All about the Sale with Guaranteed Rent

Nowadays there are several possibilities to sell your property and be able to continue living in it. From Mas Vida We have talked about the bare ownership And regarding the real estate annuity, this time it is the turn of the guaranteed rental, an interesting sales modality of which we are going to review all its characteristics and options so that you can understand what it is for and in which cases it is most convenient.

La Sale and Leaseback (also known as Sale & Leaseback) allows Seniors to sell their home, obtain in turn significant liquidity thanks to the income that this sale provides them and continue living in their home paying rent for the period of time they consider appropriate, even for life until their death if they so wish.

This formula is more flexible than the sale of the Bare Property of the house, but it has its peculiarities, which we will explain in detail below.

What is guaranteed rent?

Sale with guaranteed rent. It means selling Full Ownership of the property before a Notary Public, but with the advantage of continuing to live in it as a tenant thanks to a rental agreement that is signed with the new owner also before a Notary Public. The lease contract is also registered in the property registry, thus providing all the guarantees to the new tenants.

In this way, the figures of seller and buyer of any sale become tenant and lessor respectively:

How does the sale of a property with guaranteed rent work?

We review the most important points:

• Set the sale price. From Mas Vida we manage official appraisals and we make valuations of the houses with AVM models (Automated Valuation Model), comparative analysis of the values ​​of the area, future estimates on the area of ​​the property, calculation of the ordinary and extraordinary costs of the property (ITE, necessary reforms, improvements of housing, IBI), etc. It is important to note that, In a Sale with Guaranteed Rent, the sale price of the house usually has a discount of around 10% and 25% on the stipulated market value.
• Set the rental price: The rental price is set considering the current rental price that exists in the market for a home with the same or similar characteristics. As in the sale price, The rental price of the house is usually discounted by around 10% and 25% on the current market value of the rentals.
• Final conditions of the operation: Based on the sale and rental prices of the home, the profitability that the operation will have for the buyer is analysed, guaranteeing that it adjusts to the current market situation.

Requirements to make a Sale with Guaranteed Rental

Most important considerations in the Sale with Guaranteed Rent:

• The full domain of the house is sold, without the possibility of recovering it.
• The seller, who will become the future tenant, will have to have enough capital to meet the new monthly expenses related to renting his house.
• For the sale of a home through guaranteed rental, it is not as decisive to be over 65 years of age as it is in the sale of Bare Property and in the Real estate annuity. This is because the sale price and the rental amount are less penalized by the “age” factor.

Necessary requirements to carry out a Sale with Guaranteed Rent on your Home 

There is no prerequisite to be able to formalize a sale with guaranteed rent, other than owning a home. Therefore, the value of the property or the age of the current owners does not matter. It is valid even if the home has mortgage charges, as long as these can be cancelled with the amount received from the sale. However, the approach of this modality is mainly aimed at people over 65 years of age who wish to obtain a remarkable injection of capital with the sale of their property and at the same time maintain the use of it until they consider it appropriate.

Who is responsible for expenses and taxes?

Buyer / Lessor Expenses

• All expenses inherent to the sale.
• Mainland insurance.
• Notarial charges. Notaries have standardized rates with few differences between them.
• Property Registry Expenses. They are normalized expenses. If you need a mortgage, the agency costs. Expenses for establishing a mortgage.
• The IBI, the Real Estate Tax, will be paid by the owner of the property on January 1 of each year.
• Community fees. Extraordinary spills.
• Increase in personal income tax for income obtained from renting one's own home.

Seller/Tenant Expenses

• Normal expenses as a tenant of a home, the rental price and current expenses, water, electricity, gas, etc.
• Content insurance.
• The IIVTNU; -Tax on the Increase in the Value of Urban Land-. Old Municipal Capital Gains.

If you are over 65 years old and it is your habitual residence, you are exempt from paying personal income tax to the Treasury, although you are required to declare it.

There is a state deduction for people whose maximum tax base does not exceed €24.000, which will be 10% of the amounts paid for rent.

Types of sale with guaranteed rent

Sale with lifetime rental

The most common of all. Its operation is simple: the home is sold receiving the entire agreed price and at the same time the life rental is guaranteed until the death of the seller of the property.

Sale with rental at agreed time

For this modality, the sale of the home is carried out and the seller collects the entire agreed price. At the same time, a rental contract is specified for a certain period, after which time the tenant must leave the property. This type of sale is common in situations where you plan to change your address or when it is a second home whose use is not as common.

Sale with deferred price and rental for life or at an agreed time

This type of sale consists of a mixture of the two previous types. In this last option, the sale price is not received in its entirety, but it is received in instalments over a previously agreed period of time. This deferred payment is guaranteed in the Public Deed of Sale through a Resolutory Condition.

Ideal situations for this type of operation

The option of Sale with Guaranteed Rent can be the best solution for many Seniors due to its versatility. Since Mas Vida We have collected some situations in which this modality can be decisive:

• When the intention is to enjoy the home for a short period of time, so that practically a higher proportion of the market value of the home is obtained and the owners remain residing as tenants for a convenient period of time.
• When you must face pending payments that require a generous financial fund quickly. In these cases, the Sale with Guaranteed Rent allows to solve the economic problem without having the added concern of having to look for a new home to live in in the short term.
• If it is very old people, who need sufficient financial resources to cover their needs and care, but want to continue being cared for at home.

Frequently Asked Questions

If you want to know all the details about this type of sale you can access our Guaranteed Rental section through the following link. Additionally, we take advantage of this last part of the article to present the most frequently asked questions by our clients:

• Can a Sale with Guaranteed Rent operation be formalized on a home that is not the habitual residence?

Yes, it is possible to make a Sale with Rent on a second residence, although it is more common to do it on the habitual residence since it has more fiscal advantages.

• Can a Sale with Guaranteed Rent be made on a property that is not a home, for example, a premises, an industrial warehouse, a shop or an office?

Yes. Its operation is the same as if it is carried out on a home. However, it is important to point out that for the Elderly Person the characteristic tax advantages of the main residence would not exist.

• Is it possible to make a Sale with Rent on a home that is exclusive to one of the spouses?

Yes. The sale would be signed by the spouse who owns the home and the Lease Agreement would be formalized by both spouses so that both would have the same rights in their new condition as tenants.

• What taxes must be paid by an Elderly Person who makes a Sale with Rent?

Older Persons who constitute an operation of these characteristics must pay the corresponding Municipal Capital Gains Tax in their capacity as Sellers. Regarding the capital gain generated by the sale, if the Seller is over 65 years old and what is transferred is her habitual residence, it is exempt from IRPF taxation. If the transferred property is not the habitual residence, then the capital gain will be taxed at 19% if the profits reach a maximum of €6.000, at 21% if the profits are between €6.000 and €50.000, and at 23% if they exceed the €50.000.

• Does the Elderly Person have any tax advantage or exemption as a new tenant?

Currently, there is a state deduction for tenants, so that those people whose maximum tax base does not exceed €24.107,20 may apply a deduction of 10,05% of the amounts paid for rent, always taking into account a maximum limit established by law.

Advantages obtained with the guaranteed rental

• Injection of liquidity with which you can both get rid of your financial burdens and give yourself those whims that you have always wanted.
• The amount of sale that is received with the guaranteed rent It is greater than what is received with the sale of the bare property.
• Once the transaction is completed, the seller will only have to pay the Municipal Capital Gains Tax, since the rest of the expenses (notary, Property Registry, Property Transfer Tax and Documented Legal Acts) will be assumed by the buyer. In addition, will stop assuming certain expenses maintenance of the property, such as the ordinary community fee, the Real Estate Tax, the extraordinary spills and the home insurance. That is, the only expenses that the seller will have to assume once the operation is formalized are the supplies (water, electricity, etc.).
• The Guaranteed Rent has all legal guarantees, since it is an operation that is formalized in a Public Deed before a notary and is registered in the Property Registry. Likewise, it has a excellent tax treatment for the elderly, since those operations constituted on a habitual residence are exempt from taxation in the IRPF.
• The Rental Agreement, which is established simultaneously with the sale, is also elevated to public, being registered also in the Land Registry, which guarantees the Elderly Person, in accordance with the provisions of the Urban Leasing Law (art. 13.1. LAU), that neither the buyer nor those who may have future rights over that property can terminate the rental contract or modify their conditions.