how does it work?

Buying life: how does it work?

The acquisition of a property for life can become a good financial transaction. Taking a few precautions is a less risky bet than you might think.

[Mis à jour le 5 octobre 2018 à 17h12] In real estate operation classic, the buyer pays the full amount of the price of the goods at the conclusion of the sale and immediately disposes of the goods. With a life annuity purchase, the new owner cannot take possession of the property until the death of the transferor or when he leaves his accommodation. The amount of the sale is divided into two parts: the bouquet paid at the conclusion of the life sale 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 BM Finance, a firm specializing in tax strategy and heritage. 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. It seems reasonable for him to collect at least 500 euros. And above all, the buyer can be cooled in the face of the amount to be paid on sale. However, the seller should not set an amount too low for the bouquet, because suddenly the buyer will flee from the amount of the rent.

A methodical calculation

The transaction price is fixed according to a very precise method. “The first step is to assess the free value of the property, that is to say its value at the time of signing the contract., explains Hervé Lapous, director of Viager Lapous. A next to is then applied, which can be up to 10% depending on the age of the seller“The older he is, the less the discount is important. In addition, 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, “past 92 years, people don’t stay at home anymore, notes Benjamin Mabille. They are either supported by a family member or by a medical establishment adapted to the Autonomy loss. Thus the accommodation becomes free and may be rented or resold in certain cases.“On the other hand, by respecting a twenty-year age difference between the buyer and the seller, this prevents the buyer from falling into an unfavorable longevity case. If the buyer is 30 years old, the seller must at least be 50. If he is 50, the seller must be at least 70 … So the life annuity can be a suitable technique for an individual who invests in stone.

In the end, negotiation should not question the benefits of life for both parties. The seller, often a retired person, needs to supplement income. As for the buyer, he can consider becoming an owner without advancing too much: no more than half the amount of a normal transaction. This allows him not to contract borrowing bank, 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 soon as the duration of the lifetime does not exceed 25 years and the monthly payments are equal to or less than those of a Bank loan.

What can jeopardize the life annuity

Please note, if the seller dies of an illness within 20 days of signing the life contract, the heirs can cancel the operation. And beyond this period, it is still possible to make a cancellation by providing proof that the buyer knew the sick seller 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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