What is housing reverse?
Housing reverse, is a method of sale to rent for life, with the particularity that the seller does not have to pay the rent. Is articulated through two contracts, one of purchase and sale and other rentals, in the following way:
- The buyer agrees to pay the seller for a first payment to the formalization of the operation, plus other deferred payment in monthly installments over a number of months depends on the age of the seller.
- The seller, as tenant, happens to have a lease for life, by the one who has to pay an amount, in respect of the rent, which is the same as that received in respect of a deferred payment for the contract of purchase-sale.
Therefore, during that period subsequent to the purchase-sale, the deferred payment that makes the buyer is neutralized with the payment of the rent that has to be made by the seller. for all practical purposes, the result for the seller/tenant is not receiving the deferred payment by the buyer, but do not have to pay the rent. That is to say, it receives a significant amount to the firm, and it stays as a tenant, but without having to pay the rent for life.
After this first period of deferred payment and payment of rent, the seller/tenant will pay rent in the amount equivalent to the expenses of a community of ordinary housing.
Housing reverse, as such, is not a term or a legal concept, not a brand, but that is a generic name that has been adopted for this mode of sale with rental life.
Example of housing in reverse
Suppose the case of a woman of 77 years who have a house in Madrid, valued at 665.000 €. You set a price for the purchase of the 480.000 €. The discount due to that the buyer agrees to rent the property with a lifetime, and therefore will not be able to dispose of it freely for a period of time, a very long and indeterminate.
The transaction would be structured in the following way:
- The buyer undertakes to the seller for a first payment of just over € 400,000 to the date (less the amount of the month of security deposit), plus another deferred payment of 80,000 € for 84 months at the rate of 952,40 € per month. That is to say, the buyer agrees to pay a total of 480,000 €.
- The seller, as tenant, goes on to provide a rental agreement, which must be paid during the 84 first few months 952,40 € per month. From the month 85, you will start to pay in rent only the amount of the expenses of community.
Therefore, during the 84 first few months, the deferred payment that makes the buyer is neutralized with the payment of the rent that has to be made by the seller. For practical purposes, the result for the seller/tenant is not receiving the deferred payment by the buyer, but do not have to pay the rent in that period.
It has the advantage over the sale of the nuda property in case of death before the 84 first few months, the rental agreement is terminated (stop paying rent), but the deferred payment itself is made, resulting in as much as a coverage in case of premature death.
Although at the time of registration will receive less money than the theoretical value real, the fact that you set a rental price is much lower than the market could be an option to consider, because it gives the peace of mind of not having to manage the money to pay the rent for life, the stress that can result from certain ages.
To put it in perspective, let’s compare this case with a sale with rental guaranteed traditional.
Comparative housing reverse sale and rent for life traditional
Let us imagine the case above, but making the sale with a rent for life traditional. The seller would receive in the moment of the signature 665.000 €, and would be formalised in a contract of rent, but in this case at market price, which could be a monthly expense of 2.771 €, or annual 33.250 € (5% of the purchase price).
It is very important to consider any operation of this kind, to know at least the theoretical life expectancy of the operation. In this case, the tables INE given a life expectancy of 12 years, and the tables PER 16-years. We use 14 years for example.
In 14 years of renting, the seller shall pay (and without taking into account the rise in the rent) 465.500 €. That is to say, of the 665.000 that receives the signature, you must “book” 465.500 € to be able to pay the rent for 14 years. Would 199.500 € to dispose freely, which is much less than the 400,000 € that would be available with the housing reverse.
It is a simplified example, since we have not considered, that the seller could invest the money received, but neither the buyer will be raising the price of the rental, and also that in both cases after the conclusion would have to deal with the payment of the surplus-value municipal (IIVTNU), but in any case, if you want to keep the possibility of continuing to live in the house for life, the housing reverse may be a better option that the sale to rent for life traditional.
Housing reverse vs reverse mortgage
They are two terms that can be confusing, and even with both solutions you can get money with the housing and continue to enjoy it, legally and financially have nothing to do.
The reverse mortgage is a loan for seniors, therefore not transmitted to the ownership of the home. , The money obtained is in the form of a loan, with the particularity that there is no return nor principal or interest during the life of the owners of the operation. After the death, the heirs are to receive the property as a part of the inheritance, with the debt generated up to that time. And this fact is key, because during the entire period of the loan, while they build up the interests, in many cases, the revaluation of the property means that in the time of the inheritance, the value of the property is significantly higher than the debt. Therefore, the heirs are going to take advantage of inheriting the property.
There are other important differences:
- The reverse mortgage can be canceled, not the operation of housing reverse. A person can do a reverse mortgage, and after a few years considering to sell the home, or sell the bare property, or even to make a home reverse. Logically, at that time the amounts received by the new operation would be used to cancel the reverse mortgage, but would allow the holder of the reverse mortgage to get extra money.
- In the event of a premature death, the economic loss suffered with a reverse mortgage is much lower, given that the accumulated debt is very low with respect to the value of the home.
- To enter into a reverse mortgage, it is essential to receive independent advice, which guarantees a sale process more transparent and balanced.
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