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 pro rata sale of house & apartment explains

A partial sale of a property is a great way to release a portion of your real estate equity and continue to retain sole right of occupancy and use. In a partial sale, up to half of your property is sold to a partial sale provider. You receive the purchase price immediately. The usufructuary right is secured in the land register and in return you pay a monthly usage fee to the partial buyer.

This brings with it a host of advantages. Let’s take a closer look at them.

Advantages of the partial sale

Whether selling part of your home privately or through a professional part sale provider, you retain your financial independence, stay in your familiar surroundings and can also benefit from additional cash flow.

The advantages of the partial sale at a glance:

• Improved liquidity
• No need to move out of the property
• Sole usufructuary right to the property
• Possibility to continue using the property or rent it out
• Repurchase by seller or heirs possible

More financial freedom through instant payout

One of the biggest advantages of a partial real estate sale is that you have immediate cash without having to sell the property outright. Thus, you can quickly and easily get money to meet financial obligations, make investments or fulfill a lifelong desire.

Sole usufructuary right to the property

As a partial seller, you get the right to live in your home and use it as you wish. You can use the property for your own use and have family members or caregivers move in. In addition, the usufruct right allows you to rent out your property.

Wealth accumulation through renting & appreciation

A partial real estate sale can also be a way to contribute to wealth accumulation by renting out the property. By renting out the property, regular rental income can be generated, which can serve as additional income.

In the event of an increase in the value of the property, you will also benefit, for example if you decide to sell your property completely after 10 years.

Sellers & heirs benefit

Not only you as the seller benefit from a partial sale, but also your heirs. Since your liquidity is increased, the family is relieved financially. After your death, the heirs are also granted a priority right of repurchase of the sold share. If your heirs decide to sell the entire property, the partial buyer takes over the settlement and your heirs do not have to worry about anything.

There are also a few things to consider when partial selling. So what are the partial sale disadvantages?

Disadvantages of the partial sale

Compared to other models, such as the life annuity, you remain the owner of the property in the partial sale. Due to the registered usufructuary right, you can generate additional cash flow through the property, but at the same time this also comes with some costs.

User fee: Monthly payments to partial purchasers

As already mentioned, as usufructuary you have to pay a monthly usage fee to the buyer. The amount of the user fee depends on various factors, such as the current economic situation and the purchase price paid out. Since the amount of the user fee differs depending on the partial sale provider, it is advisable to compare the different partial sale companies in order to find the best possible offer for you.

Costs: Surveyor, notary & Co.

In addition to the monthly usage fee, a real estate partial sale may also come with some additional costs and fees. One of the most important cost factors is the preparation of the partial sale contract, which must be certified by a notary. There are also costs for an appraiser who determines the current value of the property. Which fees you have to pay yourself, and which costs are borne by the partial buyer, also varies from provider to provider.

You may incur these costs as a partial seller:

• User fee
• Expert’s fee
• Land register & notary fees
• Maintenance costs
• Administrative expenses
• Implementation costs
• Speculation tax, if applicable

Therefore, it is advisable to find out in advance about the expected costs to facilitate long-term financial planning.

Requirements: For whom is a partial sale worthwhile?

So, after looking at the advantages and disadvantages, the question becomes:

For whom is a partial sale of real estate worthwhile?

When a pro rata sale makes sense and when it does not depends on your property as well as on your personal circumstances. In most cases, the purchase price of the sold portion should not be less than 100,000 euros. Since a maximum of 50% of the property is purchased in a partial sale, only properties with a minimum market value of 200,000 euros are usually considered. Since the partial sale of real estate is a real estate annuity model, the offer is usually also aimed more at seniors.

You should have these prerequisites:

• Value of the property: at least 200,000 euros
• Payout: at least 100,000 euros
• Minimum age of the seller
• Ideally: completely / largely paid off property

The partial sale is most interesting for owners who need liquidity but do not want to give up their real estate assets completely and would like the property to remain in the family until the heirs later decide what to do with the property – an option that a life annuity and a reverse mortgage do not offer.

Conclusion: A comparison of providers is worthwhile

Overall, the partial sale of real estate offers an attractive opportunity for property owners to quickly and easily obtain liquidity without having to sell the entire property. Especially for older people, the partial sale can be a good option to achieve financial freedom. In addition, renting out the remaining part of the property or increasing its value can help build wealth. Since the conditions differ, you should take enough time in advance to compare the different partial sale providers with each other to find the best offer for you.

Macro, Meso & Micro: Definition

In addition to a distinction between A-, B- and C-location, the second step in determining the location is to distinguish between macro, meso and micro location. Thus, the macro location defines the city of the object, the meso location refers to the neighborhood and the micro location to the immediate surroundings. So, to describe the meso and micro location of an object, we must first define the macro location.

Here is the overview:

• Macro position (Where in Germany)
• Meso location (Which district)
• Micro-location (Exact location)

Let’s take a closer look at the different types of layers.

Macro location: A, B & C location

The macro location depends on your personal goal and individual strategy. Do you want to invest in a property as a capital investment? Is this a return or investment property? For investment properties, we always recommend A-locations, i.e. metropolitan areas such as Berlin, Hamburg and Munich. In the case of yield properties, it is best to look around in good B and C locations, as the rental yield is high here compared to the purchase price. Of course, your individual preferences are also in the foreground.

The different macro-locations summarized:

• A-location (metropolis)
• B-location (large city / city with positive development)
• C-location (small town / city with stagnant development)

So the macro location is about the question: Where in Germany is the property located?

Meso-location: infrastructure, connectivity & co.

So you have now decided on a city or place? Very good! Then we must now answer the question:

Which part of town do you want to go to?

Large cities in particular offer a large number of attractive districts, all of which differ in their character and charm. How well is the district connected? Is it easy to reach by public transportation? Is the neighborhood safe? Are the commutes to school and/or work long? So think about your living situation, future plans and needs in advance.

So here’s what you should definitely keep in mind when it comes to the meso layer:

• Infrastructure
• Security
• Proximity to work & school
• Connection to the other districts
• Environmental influences

Foremost in the meso location: In which district / neighborhood is the property located?

Micro-location: guaranteed feel-good factor

Finally, the last step is to determine the micro-location. This is about the immediate surroundings of your property. Is it located directly on the street or near railroad tracks? Is it quiet, especially at night, or does the street noise rob you of sleep? Where is the nearest shopping market? As soon as you step out of your front door, do you feel comfortable and safe?

This and more is the focus of the micro-location evaluation:

• Noise level
• Parking facilities
• Shopping facilities
• Cleanliness

The micro location of the house:

Conclusion: Personal preference & objective decides

So before you start looking for real estate, think about the criteria that are important to you. Look at different neighborhoods and also the street in which the property is located. After all, you should feel comfortable and safe here and not suffer a loss of value in the event of resale.

If you want to learn even more about macro, meso and micro location, check out my new site for buyers, Immobilien-Erfahrung.de:

• Macro, meso, micro situation explained – (external)