{"id":9609,"date":"2024-11-07T15:44:47","date_gmt":"2024-11-07T14:44:47","guid":{"rendered":"https:\/\/meine-renditeimmobilie.de\/?p=9609"},"modified":"2024-09-25T13:14:07","modified_gmt":"2024-09-25T11:14:07","slug":"buying-an-investment-property-with-a-usufruct-right-interesting-and-somewhat-complicated","status":"publish","type":"post","link":"https:\/\/meine-renditeimmobilie.de\/en\/buying-an-investment-property-with-a-usufruct-right-interesting-and-somewhat-complicated\/","title":{"rendered":"Buying an investment property with a usufruct right: Interesting and somewhat complicated"},"content":{"rendered":"

\r\n\tAn elderly lady wants to sell her apartment but wishes to continue living in it. Instead of the weaker right of residence, she desires a usufruct right. The purchase price is significantly below the market value due to the usufruct. Such a property can be worthwhile for investors who can wait for decades<\/em> without rental income and instead speculate on the value appreciation, which is greater than usual due to the reduced purchase price.\r\n<\/p>\r\n\r\n

\r\n\t

Usufruct is much more extensive than the right of residence<\/h2>\r\n\t

\r\n\t\tBoth usufruct and the right of residence are entered in the land register.\r\n\t<\/p>\r\n\t

\r\n\t\tBoth usufruct and the right of residence remain in effect during sale, inheritance, and donation.\r\n\t<\/p>\r\n\t

\r\n\t\tBoth usufruct and the right of residence are tied to the beneficiary and cannot be transferred, and they end with the beneficiary’s death.\r\n\t<\/p>\r\n\t

\r\n\t\tHowever, only with usufruct may the beneficiary not only live in the property but also “draw fruits<\/strong>,” that is, rent it out.\r\n\t<\/p>\r\n\t

\r\n\t\tThis is particularly interesting if the usufructuary has to move into a care home.\r\n\t<\/p>\r\n\t

\r\n\t\tWith the right of residence, the usufructuary no longer benefits if they move out.\r\n\t<\/p>\r\n\t

\r\n\t\tWith usufruct, the usufructuary can rent out the usufruct apartment, for example, to pay for the care home.\r\n\t<\/p>\r\n<\/section>\r\n\r\n

\r\n\t

Usufruct property: Advantages and disadvantages<\/h2>\r\n\r\n\t

Advantages<\/h3>\r\n\t

\r\n\t\tWhat makes usufruct properties interesting is that the demand here is significantly lower than for “normal” properties due to the complexity. This considerably strengthens the buyer\u2019s negotiating and structuring power, as many competing buyers drop out suddenly.\r\n\t<\/p>\r\n\t

\r\n\t\tInteresting locations: Usufruct properties sometimes offer properties in desirable locations that would otherwise be scarcely available.\r\n\t<\/p>\r\n\t

\r\n\t\tThere is no risk of rental loss due to the lack of rental income.\r\n\t<\/p>\r\n\t

\r\n\t\tThe usufructuary is responsible for many things, including costs, requiring less time investment than a tenant.\r\n\t<\/p>\r\n\t

\r\n\t\tThe usufructuary, as the previous owner and due to their advanced age, usually treats the property carefully. Therefore, investment properties located further away are feasible with less time effort.\r\n\t<\/p>\r\n\t

Disadvantages<\/h3>\r\n\t

\r\n\t\tThe most uncertain factor in usufruct properties is the dependence on the seller’s lifespan. If the seller lives longer than the statistical life expectancy on which calculations are based, this damages the buyer’s yield.\r\n\t<\/p>\r\n\t

\r\n\t\tA potential source of conflict is renovations and refurbishments. Typically, the new owner has to cover major, infrequent expenses, while the usufructuary covers smaller, regular expenses. However, individual arrangements can differ.\r\n\t<\/p>\r\n\t

\r\n\t\tFinancing a usufruct property as an investment object requires a lot of equity or a high income, as no rental income is generated until the usufructuary’s death.\r\n\t<\/p>\r\n\t

\r\n\t\tThe buyer wants a good, constructive relationship with the usufructuary, as both are now emotionally and financially invested in the property and will interact regularly, especially regarding maintenance issues.\r\n\t<\/p>\r\n\t

\r\n\t\tAt the same time, the buyer hopes for the usufructuary\u2019s early passing to finally realize the property’s financial potential.\r\n\t<\/p>\r\n<\/section>\r\n\r\n

\r\n\t

Reserved usufruct, bestowed usufruct, bequest usufruct, support usufruct<\/h2>\r\n\t

\r\n\t\tThere are various forms of usufruct:\r\n\t<\/p>\r\n\r\n\t

Reserved Usufruct<\/h3>\r\n\t

\r\n\t\tThe usual form, with more flexibility than the bestowed usufruct. Parents gift the house to the child but reserve the usufruct.\r\n\t<\/p>\r\n\t

\r\n\t\tAny rental income still belongs to the parents. The parents also do not pay rent to the child. This reduces the value of the gifted property for the child.\r\n\t<\/p>\r\n\t

\r\n\t\tFor calculating the gift tax, the property value is reduced by the usufruct value. The child inherits the parents’ depreciation deductions (footprint theory). The usufruct value is calculated based on official tables<\/a> that consider statistical life expectancy.\r\n\t<\/p>\r\n\t

\r\n\t\tExample: The usufructuary is a 65-year-old woman, the property market value is 600,000 EUR, and the usual annual net cold rent is 18,000 EUR. In this case, the property would be worth approximately 372,500 EUR, and the usufruct would be worth 227,500 EUR.\r\n\t<\/p>\r\n\t

\r\n\t\tThe older the usufructuary, the less the usufruct is worth, and the more the property is worth.\r\n\t<\/p>\r\n\r\n\t

Bestowed Usufruct<\/h3>\r\n\t

\r\n\t\tFewer structuring options than reserved usufruct and, if used at all, only within complex tax optimization structures.\r\n\t<\/p>\r\n\t

\r\n\t\tParents do not<\/strong> gift the house to the child. They retain ownership of the house but want the child to receive the rental income.\r\n\t<\/p>\r\n\t

\r\n\t\tInstead of reserving the usufruct and gifting the property, they do the exact opposite.\r\n\t<\/p>\r\n\t

\r\n\t\tThe child must pay taxes on rental income and may have a lower tax rate than the parents, thus achieving a tax saving.\r\n\t<\/p>\r\n\t

\r\n\t\tHowever, the bestowed usufruct, like the property itself, has value and must be taxed by the child under the gift tax.\r\n\t<\/p>\r\n\t

\r\n\t\tThe child does not inherit the parents’ depreciation and does not have its own depreciation potential, as the property remains with the parents.\r\n\t<\/p>\r\n\r\n\t

Bequest Usufruct<\/h3>\r\n\t

\r\n\t\tThe testator instructs that his heirs must grant a third party a usufruct right for a specific property. Thus, a bestowed usufruct is indirectly given by the heirs to the usufructuary.\r\n\t<\/p>\r\n\r\n\t

Support Usufruct<\/h3>\r\n\t

\r\n\t\tThe owner grants another person, e.g., a partner, a usufruct right during their lifetime. For example, the partner should be allowed to live in the property for life after the owner\u2019s death.\r\n\t<\/p>\r\n\t

\r\n\t\tThe property or the part of the property belonging to the usufruct grantor should not go to the partner, but the partner should be secured by usufruct.\r\n\t<\/p>\r\n<\/section>\r\n\r\n

\r\n\t

Property with usufruct right as an investment<\/h2>\r\n\t

\r\n\t\tSince typically no rental income is generated for about 10-30 years after purchase, obtaining a mortgage for such a property is challenging.\r\n\t<\/p>\r\n\t

\r\n\t\tAlternatively, it may be possible to arrange installment payments with the seller and future usufructuary, bypassing bank financing.\r\n\t<\/p>\r\n\t

\r\n\t\tThe seller may not need the full purchase price immediately. This is riskier for the seller than receiving the full purchase price upfront, as is customary.\r\n\t<\/p>\r\n\t

\r\n\t\tOn the other hand, this significantly eases the buyer’s financing. Common options here are life annuity<\/strong> and term annuity<\/strong>. The specific terms can be individually agreed upon through a notarized purchase contract.\r\n\t<\/p>\r\n\t

\r\n\t\tWith a life annuity, payments end upon death. With a term annuity, payments continue for a certain period. Alternative terms can be agreed upon, e.g., a life annuity with a minimum 10-year term. If the annuity recipient dies before the term expires, the remaining payments go to the heirs.\r\n\t<\/p>\r\n<\/section>\r\n\r\n

\r\n\t

If the usufructuary lives a very long time<\/h2>\r\n\r\n\t

\r\n\t\tA French lawyer bought an apartment in 1965 at the age of 47 in exchange for a life annuity from Jeanne Calment<\/a>.\r\n\t<\/p>\r\n\t

\r\n\t\tThe future life annuity recipient, Jeanne Calment, was 90 years old when the contract was signed.\r\n\t<\/p>\r\n\t

\r\n\t\tContrary to expectations, the buyer did not<\/em> outlive the annuity-entitled seller, although he was 43 (!) years younger.\r\n\t<\/p>\r\n\t

\r\n\t\tWhen the buyer died of cancer at 77, his accumulated annuity payments had already reached twice the market value of the apartment.\r\n\t<\/p>\r\n\t

\r\n\t\tSince the annuity recipient was still alive, his wife had to continue paying the annuity to Jeanne Calment.\r\n\t<\/p>\r\n\t

\r\n\t\tAlmost two years later, the annuity recipient finally died at the documented age of 122 (!).\r\n\t<\/p>\r\n<\/section>\r\n\r\n

\r\n\t

Usufruct and social benefits<\/h2>\r\n\t

\r\n\t\tAs mentioned above, the usufructuary can rent out the property. These rental incomes are added to the social benefits recipient\u2019s income.\r\n\t<\/p>\r\n\t

\r\n\t\tBut what if the usufructuary leaves the property vacant? There is no<\/strong> obligation for the usufructuary to rent out or otherwise economically use the usufruct property, according to the Cologne Higher Regional Court.\r\n\t<\/p>\r\n\t

\r\n\t\tThus, theoretically possible but unrealized rental income is not counted.\r\n\t<\/p>\r\n<\/section>\r\n\r\n\r\n","protected":false},"excerpt":{"rendered":"

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