My wife and I are approaching the end of our working years, and are looking at buying an apartment in France for at least the first few years of retirement. We’ve encountered a purchase option that, as far as we know, has no equivalent back in the US, and we’re struggling with the right way to think about it. We’re not looking for advice, in the sense of being told whether or not it’s a good idea. But it would be helpful to have people “ponder out loud” at us from their own perspective.
The thing we’re looking at is called a “viager occupé.” In French, viager literally means “life annuity.” There are a number of complexities and nuances (especially around tax implications), but the basic picture looks like this.
Say there’s a piece of property, held by an elderly owner. This person wants to supplement their income for the remaining years of their life. They can offer their property to a buyer with the following terms: The buyer makes a substantial down payment (in French, the “bouquet”), typically around 25-30% of the property’s assessed value; the buyer further agrees to make monthly payments to the elderly owner (rente viagère). The owner stays in their residence until they die. At that point, assuming the buyer’s payments have been kept current, the buyer takes possession.
The amount of the monthly payment is calculated using actuarial data, based on statistical assumptions about how long the resident is expected to live. The basic idea (if we’re reading the technical details correctly) is to put around 60% of the value of the property into the pocket of the owner up until their (statistically expected) death. That means the buyer is likely to get a substantial discount on the property. If the resident seller dies sooner than predicted, that discount is larger. However, if the elderly owner lives longer than normal, that discount shrinks over time, as the buyer continues paying against the contract. If the owner lives a lot longer, it’s possible to go beyond the breakeven point, and eventually acquire the property at, effectively, a net loss. Also, the rente viagère is not fixed; it’s variable, taking cost-of-living factors and other adjustments into consideration.
There’s no additional paperwork required to take possession of the property when the seller dies. Effectively, the property is “already sold,” though the transfer doesn’t happen until the death is recorded. If the seller has heirs, they have no claim on the property, because, again, it’s been pre-sold. (The one exception to this is if the seller suddenly dies within a couple of weeks of executing the agreement; the heirs can petition to have the sale annulled. That’s not common, obviously.)
If you’re confused by my overview, here’s an informational page that explains things in a little more detail.
And another — and another — and another — and another. Or, if you prefer, here’s a BBC article which describes the arrangement in somewhat less formal terms.
Sample scenario from the first linked page above:
It seems to us there are a couple of different ways to think about this.
From a purely financial standpoint, this is obviously a gamble, though statistically it’s a pretty good one. Most buyers will come out ahead, in terms of money invested versus property value (especially because the property is likely to increase in value over time). If the seller dies when the actuarial table says they will, the buyer gets something like a 40% discount. Even if the seller hangs on for a while, it takes many years to reach breakeven, and the buyer is still coming out ahead any time before then.
There are occasional examples of the seller continuing to live an extraordinarily long life, which means the buyer loses more and more money on the deal, but they’re rare enough that they make the news (see the story of Jeanne Calment at the end of the BBC article linked above). Also, for expensive residences in desirable locations, the monthly payment tends to be pretty high (the lowest we’ve seen is €1500, ranging up to €4000 for the really premium properties). Still, if you can manage that, and if you can accept the relatively small risk that the seller might live to extreme old age, then, purely financially, it’s a pretty good deal.
There are also the purely practical considerations of committing to a sale where the condition of the property might change unpredictably over the course of several (or many) years. What if there’s a fire, or a flood? There’s insurance, naturally, but the coverage terms can be complex. Also, the seller is an elderly person; what if they’re not able to properly manage the upkeep on their own, and you take possession of a property fifteen years down the road that’s been suffering from slow water damage, unruly pets, hoarding, or other problems? What if the owner dies unnoticed, and you end up acquiring an apartment that’s had a decomposing body on the floor for some number of weeks? These kinds of risks can’t be estimated the same way as the financial predictions.
And then there’s the moral dimension. It feels very strange, going into a transaction where the financial success of our purchase is directly dependent on the seller’s rapid death. We would of course hope the seller gets the full expected value of the deal, but then if they keep living, it would be very uncomfortable, the antsy feeling of wishing for the seller to just die already. And yet, this is a popular and well-established sales model in France, going back literally over a thousand years. By some reports, vente en viager accounts for fully one percent of all property transfers (and it’s starting to catch on elsewhere). Balanced against the morbid side, you have the positive moral benefit of knowing that the arrangement brings stability to an elderly person’s finances, and allows them to stay comfortably in their established familiar residence, instead of being forced out into cheaper retirement housing.
So, there you go, that’s what we’re looking at. If you were in our shoes, and you had the opportunity to enter into a deal like this, how would you think about it?