How do you invest in real estate after your retirement?
‘aOnly investing in real estate when you are retired is not a good idea, because then you put all your eggs in one basket, ‘warns Nicolas Cellières, consultant at Optivy.
He is also tempering expectations about the yield. Anyone who invests in real estate for rent pays 10 percent registration tax in Flanders on the purchase. In Brussels and Wallonia this is 12.5 percent. You pay 21 percent VAT for a new building. ‘The entry costs are therefore relatively high. You should also think of the property tax, management, costs and any vacancy. If you include all that, I’m not so sure about the net return. ‘ What do you have to take into account if you invest in bricks after your retirement?
1. The mortgage loan
The age of the buyer inevitably plays a role in the conditions for granting a mortgage loan. A bank judges differently about a 20-year loan for someone in their thirties than for someone in their eighties. “Although there is no rule that determines the age before which a mortgage loan must be repaid,” says Valéry Halloy, BNP Paribas Fortis spokesperson.
In general, a customer must have repaid his home loan when the oldest borrower has reached retirement age. Most banks assume that a loan must be repaid by the customer’s 70th birthday. However, some banks accept longer durations, up to 85 years, in specific cases.
We usually recommend getting rid of real estate at the stage when you start thinking about succession.
‘Every situation is different. A decision is taken individually for each personal file. Several factors play a role, ‘says Halloy. The judgment largely depends on the project, the requested capital, the repayment capacity, the debts, and the guarantees that the customer can and / or wishes to pledge. In this respect, a credit application from a person over 65 does not differ from that of a younger person. Banks want to be sure that you can also repay your loan after you retire.
People over 65 have usually repaid their first loan, but they often also have a lower income after their retirement. Retirement age is synonymous with a fall in income. And that is precisely the criterion that banks must take into account when calculating the risk, ‘says Halloy.
‘The banks can attach restrictions to the duration of a loan. For example, someone of 80 years of age will most likely no longer receive a loan with a term of 20 years, ‘says Halloy. The financial institution may also ask you to take out outstanding balance insurance so that your loan is repaid in the event of your death. But the chance that you can take out outstanding balance insurance decreases considerably as you get older. ‘
2. The type of property
A house, student room, garage, apartment, hotel room… There are many types of real estate in which you can invest. But once retired, the owner does not always feel like spending a lot of time managing the property he is renting out. ‘The choice depends on the buyer’s motives, on the opportunities, but also on his health, his family and his wealth. Every case is different, says Cellières.
If you are looking for a return and are not afraid of management, you can opt for student residences or even a single-family home that you rent out in co-rent. On the other hand, if you do not want to spend too much time on your property, a classic apartment or garages will better meet your expectations. Be aware that a new-build home will normally also incur less (maintenance) costs in the first years than an older home.
3. Succession planning
Important when purchasing real estate at a later age: think about how you want to transfer the real estate to your heirs. That’s important with a view to a future legacy. Because that way you can limit the inheritance tax. “We usually recommend getting rid of real estate at the stage when you start thinking about succession,” says Cellières.
How much inheritance tax your heirs have to pay depends on the size of the inheritance. In Flanders, the rates in a straight line and between partners are 3 percent (up to 50,000 euros), 9 percent (50,000 to 250,000 euros) and 27 percent (more than 250,000 euros).
Most banks assume that a loan must be repaid by the customer’s 70th birthday.
You have several options for limiting that inheritance tax: a purchase through a company, an agreement in the name of your heirs, a split purchase (where parents only buy the usufruct of the property and the children the bare property), or a purchase that is for 99 percent is done by the buyer and 1 percent by the heirs. Not every options is always favorable.
‘The purchase with a company is not at all appropriate for residential real estate that you want to rent out. When it comes to professional real estate, it is worth considering, ‘says Cellières. Nor is he a fan of a purchase made in the name of the heirs. In that case, the buyer will declare the income from the letting of the property, because he is not a usufructuary.
The asset management specialist considers the split purchase to be the most appropriate in the context of the transfer of a property. Then you can live in or rent out the purchased property. After your death, the usufruct will cease to exist and your children will automatically become full owners. As a result, the house does not end up in the estate and no inheritance tax is owed on it. “It is a real right that expires when the usufructuary dies.”