For many people, money becomes scarce as they age, even if they live in their own apartment. The solution: sell the property and still live in it. There are more and more providers for it. But does it pay off?
"Old people's home, me? Good heavens!" For Ulrike Ahorner, 67, leaving her row house in Dachau near Munich was not an option at all. But when her neighbor couldn't get up the stairs to the first floor, she and her husband Armin, 62, took the as warning. They sold their house – and bought a new apartment just a stone's throw away. 80 square meters, at ground level, garage, garden: a perfect exchange for the couple.
Once you retire, there is a risk of running out of money to live on; especially when the partner dies
However, the sales proceeds were just enough to finance the new property debt-free, and a loan had to be serviced for renovations and new furnishings. The solution: The Ahorners simply sold 35 percent of their apartment again. "We remain owners, we were able to redeem loans, buy furniture and a new car – and we also have a nice cushion of money in the account," says the pensioner.
Many elderly people feel the same way as the couple from Dachau. Almost every second person aged 65+ owns a property, according to the Federal Statistical Office. However, many cannot make big leaps if they want to stay within their four walls. "Once you retire, you risk running out of money, especially if your partner dies," says Merten Larisch, team leader for old-age provision and investment advice at the consumer center in Munich. Often there is nothing left for travel or restaurant visits, hobbies or the age-appropriate renovation of the apartment. "Then we look for ways and means to somehow get hold of money."
And because that is the case for many, a completely new market has opened up. Companies and brokers are using different concepts to court seniors who want to monetize their property but do not want to move out yet. "The number of providers is increasing rapidly – a real boom," says Thomas Mai, financial expert at the Bremen consumer advice center. "Concrete gold is in demand in the current low interest rates, and investors are trying to get cheap real estate through senior citizens." He has even seen advertisements for it in Tenerife.
There are essentially three models that can also be combined:
1. Real estate retirement
The idea is simple: If you are 70 or older and sell your property, you secure a lifelong right of residence and receive a monthly pension. One provider is, for example, Deutsche Leibrenten AG, which was founded in 2015 and now has 700 properties in its portfolio. First of all, the value of the right of residence is deducted from the market value of the property, plus a ten percent surcharge for maintenance, which Leibrenten AG takes over. The rest goes into a lifelong pension. The older the seller is, the higher it is.
- Property value: 300,000 euros
- Age of the owner: 75 years
- Comparative rent / value of right of residence: 1000 euros a month
- Maintenance costs (flat rate): 100 euros a month
- Pension per month: 858 euros
Provider (selection): Deutsche Leibrenten Grundbesitz AG, Liebenau Foundation, HausplusRente GmbH, Deutsche Immobilien-Renten AG (My residential pension)
2. House against usufruct
Property owners can also have the sales proceeds paid out in one fell swoop and secure a right of usufruct, which must be entered in the land register. Usufruct goes beyond the right of residence, it guarantees the lifelong economic use of the property. The previous owner can also move out, rent out the property and use the money to finance, for example, its maintenance. Alternatively, it is possible to agree on a compensation payment in the event that you move out.
Providers: all of the above and below.
3. Part sale
This is a relatively new concept: Vendors and Wert Faktor take over a maximum of 50 percent of the property and act as silent partners. "In the case of partial sales, the property owner only gets as much money as he needs and remains the owner of his property," says Christoph Neuhaus, founder and managing director of the Hamburg company. Old owners benefit when the property's value increases. In return, a so-called usage fee is due – that is between 2.9 and just under four percent of the amount paid out per year.
Example calculation 1:
- Property value: 500,000 euros
- Partial sale 25%: 125,000 euros
- User fee (currently 2.9% of the amount paid out annually, is adjusted every year): 302 euros per month
Provider (selection): Wert Faktor Immobilien GmbH, Engel & Völkers (Liquid Home), Heimkapital GmbH, Deutsche Teilkauf GmbH
"As a rule, the models for property owners are not economical," says Thomas Mai. "Nevertheless, one or the other solution can fit the current life situation." If you have no heirs, financial security and service are perhaps more important than increasing the value of your house or maintaining your assets. Real estate rent providers such as Leibrenten AG take care of maintenance and renovation, service partners check the condition of the property twice a year, and there is a 24-hour service for repairs. "Many previous owners are happy when they no longer have to take care of maintenance and repairs themselves," says Friedrich Thiele, CEO of Deutsche Leibrenten AG.
The service has its price, but the costs are usually not recognizable at first glance. "The providers hide their margins in various variables," explains consumer advocate Mai. What life expectancy is used, how high is the market value, with what increase in property value up to the end of life is calculated? "The determination of the right of residence or usufruct, its rate of increase or the discount rate for residential or usufruct can lead to considerable differences in the various offers."
There may be cheaper solutions
A real estate pension is a bet on time, similar to private pension insurance: it only pays off if you have a long life. According to calculations by "Finanztest", a 75-year-old woman would have to live to be just under 88 for the annuity of her 300,000 euro house to pay for itself. Those who die earlier cannot bequeath anything – unless minimum terms have been agreed.
Partial sales also have hooks and eyes: Former owners pay a rent with the usage fee, but still have to bear all of the owner's obligations. If the roof or the heating breaks, you bear the costs alone, even if you only own half the property.
The user fee (currently 2.9 percent) can also be a trap. It rises and falls with the market rate. It is currently close to zero. But if interest rates rise – and this is likely over a long period of 20 or 30 years – the monthly burden can quickly double. If you want to protect yourself from the interest rate trap, you can fix the fee (with value factor) for a maximum of 15 years – at 3.9 percent per year. There is then another interest rate risk for the affiliation contract. Another cost driver: When selling the property, the silent partners collect between 5.5 and 6.5 percent implementation fee, depending on the provider – of the total sales proceeds (see sample calculation 2).
So there may be cheaper solutions. Anyone who needs money for an age-appropriate renovation or maintenance could take out a loan at standard market conditions. Allianz, for example, has recently started offering "BestAger financing". The loans can be arranged with or without repayment.
Alternatively, consumer advocates advise selling the property to private individuals – against the assurance of a lifelong tenancy. For this, the buyer must contractually waive their right to terminate the lease due to personal use. Those who invest part of the proceeds well can also achieve attractive returns on the stock market.
Ulrike Ahorner and her husband have decided to sell part of the value factor. "I worked for 50 years and now I want to treat myself to something," says the 67-year-old. Nice furniture, traveling, giving presents to the grandson – and receiving part of the fortune for him: "The money in the account gives me freedom."
Example calculation 2
- Property value: 500,000 euros
- Partial sale 25%: payout 125,000 euros
- Usage fee fixed for 15 years: 3.9% = total 73 125 euros
- Sale after 15 years (assumption: increase in value 600,000 euros)
- Total costs for previous owners: 73 125 euros Usage fee + 150,000 euros (25% share for value factor when selling) + 39000 Implementation fee
- 267,000 euros (for 125,000 euros that were originally paid out) + possibly maintenance costs
Checklist: this is how you should proceed
Whether you decide to rent a property, sell with usage rights (usufruct) or a (partial) sale: Please do not rush into anything. Merten Larisch, team leader for old-age provision and investment advice at the Bavarian Consumer Center, advises: Before renting out or selling a property, you should ask yourself the following questions.
What are the goals?
Do you want to remain the owner of a property or just stay in it? Do you need a one-off capital or a regular increase in your pension?
Is there a cheaper "family" solution?
The providers are pricing in high margins for their business. There is nothing for free!
What is the property really worth?
Do not blindly trust the "independent" property reviews of the providers. It is best to commission an expert opinion.
Which conditions are best?
It is best to obtain and compare offers from different providers. Advice is available from independent experts – for example consumer advice centers. Have the contracts checked by specialized lawyers!
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