Sell apartment against annuity

Many seniors face a financial dilemma. In some cases, neither savings nor pensions are sufficient to cover ongoing living expenses. In other cases, health problems can cause care costs to rise. The only way out: selling their own home.

But for many older people, their home is more than just a roof over their heads. It is their home, where they have lived for decades and which is familiar to them. Selling their apartment can mean being torn from their familiar surroundings and having to move into an unfamiliar environment.

In such cases, selling for an annuity can be an attractive option. By selling your home for an annuity, you can continue to live in your home and supplement your monthly pension payments.

How the real estate pension works

The life annuity is an agreement between the seller and the buyer in which the seller transfers ownership of his property to the buyer in return for a lifelong annuity. The amount of the annuity is determined when the contract is signed and depends on various factors, such as the value of the property, the age and life expectancy of the seller, and current interest rates.

In return for the annuity, the seller retains the right to live in the property for life. This means that he can continue to live in and use the property. This allows you to continue to stay in your familiar surroundings and still provide yourself with financial security.

The life annuity in summary:

• Apartment is sold to annuity provider
• Monthly annuity payment instead of purchase price payment
• Registration of a lifelong right of residence

Requirements: Age & property value

In order to receive an annuity, certain requirements must be met. To ensure a calculable financial risk for providers, many set a minimum age for sellers. This is usually between 60 and 65 years. In addition, unencumbered real estate is usually preferred and the minimum value of the property is also usually fixed, as it guarantees a minimum real estate annuity. Here, one can be guided by the individually set value of the provider. As a rule, providers demand a minimum pension of 150 to 250 euros per month.

The requirements at a glance:

• Minimum age of the seller: 60 years and over
• Minimum payout: from 150 euros per month
• Property free from encumbrances

Taxes: Income tax on income share

In the case of the real estate life annuity, only the income share is taxed, as annuity payments are classified as “other income” under the Income Tax Act. The share of income is influenced by various factors, in particular by age at the time the contract is concluded, and can be deducted from tax as a special expense. The taxation share decreases continuously with increasing age at the time the contract is concluded. This means that older persons generally have to pay less tax than younger persons.

Life annuity or traditional apartment sale?

In addition to the annuity, you can also opt for a traditional sale of your home. The advantages of a complete sale: You receive the agreed purchase price paid out in one go. The sale price is usually higher than with a life annuity, but you lose all ownership rights to your home.

As mentioned above, the life annuity allows you to continue living at home while freeing up your real estate assets. In addition, you save the cost of moving and do not have to buy a new apartment or pay rent.

Here are the advantages at a glance:

• Life annuity: no need to move out & release of real estate capital.
• Traditional sale: payment of the full purchase price

Conclusion: Secured into old age

Overall, the sale of an apartment for a life annuity offers older people an attractive alternative to the traditional sale of an apartment. The life annuity makes it possible to convert the sale proceeds into a monthly pension that is paid out until the end of one’s life, thus guaranteeing a regular income in old age. At the same time, one must be aware that by selling the property, all ownership rights are transferred to the buyer. For this reason, it is important to take enough time in advance to weigh up the respective advantages and disadvantages and to make the best decision for yourself.

The right of residence declared

When it comes to real estate as a retirement plan, you may have heard of the concept of a right of abode. A right of residence entitles a beneficiary to use a property even if it belongs to someone else. Residential rights can be agreed either for a limited or unlimited period of time and can be either for a consideration or free of charge.

The right of residence defines:

• Use of a property allowed
• Lifetime vs. limited
• Paid vs. free of charge

Things get particularly interesting when it comes to a lifelong right of residence. A life-long right of residence allows the beneficiary to occupy the property for the rest of his or her life, even if the property is sold or inherited. This type of living right is often used as collateral for elderly people or family members to secure a permanent home for them.

For whom is the right of residence worthwhile?

In principle, a life-long right of residence can be granted to various people, depending on individual circumstances and needs. Typically, however, a life-long right of residence is granted to elderly people or family members who wish to live in the owner’s property but are unable to purchase their own property.

Elderly people can obtain a life-long right of residence to ensure that they can continue to live in their familiar surroundings in old age without having to worry about selling or buying a new property. This is often a good option for older people who are single or whose partner has already passed away.

The right of residence is ideal for close relatives, spouses, parents & grandparents

Benefits for the whole family

In principle, you can sell your apartment to any interested party. However, the right of residence deters some interested parties. For this reason, apartments encumbered with a right of residence are passed on within the family. This has several advantages.

Advantages for sellers

The right of residence ensures that you will continue to have a place to live while receiving a financial benefit from the sale or gift of the apartment. In addition, giving away or selling the apartment within the family can help keep the property within the family and avoid family disputes.

Advantages for heirs

At the same time, your heirs can enjoy a lower purchase price, as the right of residence reduces the value of the apartment. Since the apartment changes hands early, they can also save on inheritance tax.

All advantages at a glance:

• No move out necessary
• Financial benefit from sale
• Remain in the family
• Lower purchase price
• Saving the inheritance tax

This must be observed

If you decide to sell your apartment with a registered right of residence, a number of things must be taken into account. We will now take a closer look at the special features that come along with such a sale.

Duration of the right of residence

A right of residence can either be limited in time or be lifelong, which means that it expires either at the end of the agreed period or upon the death of the beneficiary. Revocation of the right of residence is only possible in exceptional cases. However, the beneficiary can voluntarily relinquish his or her right of residence at any time, for example if he or she moves into a nursing home. Mere non-use of the right of residence does not automatically mean its cancellation. Only after 30 years of non-use can the right of residence be deleted from the land register without the beneficiary’s consent.

In summary:

• Duration is determined in advance
• Revocation only in exceptional cases
• Waiver is possible at any time
• Cancellation after 30 years of non-use

Inheritance to third parties not possible

As a rule, the right of residence cannot be inherited and ends with the death of the person entitled to the residence. The heirs or successors can therefore not inherit or continue the right of residence unless this was expressly stipulated in the original agreement.

This means that after the death of the owner of the right of residence, the owner of the property again has full power of disposal over the property and can sell, rent or otherwise use it.

Notarial registration in the land register

In addition, the right of residence must be notarized and entered in the land register in order to be legally valid. The entry in the land register is necessary to establish the right of residence as a real right to the property. The notary appointment plays an important role here, as the notary ensures that all the necessary steps and formalities are complied with.

The registration of the right of residence in the land register ensures that it is clear to everyone that a right of residence exists and who the holder of this right of residence is. It also provides legal protection for the owner of the right of abode, as it enables him to assert his interests against third parties, including the owner of the property.

The following is necessary to secure the right of residence:

• Notarial certification
• Registration in the land register

Sell apartment with right of abode

Assume that the apartment is already encumbered with a right of residence and is now to be sold again. This is also possible, although the sale is more complicated with an existing right of residence than without. So what needs to be taken into account here?

Right of residence still exists

When a property with residential rights is sold, certain regulations must be observed. The seller must not only inform the buyer about the existing right of residence, but also protect the rights of the person entitled to the residence. For example, the sale must not impair or otherwise jeopardize the right of residence.

Right of residence continues to exist even in the event of a change of ownership

Thus, the right of residence continues to exist even if the property is sold, and the buyer must recognize and accept the right of residence.

Reduction in value & lower purchase price

When one wishes to acquire a property, the goal is usually to have unrestricted power of disposal over it. However, an existing right of residence can restrict this freedom and thus reduce the demand for such a property. The value of the property is also reduced by the existing right of residence, which is why in most cases a lower purchase price is achieved.

Conclusion: Preparation is half the battle

A life estate can be a good option if you want to sell your home but still stay in the area. It gives you the freedom to use the capital from the sale of your home while continuing to live in your familiar surroundings. However, it is important to note that the right of residence cannot be inherited and that it must be notarized and registered in the land register. The right of residence also has an influence on a later sale, as it reduces both demand and value.

So overall, a life estate can be a great option for people who want to make sure they have a home for the rest of their lives. However, one should be aware of the legal aspects and possible effects on the sales price in advance.

Sell your apartment & stay: Is that possible?

Selling an apartment allows you to improve your financial situation and still stay in your home. But in addition to improved liquidity, you can also enjoy a variety of other benefits.

Advantages: Improved liquidity & More freedom

For example, some models allow you to buy back your sold property at a later date. Your heirs can also be granted a priority right of repurchase. In addition, the released capital can be used to pay off loans, you and your family are relieved financially and you can enjoy your retirement without worries.

These are the advantages:

• Improved liquidity
• No need to move out
• Flexibility
• Regulation of the inheritance
• Repayment of loans

Disadvantages: Loss of ownership & steady costs

However, you should also consider the disadvantages. Depending on the model, you may no longer be able to dispose of the entire apartment despite a right of residence that has been granted, and you may be prohibited from renting or leasing out your property, for example. At the same time, you still have to pay for the maintenance of the property, the maintenance costs and property tax.

All disadvantages at a glance:

• Loss of property
• Renting / leasing prohibited
• Continuous costs

So all in all, there are both advantages and disadvantages when it comes to selling your apartment and still staying in it. Exactly which advantages and disadvantages you will have to reckon with ultimately depends on the model you choose.

The most important models at a glance

As mentioned above, there are a variety of options open to you that allow you to sell your apartment without having to move out of your familiar surroundings. We present them to you.

Partial sale: one-time immediate payment

With the partial sale of your apartment, up to 50% of your apartment is sold to a professional partial sale company. You receive the purchase price immediately. The lifelong usufructuary right is guaranteed to you under land register law and you pay a monthly fee to the partial buyer. The special feature of the partial sale: You may continue to rent and lease your apartment and thus generate additional cash flow. In addition, you can buy back the sold part in full.

The partial sale at a glance:

• Disposal up to 50% of the apartment
• Receiving an instant payout
• Assurance of the right of usufruct under land register law
• Payment of a monthly usage fee

Life annuity: Regular annuity payments

An alternative to the partial sale is the life annuity. This is an arrangement whereby you sell your home and in return receive a regular payment in addition to yours for the rest of your life. The amount of the monthly payment usually depends on the age of the seller and the value of the home. The older the seller, the higher the monthly payment. Compared to the partial sale, however, the life annuity does not guarantee you the right of usufruct, but only the right of residence.

The life annuity in summary:

• Sale of the complete apartment
• Additional pension payment
• Amount depending on property value & age
• Assurance of the right of residence

Whether a partial sale or an annuity, selling a home without moving out is an ideal way to give you a financial cushion without having to move out of your home.

Reverse mortgage: Apartment as loan collateral

A reverse mortgage also allows you to stay in your home after a successful sale. If you opt for a reverse mortgage, your home is used as collateral to obtain money from a lender. Unlike traditional mortgages, where the borrower pays interest and principal, a reverse mortgage does not require the borrower to make any payments. Instead, the loan amount is increased over time by the interest and fees and becomes due when the borrower dies or moves out.

Everything you need to know about reverse mortgages:

• Apartment as collateral for the lender
• No additional payments by the borrower

Usufructuary right or right of residence for sale & donation

Instead, however, it is also open to you to sell or give away your apartment and have the sole usufructuary right registered. In the case of real estate, the usufructuary right allows the usufructuary to occupy the property and use it as he or she sees fit, to earn rental income or to lease it out. The usufructuary right is often not limited to any specific period of time and ends as soon as the usufructuary dies.

Instead of a usufructuary right, a residential right can also be registered. In contrast to the usufructuary right, the right of residence only gives the right to use and occupy the property, but not the right to earn income from or rent out the property.

Conclusion: The advantages outweigh the disadvantages

If you would like to stay in your own four walls and increase your financial resources in the process, there are a variety of options open to you. These include the partial sale, the reverse mortgage, the annuity, the usufructuary right and the right of abode. Each of these concepts has its advantages and disadvantages. Therefore, it is important to carefully review the terms to make the right decision. Some of the advantages are additional income, continuity and no relocation, while some of the disadvantages are loss of property, restrictions and costs.

So take enough time to compare the different models and make the best decision for you.

Partial sale / partial purchase: what is it? Explanation + advantage

Surely you have seen the advertisements of the many part purchase providers. This purchase offer is aimed in particular at older property owners who need money, for example, for a more pleasant retirement.

A look at costs of use, advantages, disadvantages, the total sale, the calculated increase in value under inflation and a comparison, what is “cheaper”: partial purchase or the alternative real estate loan, more specifically the mortgage loan? In addition taxes, sale from community of heirs, divorce and much more.

Here you will also find all calculators with examples: Partial sale provider comparison.

First, a quick, short definition.

Definition partial sale or partial purchase

What does real estate partial sale?

Of course, no second person moves into your property; you remain the sole user. However, as the former sole owner, you now pay a fee for the use of the part of the property that no longer belongs to you in full after the partial purchase – comparable to rent. This payment is referred to as “compensation for use” or “usage fee”.

Partial sale summarized:

• You sell a part of your property (usually 10-50%)
• Partial purchase house: Yes
• Partial purchase apartment: Yes
• Partial purchase of land: Yes
• Financial company becomes part owner
• You remain the sole user of the property
• You pay monthly usage fee
• Total sales in X years (optional)

The most important questions about the partial purchase

The most important questions at a glance:

• Can I sell half of the house? Yes, most sellers ~ 20-50%.
• Can I sell part of my apartment? Yes.
• Partial purchase also for land? Yes.
• Advantage? Fast, uncomplicated purchase price transfer.
• Disadvantage? Usage fee (~ 3-5% p.a.)
• Moreover, for total sale: sometimes below inflation

These important factors in the purchase of parts

The key factors for the partial sale:

• Value of the property = 500,000 euros
• Desired immediate payout = 100,000 euros
• Share for sale = 20%
• Monthly usage fee = ?
• (if) total sale after X years = ?

You have to answer two key questions in the comparison:

1. What is the monthly usage fee?
2. (At total sale, later) appreciation and fees?

Difference: sale vs. partial sale

What distinguishes the partial sale from the normal real estate sale? If you want to sell a property in the normal way, you will go through a total of three major phases (preparation, viewings/credit checks, sale), which in turn contain several steps. The search for solvent buyers (creditworthiness) can take a longer time depending on the real estate situation (demand).

Regular real estate sale: timing

Roughly summarized, the real estate sale includes the following steps:

1. Prepare documents
2. Valuation
3. Real estate marketing
4. Preparation of an exposé
5. Realization and planning of the viewing appointments
6. Purchase negotiations
7. Processing and drawing up of the purchase contract
8. Handover of keys

Shortened sales phase

With a partial sale, a large part of these steps is skipped completely. You go directly to a financial service provider who buys your property on a pro rata basis. Accordingly, the following steps remain from the procedure of a regular real estate sale:

1. Valuation
2. Processing and drawing up of the purchase contract
3. Handover of keys

Advantages at a glance: Sold and paid for quickly

Whether it’s a terraced house, a single-family home or even the condominium in an apartment building: you’ve never sold part of your property so quickly.

A partial sale has advantages:

• Financing method independent of banks
• No credit check, cf. credit financing
• Fast sales process

Disadvantage? Use in cost comparison

As described in the introduction, the “Partial Purchase” offer is aimed in particular at older property owners.

“Banks give no / few loans to older people”.

Such a common prejudice. That is why advertising with the “partial purchase of your property” currently works so well. However, the subsequent costs are often not taken into account. For example, if you sell 25% of the property and then pay 300 euros a month usage costs, you should definitely compare the amount with a regular real estate loan, more precisely mortgage loan.

In retrospect, otherwise an experience that will cost you cash, every month.

Let’s start the analysis.

Usage fee for partial purchase: Disadvantage 1

Now for the “follow-up costs.”

What is monthly user fee? Many currently advertise it as “easy,” “convenient,” “no bank.” True. But the price is high. First of all, the ongoing costs incurred in the partial purchase to financial companies. The financial company becomes a co-owner. The sold part of the property, will be returned to you.

So you do not give “half” of the garden or part of your rooms: you continue to use your property alone.

For this you pay the “compensation for use”.

Amount of compensation for use

The compensation that the financial company requires for the use of the property is usually:

• Between 3-5% of the amount paid out p.a.

The sum refers to 1 year in each case. The formula for calculating the usage fee (depending on the provider) per month:

• Monthly usage fee = 3% * purchase price (share) / 12
• = 3% * 100.000 / 12

Thus pay, at the partial sale worth 100,000 euros, 250 euros a month.

User fee at 100.000 Euro = 250 Euro / month

As always, depending on the provider. All providers can be found here in the part purchase house: comparison.

Real estate loan comparison: 2-4% cheaper

How much do you currently pay for a “classic” real estate loan? Due to the low interest rate phase, you currently pay only:

• Approximately 1% of the disbursed amount p.a.

Compared to the financing request of 100,000 only ~ 80 euros / month.

Credit only ~ 80 Euro / month

It pays to calculate and consider when it comes to the partial sale of your property. Tip! You will also learn about the “real estate annuity” as another alternative to the partial sale.

Taxes: What do you have to pay?

The tax does not differ in the partial sale from the regular sale.

As you can see in this tax checklist, for private individuals it is actually “only” about the speculation tax. It comes into effect when a property is resold within the first 10 years after purchase. The amount of the speculation tax is calculated according to the individual tax rate, which can be more than 25 percent.

Mentioned for completeness, anyone who sells 3 or more properties in 5 years is also subject to commercial real estate trading and therefore also to trade tax. Last, for the sake of completeness, the sales tax (buyer) for commercial real estate trade.

More on the subject of taxes when selling real estate:

• Selling real estate: taxes

Calculator! Provider comparison

In this analysis, I have calculated example for you in all the calculators of the providers. How much is the usage fee? How much do you get in the total sale? Here you can find the big provider comparison:

• Partial sale provider comparison

Total purchase price and inflation: Disadvantage 2

If you think carefully about the online calculation of step 2) the total purchase, you will notice that you do not specify any regions(real estate location) of the property. Accordingly, the increase in value is a very rough value. But let’s take this as a basis.

Inflation vs appreciation: comparison (-2.8% loss)

Inflation factor (currency devaluation) – If you now add inflation as a second factor, which according to the European Central Bank should be at 2% per year, but is currently even at 5% (as of 01/22), then you will see:

The increase in value of only 25%, 30% in 15 years, does not even equal inflation.

So let’s compare 30% in 15 years and inflation (“as desired” at 2%, with no increases):

The result of our comparison:

According to (most) online calculators, a loss of -2.8%.

Accordingly, you will not even be compensated for inflation if you are below 32.8%.

Tips for your partial sale: use, annuity, divorce and inheritance

Here are some practical tips and food for thought:

Real estate pension: Another alternative

You have now learned about the partial sale, also the mortgage loan. Perhaps another tip for you, the real estate pension. Especially interesting if you have already reached a higher age, usually from 70, 75 years.

Real estate annuity means: You sell your real estate (directly) completely, but keep a lifelong right of residence and use. In addition, you receive a small monthly amount. For some, this is a good solution. Because you also no longer have anything to do with maintenance costs, the new owner takes care of that.

Real estate pension simply explained:

• Direct, complete sale of your property
• Lifetime right of residence and use
• Small, monthly “extra pension” from the seller
• No maintenance costs

Usufructuary right: “Lifetime, sole right of residence

Before we compare the different providers, here is an important tip if you really decide to sell your property in part. As you have already learned in the guide partial sale, you can sell your property in 2 ways: Partial or Partial including total sale in X years.

If you are considering an overall sale after X years, be sure to take a look at the:

Usufructuary right in the event of a total sale

Usufruct right simply means that you have the sole right to use your property – even after the sale (as well as in other cases, such as early inheritance).

Advantage: The usufruct right brings you the advantage that you are not dependent at any time, on the goodwill or the consent of the seller.

Partial sale possible despite current financing?

Partial sales are possible – by arrangement – but both you, as the borrower (property owner), and the bank, are fundamentally bound by the loan agreement you have concluded, at least for an agreed fixed-interest period. Ideally, therefore, your property is paid off.

What is the difference between partial sale and annuity?

Let’s first clarify the term life annuity: Under a life annuity, you sell your property in exchange for an annuity payment and simultaneous, lifelong right of residence and use. It is therefore a special form of selling a property. The advantage: liquidity.

• Mostly owners over 70 years
• Complete sale to a financial company
• In return, lifelong right of residence and use
• Additional monthly amount for you (life annuity)
• No additional costs / maintenance costs

Community of heirs: sale after inheritance

Is it possible to sell a share in a community of heirs? Yes. With reference to BGB § 2033 Paragraph 1, which states:

“Each co-heir may dispose of the share in the estate.”

More on the topic:

• Community of heirs: selling property

Divorce: sale after separation

Is it possible to sell a share from a separation or divorce? In the case of divorce, things are initially a bit more complicated. In principle, only after the separation year, but at the latest after the divorce, can spouses demand that their partner sell their home. Talk to the providers individually about this.

More to:

• Divorce: Sell property

Documents for the bank: photos, energy certificate & purchase contract

Financing requests for real estate purchases are part of your bank advisor’s daily business. If you want to score points with your financing request, you should provide all important documents directly. This saves your bank time and energy, as it does not have to request extra new documents. Instead, the financing plan can be set up quickly and the financing process can be completed. So that you can enjoy a quick financing approval, we recommend that you prepare your documents in two folders:

1. Folder: Credit rating
2. Folder: Object

Now let’s take a closer look at the object folder:

House & apartment exposé: master data of the property

First of all, the bank needs a property file with the basic data of the house or apartment. Finally, the bank must know the master data of the property. You can either create an exposé or a fact sheet for this purpose.

You have the following options:

• Real estate exposé
• Fact Sheet

Photos of building and plot

In addition to the most important basic data, the bank also needs some photos of the object, so that it can get a visual impression. Make sure that the pictures have been taken in good light. Daylight is best suited for this purpose. In addition, you should give a lot of importance to a good quality of the photos, so that also details of the property can be seen. The bank not only needs photos of the property itself, but also of the immediate surroundings and, if necessary, of the common property.

You should attach photos of this:

• Property
• Community property
• Immediate surroundings

Parcel map, floor plan & insurance

In addition, the bank needs the cadastral map of the property, as well as the site plan. Also the floor plans of the property, as well as the living space calculation are to be attached. Another important document is the extract from the land register. The land register is an official, public register and contains legal relationships to the property. In addition to land charges, mortgages and liens on real property, it also contains further information on the respective ownership and residential relationships.

The following documents must also be forwarded to the bank.

• Parcel map and site plan
• Floor plans
• Living space calculation
• Land register excerpt
• Building insurance
• Energy certificate

In order for the bank to get an accurate picture of the property, the hallway and site plans are especially important:

Special case: Rental agreement for rented property

You can buy a property rented or unrented. If you buy a rented property, you must also give the rental contracts to the bank. In the case of unrented property, this step is of course omitted.

Special case: Homeowners’ association (WEG)

If you purchase a house or a condominium as part of a condominiumowners’ association (WEG), add the declaration of division to your property folder, as well as relevant agreements, the last three minutes of the owners’ meetings, the collection of resolutions and the WEG administrator’s contract. The statement of charges and the property tax assessment should also be in your folder.

Here is a brief overview:

• Declaration of division – with certificate of seclusion
• Collection of resolutions – last 3 owners’ meetings
• WEG manager contract
• House service charge statement
• Property tax notice

At the end: draft purchase agreement

The last object in the folder is then your draft purchase agreement, which thus completes the real estate folder.

Reading tip: Create purchase contract

Object folder for the bank: checklist

Here again the most important documents summarized at a glance;

1. Exposé / fact sheet of the property
2. Photos of building and plot
3. Parcel map, floor plan, insurance & co.
4. Rental contract (if available)
5. Documents of the WEG (if available)

Once you have all these documents together, nothing stands in your way of successful financing!

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