It's a numbers game
Continuing on with the viager posts, let's talk about how exactly one goes about figuring out the home's value, the bouquet and the rente. There are a lot of different factors that go into calculating the costs - the home's worth, the person's age, their life expectancy, how much you give them up front, whether or not the person wants to continue living there, etc. There are also a couple of good websites out there - I particularly liked this one and this one.
I think the easiest way to do it is with an example I found online. Let's say we have Mr Rentier who wants to sell his house as a viager occupé. He is 80 years old and his house is worth 200,000€. Statistics tables show that at the age of 80, his current life expectancy is 7 more years.
Since he wants to keep living in his home, they will take off an 'abbatement d'occupation' - ie they will essentially reduce the sale price of the home by a certain percentage due to the fact that he will be inhabiting it, to make it "fairer" for the buyer. There are two ways to calculate this - either they can take his life span x the average rent for a similar size home in that area x 12months = 7 x 1000€ x 12 = 84,000€. 200,000-84,000 = 116,000€ which is the amount that will be used for all further calculations.
The second way to do this is to just take a certain percentage off based on age. So for example 50% off if the person is 70, 40% off if they're 80, 30% off if they're 90, etc. So in this case, that would be 200,000 x 40% = 120,000€ - basically the same amount as the previous calculation.
So now we have a remaining value of 120,000€. Let's say Mr Rentier wants 40,000€ up front as his bouquet. That means the remaining value is 80,000€. Now we are going to take that 80,000€ and divide it again by his life expectancy of 7 which equals approximately 11,500€ per year. Divide that by 12 months and you come up with a monthly "stipend" of 950€.
To sum up, in this case, the buyer would be giving 40,000€ up front and then paying 950€ a month until the owner passes, for a house that is worth 200,000€. At that rate, they would have to pay the stipend for 14 years before they paid more than the home was worth (assuming the home's value does not change).
Of course this is just a simplified example and there are other factors that come into play, but this is getting long, so I'll cover that in the last post in this viager series.