Viager, part 4

So let's say you've decided to do a viager and have found the perfect place.  What are some of the things you should do before signing on the dotted line?

• The first thing is to do some research into the listed worth of the apartment. Luckily this is very easy nowadays thanks to the internet.  But you should make sure that the price they list matches up to the prices for other apartments for sale (with similar features and in a similar state) in that area. 
• Another great site is MeilleursAgents.com - they let you put in all kinds of information about the apartment, the building, etc and then they come back with a fairly accurate estimation of its value (at least for Paris anyways).
• Next, you want to estimate how much it would cost to rent a similar apartment that month, as that amount should be fairly similar to what they are asking for the monthly stipend (but know this can also vary according to the age of the person, for example if they are particularly "young" or old). 
• You should also do a quick estimation of their calculations, using the person's age, the bouquet and the monthly rent, to make sure it all adds up.
• Once you've done your homework and everything seems okay, you should contact the agency to set up a viewing.  Make sure you sit down beforehand though and think about everything you want to ask during the visit.  Here were our questions - a lot of them would not apply though to a house in the countryside:
• How did you calculate the apartment's worth?
• How did you calculate the bouquet and the monthly stipend?
• How did you calculate the 'abbatement d'occupation'?
• How much is the annual property tax?
• How much are the annual owners/building taxes?
• When was the 'ravalement' last done? How much did it cost? When will it be done again? Can I get a copy of the invoice?
• When was the building (and its common area) last renovated?  How much did that cost? When will it be done again? Can I get a copy of the invoice?
• Are there any other big projects that have been voted but not yet paid for?
• Can you provide us with the minutes from the last two syndic meetings?  (Read through to have a better understanding of the building's issues and to make sure no other gros travaux have been authorized)
• How much are the notary fees?*
• What happens after the person passes?  What about everything that's in the apartment?
• What happens if the person moves into a nursing home?
• What 'diagnostics' have been done on the apartment? Can we see them?
• Other things you want to pay attention to during the viewing:
• The general state of the building - its entryway, the lobby, the grounds. 
• The safety/security of the building
• The general state of the apartment - as you will now be the owner, you will be responsible for anything that goes wrong (water heater breaking down, etc).
• What kind of heating it has, single/double-paned windows, how much light it gets, etc (things that will be important if you ever want to resell it)

Basically you are just trying to gather as much information as possible about the place, especially if it's an apartment, because as soon as you sign, you will be liable for all the things a normal owner would be liable for - taxe foncière, ordures, charges propriètaires, gros travaux, etc. You will also have to take out a yearly insurance for non-resident building owners (the seller will have to have their own renters insurance). All of these things need to be taking into account in your budget forecasting, because it's not as simple as just giving them a down payment and then paying them a flat fee each month.  However it shouldn't add up to that much extra - in our case, it's about 100€ extra per month for all of this.

Another thing to keep in mind is that most of the time, the owner will also insert a clause into the contract saying that the monthly rent should be recalculated each year, either based on inflation or based on the national INSEE rate. This is negotiable however - you can propose your own rate, or a flat rate or whatever.

Other negotiables - the amount of the bouquet, the amount of the stipend (ie you can either offer to pay a higher bouquet up front and a lower monthly stipend or vice versa).

You can (and should) specify in the contract what will happen if the person leaves the apartment for a certain period of time.  Ie. as the buyer, you want to make sure that in the contract, it is noted that only the seller can live in the property (droit d'usage et d'habitation sa vie durant). Otherwise, even if they left, they could let their children live in it, rent it out, etc, causing you a lot of problems when they pass.

If they do end up moving into a nursing home, you should have the increased rent price written into the contract so that you are sure both parties agree on it.

You should also stipulate that the family has a certain amount of time after the passing to clear out any items they wish to keep (three months, etc).

Most contracts also allow the buyer to resell the viager in case of problems - this does happen and usually allows you to recuperate all the money you have put in, but know that if you do resell it and the new buyer doesn't pay, you will be liable. (Though this isn't a huge deal in my mind, since it means that person will have paid X number of years and then you'll get the bien back without having had to pay for those years).

Lastly, because the length of a viager is so unknown, they recommend you never buy a viager occupé with the idea that you will live in it yourself.  It should always be seen as an investment. (This does not apply to a viager libre or viager à terme are different matters however since you know exactly when you will be able to live in it).

If you don't feel comfortable investing in one directly, there are also investment groups that will do it for you - ie you pay them money and they use it to invest in several viagers.  This limits the risk in many ways, as some of them will end up being great deals and some non-so-great deals.  It can also be a good option if you don't have enough money to do a viager on your own and you still want to invest (as it is almost impossible to get a loan for a viager**).

I hope this has been useful - if nothing else, at least it's all down on 'paper' for us when we do start looking again!


*Agency fees are almost always included in the bouquet, but the notary fees are not and will be on top of everything calculated here.  They are however lower than normal notary fees for a home purchase. Also, as the buyer, you will be the one choosing the notary, so be sure to shop around for one who has experience in viagers.

**The one exception for this is a viager sans rente because you are paying them a fixed sum of money up front and no monthly rente.

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.

Viager, part 2

Bummer, I was hoping a few more of you would think yesterday's post was an April Fool's joke (April 1st kind of snuck up on me this year).  But it wasn't - even though we didn't end up going with the apartment I mentioned yesterday. The real estate agent we were working with was just being really cagey and not wanting to give us all of the information we requested.  He also refused to show us how he calculated the bouquet and the rente, citing via email several different numbers and percentages, none of which added up. And when we asked to meet with him to sit down and really figure it out, he stopped contacting us and then eventually told us someone else had made an offer (even though the ad is still up on their website). This made me pretty cranky since he was taking 20,000€ of the bouquet as his commission, and I figured that for that much money, he should have been able to get us the info we wanted.

So we decided to put the idea on the back-burner for a while, and may eventually end up going a different route, ie with a viager libre.  A viager libre requires a bigger sum up front, but gives you the major advantage of being able to live there.  So instead of paying rent on our current apartment and then the monthly viager rent, we would only be paying one and it would be going towards acquiring the apartment/house (like a mortgage would).  So at least that way if we do end up paying for a long time, it wouldn't be that different than if we were paying rent on a place we didn't own.

The downside of this is that the sum required up front is usually quite large (at least in Paris) and you are unable to take out a loan for it, and two,  these types of arrangements are quite rare - viagers libres account for less than 1% of real estate transactions in France according to one site I read.

Besides the viager occupé (the most common) and the viager libre, there are also two other types of viager: sans rente and à terme.  Sans rente sounds like what Jennifer said happens in Italy, ie you pay a portion of the home's value up front and then the person gets to live there until they pass away.  A viager à terme is one where you pay the bouquet and then you agree to pay the rente for a fixed number of years (say 15yrs), at which point the owner will move out and the home becomes yours.

Just in case anyone is interested in doing a viager, I'll explain a little bit about how we went about it. Since it is a fairly little-known process, we spent a lot of time online doing research and reading advice on forums.  There are also a few agences immobilieres who specialize in viagers, so they can also be a good source of information as well. The agency we went originally went with, Rénee Costes, offers viagers both in Paris and elsewhere in France.  Prices were obviously lower elsewhere in the country, but we decided to go with Paris, because hey, it's Paris!  Even in the midst of the economic crisis, housing prices are still going up every year here, so we figured it was a pretty safe investment. But on the other hand, you can also get a lot more for your money outside of the city....something to keep in mind if you live en province or are looking to invest in a weekend country home for example.

In the next post, I will cover how the viager occupé is calculated, since it is the most common type of viager and there are a couple of different ways you can go about it.

Via what what?

So a while back I alluded to a big project that C and I were working on.  And that project is.....we are trying to find a way to save for retirement.  Exciting stuff huh?  And yes, I know we are in France and most retired people are currently living the high life, but I firmly believe that kind of money won't be around by the time we grow old.  Kind of like what happened to people my parents age - they always believe social security would be there for them and now many of them will have to work until they are 70+ because they don't have enough saved up.

So I spent a ton of time trying to figure out what is the best way to save here, and came up mostly empty-handed.  I'm pretty sure that the majority of French people haven't given their retirement a second thought, and so those kinds of products don't really exist yet in France (though some larger companies are now starting to offer a sort of 401K).  Talking to various banks though, they all just suggested I put money in some of the low-interest savings accounts (gee, you're going to give me a whole 2.25% and there's a max amount of 6000€? Sign me up -those 6,000€ will sure get me far when I'm 80!) or otherwise invest it in stocks and bonds.  Given the economy, that doesn't really interest me either, nor do the extremely complicated "assurance vie" plans offered by most insurance companies.

Another option was investing money in the US, or in an IRA over there, but with the way the US economy is, I didn't really find that too reassuring either.

So was does that leave?

Investing in La Pierre, or literally in "stones".

We aren't quite ready to buy the home of our dreams yet - but we do have enough money set aside to buy a smaller place.  The problem is, neither of us want to be landlords.  Given what we could afford, it just seemed like a lot of time and energy spent for not much money after taxes.

So now what does that leave?

Investing in a viager, which is sort of like a reverse mortgage in the US except it's between two people instead of one person and the government.  Basically, the viager process lets you pre-purchase a home owned by an elderly person.  You give them a lump sum called the bouquet, and then you pay them a pre-agreed upon monthly stipend until they die, at which time you become the full owner. And now's the part where you all gasp, or at least that's what everyone else has done every time we've mentioned it.

We've been accused of betting on someone's life, trying to take advantage of an old person, being greedy, etc.  (Thanks friends and family, btw). I am sure there are people who go into these things hoping the person will kick the bucket asap so that they get a great deal. But we are specifically looking at this as a long-term investment. FOR RETIREMENT.  Ie We are not hoping she dies anytime soon.  And at least this way, she has some extra money to live off of each month.

People's next comments are then - but what if she lives to be one hundred?  (she's 79).  Then you will have paid much more than the apartment is worth!  The most well-known example is that of Jeanne Calment - she signed a viager contract with her notary in 1965 at the age of 90.  Which normally should've been a shoe-in right?  Except Jeanne Calment lived to be 122 - and the notary died before her and his children were required to continue paying her each month in his place!

Obvious that's an extreme case, but that is why in a normal viager situation, people say you are betting on the person's lifespan, hoping they won't live a long time. But in our case, the apartment we are looking at is a second residence, used by a little old lady as a painting studio once or twice a week.  And once she can no longer paint, we will be allowed to rent the place out as long as we pay her 15% more each month.

So I am happy for her to paint as long as she wants.  And when she can't, we will either continue to pay the monthly stipend, or suck it up and rent it out, probably to American students (which would at least limit the risk that they end up squatting the place and not paying rent for two years).  It's a nice little apartment too - it has a great layout and is in a quite neighborhood, so we could fix it up to be pretty nice.

But the fact that we have the option to rent it out was the clincher for me - in my mind, if she does live to be 100+, at least the rent will cover the majority of the payment and there is very little chance we end up paying out-of-pocket more than the apartment is worth. And then we would either sell the place and explore any new retirement options out there or reinvest it in a bigger viager.

It just seems to be win-win - she gets a little bit better quality of life (and a tax break on that income) and we get to acquire a bien in an affordable way, without having to borrow any money and pay thousands of euros of interest to a bank.  And because the monthly rent is reasonable, we can still keep saving for our dream apartment at the same time.

So what do you guys think?  Am I a greedy capitalist influencing poor C (as his family seemed to insinuate) or is this a way for us to save for retirement while helping a little old lady out at the same time?