Putting the “mort” in mortgage

In France, homes can be sold as “un viager,” where the seller gets a lump sum known as a “bouquet” as well as monthy stipend for life from the buyer. The transaction is finalized when the seller dies, thus putting the “mort” in mortgage.

http://www.frenchtoday.com/blog/what-does-buying-un-viager-mean

HERE’S HOW ONE BLOGGER DESCRIBES THE PROCESS

A “viager” or life annuity property is one where instead of asking the market value for a property, the vendor is instead paid an initial down-payment (termed the bouquet) averaging approximately 30% of the property market value.
On top of this, the vendor is paid a monthly annuity or pension (called the rente viagère) for the duration of their lives and in return, the vendor retains a lien or droit d’usage (rights of usage) over the property.

In 2007 I purchased a viager property that took five full years to acquire, renovate and offer on the rental market, pictured here. I’ve written 10 chapters about the process as it was quite the saga throughout the entire process, but in the final analysis, well worth the effort.

Viager properties are probably one of the more unusual ways to invest in French real estate. There are a number of different systems through which you can buy a viager property, but the key feature is that the transaction is usually with an older or elderly person, who wants some extra or guaranteed income for their retirement.

While the price of the bouquet is determined based on the market value of the property, determining the right level for rent payments can be more complicated. The most important factors are the age and gender of the seller as these have the greatest impact on life expectancy (and consequently the estimated duration of the viager contract). Another factor is the price of the bouquet. If the bouquet is large, then the rente will be reduced, and vice versa. While the contracting parties may legally freely determine the amounts of the bouquet and rente, all viager transactions are closely monitored by a supervisory body at the French Ministry of Economics and Finance (the Comité Répressif des Abus de Droits).

In some ways, the viager transaction is like a reverse mortgage, but with two major differences! Firstly, the transaction is between individuals – there are no banks involved. Secondly, unless specified, the annuity is not for a fixed term, it is for the life of the vendor.

The most common viager property transaction is the viager occupé, where the vendor is entitled to retain their tenancy of the property. This system has benefits for both vendor and purchaser: the vendor has the option to stay in their own home and earn extra money for the rest of their lives. For the purchaser there is the opportunity to purchase a property in France without having to pay the market value upfront, but with the potential of realizing significant capital gains – sometimes well in excess of the average capital returns for the area.

Another less widely available, but very desirable, way of buying a viager property is where it is being sold as a viager libre (and no, that isn’t a type of cocktail!). The viager libre is one of those rare and fabulous things that actually almost sounds too good to be true. There is still a bouquet (deposit) and rente (annuity) to pay to the vendor, but unlike the viager occupé (occupied), where the vendor has a lifetime right to occupy the property, the viager libre is sold “empty.” This means that you, as the purchaser, are able to live in or rent out the property and thus there is an income potential from the rent, as well as the capital growth, of the apartment.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s