Free life annuity or occupied life annuity: what choice for an investment?

 

What is free life annuity and occupied life annuity?

Before discussing their essential differences, it is important to understand what free life annuity and occupied life annuity are.

Free life annuity

Free life annuity is a form of real estate sale where the buyer can enjoy the property as soon as the transaction is concluded, without waiting for the seller to leave the premises. In return, the buyer must pay a lifetime annuity to the seller, called a life bouquet . The amount of this annuity depends in particular on the value of the property, the age of the seller and other factors.

Occupied life annuity

In an occupied life annuity, the seller continues to live in the property after the sale, generally until his death or his departure to a retirement home. In exchange for this occupation, the buyer pays a smaller life annuity package than in the case of a free life annuity, thus compensating for the limitation of his right of enjoyment.

Main differences between free life annuity and occupied life annuity

The major differences between these two types of life annuity sales are as follows:

1. Occupation of the real estate.
2. The amount of the life bouquet.
3. The distribution of co-ownership charges and other expenses.
4. The importance of life expectancy for structuring and evaluating investments.

Occupation of the real estate

This is undoubtedly THE most important difference between free life annuity and occupied life annuity. In the first case, the buyer can fully enjoy his purchase upon conclusion of the transaction, while in the second case, he must wait for the seller to completely release the property before being able to benefit from it or rent it out.

Amount of the life bouquet

Due to their aforementioned difference in occupation, the occupied life annuity implies a life annuity package that is generally lower than that of a free life annuity. The gap between the two varies depending on several elements, such as the age of the seller, the value of the property and the estimated expected occupancy period. Do not hesitate to compare the available offers and carry out simulations to see possible variations.

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Condominium fees and other expenses

In the case of a free life annuity, it is the buyer who generally takes care of all the costs linked to the property: property taxes, co-ownership charges, work, etc. On the other hand, in an occupied life annuity, certain expenses can be shared between the buyer and the seller, in particular:

• Major work related to the co-ownership , such as roof repairs or accessibility improvements for disabled people.
• Current rental charges , such as the maintenance of common areas or the management of the co-ownership. It is important to determine precisely what proportion is the responsibility of each party, either by mutual agreement or by way of a contractual clause.

Importance of life expectancy

The importance of the seller's life expectancy on the profitability of the investment manifests itself differently in free life annuity and occupied life annuity. In the first case, the buyer can fully enjoy the property as soon as the transaction is concluded and, consequently, the seller's life expectancy has less influence on the financial return. In the second case, the buyer must wait for the seller to vacate the premises to be able to earn rental income or make a possible resale, and the waiting period remains uncertain.

Make a choice according to your needs and your investor profile

There is no single answer to the choice between free life annuity and occupied life annuity. It all depends on your investor profile and your long-term financial goals. Here are some criteria that can help guide your decision:

• The amount of the life annuity package: If you have a limited budget, an occupied life annuity may be more accessible due to its reduced life annuity package.
• Your need to live in the property immediately: If you are primarily looking for accommodation for yourself, choose free life annuity to benefit from the property from the moment of purchase.
• The desired rental profitability: The risk linked to the life expectancy of the seller being less significant in a free life annuity, it is better suited to investors keen to optimize their rental profitability.
• Asset flexibility: An occupied life annuity offers greater flexibility in that it allows the property to be recovered at a later date – particularly after the seller's departure – and/or to cover fluctuating available capital thanks to the payment of the life annuity .

In short, the choice between free life annuity and occupied life annuity will mainly depend on your financial objectives, your personal situation and the opportunities available to you. Do not hesitate to consult professionals in the sector to obtain personalized support in your life annuity investment process.