How does the sale of real estate on a pension basis work?


The demand for real estate pensions is increasing

The target group for the sale of real estate on a pension basis are seniors aged 65 and over, who make up a proportion of around 21 percent of the total population in Germany. In 2030, the proportion of the population over the age of 65 will be 29 percent.(*1) In Germany, 59 percent of the over 65-year-olds live in their own property. In fact, we are currently perceiving that the demand for property rent has increased steadily over the past three to five years. The development of pensions, the low interest rate phase and the rising cost of living often lead to a lack of liquidity in old age, which can be compensated for by selling real estate on a pension basis. In contrast to pensions, property value has risen enormously since 2008.

The capitalization of home ownership is therefore always worthwhile, for sellers as well as for investors. The sellers draw the capital from the property ahead of time and it is also guaranteed that they retain the right of tenancy for life. At the same time, the proceeds from the sale are available as funds for the age-appropriate renovation. Combined with care from a caregiver, seniors can stay in their familiar surroundings until the end of their lives, or they can fulfil their lifelong dreams through sales, such as an expensive trip or a long stay in the south, which would not be possible with the state pension.

For buyers, an investment in a property on a pension basis is primarily a high-return investment. However, the models are not suitable for investors who are looking for quick personal use, but for investors who want to invest their money long-term and profitably. The capital invested in relation to the market value of the property plus the increase in value of the property over the years can generate returns well above the average of other investments.

What options are there and how does the sale of real estate on a pension basis work?

Currently 5 models of real estate pension are common. Those can be adapted to the individual life situation of the seller and are interesting for investors according to the return and investment time.

  1. Sale on life annuity for unlimited monthly pension: With life annuity, the buyer pays a fixed monthly amount to the seller for life. A combination with a higher down payment is also very common. This model is particularly interesting for younger investors with high incomes and little equity who want to secure a pension plan for themselves. You can use the monthly pension payments to secure a property in the future - sometimes even without a loan.
  2. Sale with usufruct for a one-off payment: The seller receives the lifelong usufruct in the property against a one-off payment, which is paid out after the signing of the purchase contract and the buyer acquires the property for a reduced value by the usufruct value, which, depending on the age of the seller, sometimes lies at 50% of the market value. The seller becomes the usufructuary and continues to bear the costs of the property, while the investor can generate high returns over the years through the reduced purchase price and the increase in value of the property.
  3. Sale with right of residence against a one-off payment: When selling with a lifelong right to reside, a one-off payment is also due after the conclusion of the purchase contract and is very similar to the sale with usufruct. However, after the seller moves out, the property is transferred directly to the owner, while with the usufruct model the usufructuary can make lifelong economic claims. These two models are interesting for investors who want to achieve high returns in the long run. Parents often invest capital for their children through this retirement model and at the same time secure a property for their offspring.
  4. Sale with return rent against one-off payment: Sale with return rent is a sale with the option to rent the property again. At the same time, the rental agreement cannot be terminated on one's own account, since the right to reside is secured. Often the sellers have developed a clear life plan and would like to live in the property for a few more years before moving to a smaller apartment or residence. This model is exciting for young families who want to secure a single-family home and achieve optimal financing options through monthly rental payments.
  5. Partial sale against one-off payment and associated with payment of a monthly usage fee. Through partial purchases, up to 50% of the market value of the property, sellers capitalize your property either for life or for a limited time. The investor gets into the property with a percentage of the property value and receives monthly usage fees, at the same time he becomes a co-owner and receives the right of first refusal of the property.

The various models of real estate pensions allow for individual agreements. Depending on the circumstances or life situation, the seller decides on the right option. For most investors, the purchase of a property on a pension basis is a long-term project. Five, ten or 15 years are quite possible. Of course, a resale of the property would be possible at any time.

You would like to know what your property is currently worth?

Is it worth buying an apartment on a pension basis and how is the value calculated?

Buying property on a pension basis is particularly worthwhile in high-growth metropolitan regions. The retirement models offer above-average discounts on the market value due to the reduction in the value of housing and usufruct. The buyers benefit from the reduced purchase price and from an increase in the value of the property. Even with a conservatively calculated increase in value of 2% - 3% per year, the increase in value of the property is guaranteed.

The long-term real estate users identify with the property sold and maintain it accordingly, in addition there is no loss of rent and no change of tenant. Depending on the agreement, the costs for the property remain with the seller and investors do not have to worry about the property.

What are the top 5 risks in “property sales on a pension basis”?

A risk with pension models lies in the duration of the pension models.

The contractual basis for property sales on a pension basis and the definition of the details in the purchase contract are particularly important. The usufruct law BGB §1030 leaves many details open, but also offers the possibility of individual agreements.

In the case of life annuities, the securing of monthly pension payments is guaranteed by entering a land charge in the land register. The conditions of the right of withdrawal clause must also be defined.

The contracts for partial transactions are particularly extensive. In addition to acquiring a fractional community, the usufruct must be ordered. The co-owner agreements and the regulations on the usage fee also require more detailed information.

We would be happy to provide you with individual advice.
Please approach us directly:

You are welcome to make an appointment here

*1Statista: Forecast of the share of the population aged 65 and over and aged 85 and over in Germany in 2030 and 2060