Betting on Death
Volume XXII, Issue 39
You may have heard the term “viager,” but not understood it. Here’s the skinny on this French property scheme that is quite brilliant for both the buyer and seller.
A viager is a life annuity property that has benefits for both seller and buyer with a risk for the buyer, but a potentially large gain. Put very simply, a viager property is one where instead of asking the market value for a property, the vendor is instead paid an initial down-payment (termed the “bouquet”) averaging approximately 30% of the property market value. On top of this, the vendor is paid a monthly annuity or pension (called the “rente viagère”) for the duration of their lives. In return, the vendor retains a “lien” or “droit d’usage” (rights of usage) over the property.
Let’s spell it out in simpler terms: As the owner of a property, if you’re aging and have no heirs, then selling your property as a viager might make a lot of sense because it provides a place to live till your death, while providing an income for the rest of your life. If you’re the purchaser of such a property, then you have the chance of buying a property at a real bargain, depending on when the viager dies!
Viager properties are probably one of the more unusual ways to invest in French real estate. There are a number of different systems through which you can buy a viager property, but the key feature is that the transaction is usually with an older or elderly person who wants some extra or guaranteed income for their retirement.
While the price of the bouquet is determined based on the market value of the property, determining the right level for “rente” payments can be more complicated. The most important factors are the age and gender of the seller, as these have the greatest impact on life expectancy (and consequently the estimated duration of the viager contract). Another factor is the price of the bouquet. If the bouquet is large, then the rente will be reduced, and vice versa. While the contracting parties may legally freely determine the amounts of the bouquet and rente, all viager transactions are closely monitored by a supervisory body at the “Comité Répressif des Abus de Droits” (the French Ministry of Economics and Finance).
In some ways, the viager transaction is like a reverse mortgage, but with two major differences! Firstly, the transaction is between individuals—there are no banks involved. Secondly, unless specified, the annuity is not for a fixed term, it is for the life of the vendor.
The most common viager property transaction is the viager “occupé,” where the vendor is entitled to retain their tenancy of the property. This system has benefits for both vendor and purchaser: the vendor has the option to stay in their own home and earn extra money for the rest of their lives. For the purchaser there is the opportunity to purchase a property in France without having to pay the market value upfront, but with the potential of realizing significant capital gains—sometimes well in excess of the average capital returns for the area.
Another less widely available, but very desirable, way of buying a viager property is where it is being sold as a viager libre (and no, that isn’t a type of cocktail!). The viager libre is one of those rare and fabulous things that actually almost sounds too good to be true. There is still a bouquet (deposit) and rente (annuity) to pay to the vendor, but unlike the viager occupé (occupied), where the vendor has a lifetime right to occupy the property, the viager libre is sold “empty.” This means that you, as the purchaser, are able to live in or rent out the property. Thus there is an income potential from the rent, as well as the capital growth, of the apartment.
Of course the trick here is also to pick and choose apartments that have the most appeal as rentals, and the most potential for long term capital growth. I believe that only “jewel” type properties are worth the risk—the kind that have every advantage. Location and ease of access are critical. Viager properties are available throughout France, and in almost every price range, from the smallest studio apartment in Paris to a waterfront mansion on the Côte d’Azur. In areas where there is a large retirement community, such as along the Riviera, they are abundant.
I once owned a viager, which will be the subject of a book (if I ever get the time to finish it!) In the case of the property I purchased, which was in my own building, the situation was quite a bit different and ‘almost’ doesn’t qualify as a viager. The original purchaser died before the viager did and because his heirs failed to pay the taxes, the lien fell into the hands of the State. As the second buyer, I negotiated with a State agency, purchasing the property at about half of the market value, but still the viager retained his rights of usage, even though he had moved out long ago to a relative’s home in the west of France. To obtain the rights of usage, I sought out the elderly viager who had been moved to a retirement home, offered the relatives a sum of money in exchange for the rights and eventually acquired the property. (To read the entire five-year long story, visit Viager with a View.)
The effort was well worth it for me—as not only was it a successful rental property for several years, but an appraisal reported its value three times my investment! That facilitated an equity release loan that paid 100% for the purchase of my apartment in Nice!
Many people believe that viager properties are best when considered a long term investment—sometimes 20 or 30 years, depending, of course, on the age of the seller. There is the famous story about Jeanne Calment. She was the oldest living human, who lived to the age of 122 and outlived her Notaire, Andre-Francois Raffray, who purchased her apartment in 1965 when she was 90 years old, promising to pay her 2,500 francs per month until Jeanne died. He paid twice the market value for the apartment before dying himself in December of 1995 at the age of 77, leaving the debt to his widow and family. Calment outlived them all!
There are also two films that might interest you. Start with My Old Lady. It’s a 2014 dramedy starring Maggie Smith, Kevin Kline, Kristin Scott Thomas and Dominique Pinon. Mathias, a down-and-out New Yorker (Kevin Kline), travels to Paris to liquidate a huge, valuable apartment he has inherited from his estranged father. Once there, however, he discovers a refined old woman, Mathilde (Maggie Smith), living in the apartment with her daughter Chloé (Kristin Scott Thomas)…and instead of inheriting a fortune, he has inherited a debt!
The other film I love is called Le Viager. M. Martinet, in his early 60s, is told by his doctor that he doesn’t have long to live and convinces him to sell his house in Saint-Tropez as a viager to him, his wife, his wife’s sister and her husband. Martinet moves to Saint-Tropez to peacefully live out his remaining years, while the Galipeaus greedily drool over the property, seeking ways to end his life, as M. Martinet becomes healthier and outlives them all. It’s silly and funny…as only and old French comedy can be!
Clearly, there are also risks, particularly when purchasing a viager occupé (occupied), because you never know how much you might end up paying for the apartment! But, if you do it right, you can end up with a valuable piece of real estate for very little, and, you could be laughing all the way to the bank in your twilight years!
A bientôt,
Adrian Leeds
The Adrian Leeds Group®
Adrian in her Paris Viager
P.S. ENTITLED STANDARDS, NONSTANDARDS AND ORIGINALS: Jazz pianist Joe Makholm of Paris and Willis Delony, the renowned Louisiana-based classical and jazz pianist, are playing in concert on two pianos at the American Church in Paris on Sunday, October 20th at 7 p.m. Original compositions by Makholm and Delony. Admission is FREE! Space is limited. Reserve your space by email.
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Fascinating and intriguing. Thank you for explaining the two kinds of Viager property schemes. The brain gears are turning! The story about Jeanne Calment was great too.