How to calculate the value of the bare property
With the crisis affecting several years and public pension systems, he has picked longstanding practice that allows owners of a good property to negotiate the writings of the same, retaining the right to use and enjoy.
It is a very commendable way of making money counting on what often turns out to be the greatest assets obtained in productive life. The lack of forecasts makes it necessary to resort to this figure, but how to calculate the value of the bare property?
A very simple formula
Actually calculating the reference amount for bare home ownership is pretty straightforward. The current market value of the property is involved in the calculation and, depending on whether the usufruct is for life, the age of the owner is taken into account; if it is temporary, then the agreed term is taken.
In principle, it must be said that in reality the form of calculation that yields is the value of the usufruct that of the bare property is deducted by subtracting it from the total value of the property in question.
We then start from the following:
Total Value = Usufruct Value + Naked Property Value
The formula that we mentioned above for the calculation of the usufruct is expressed as follows:
Usufruct Value = Total Value x Factor
If the usufruct is for life, the indicated factor is calculated as follows:
Factor = (89 - Usufructuary Age) / 100
It must be considered in this scenario that this factor has minimum and maximum limits that range between 0.1 and 0.7, or what is the same, between 10% and 70%.
If instead the usufruct is temporary, the factor is determined as follows:
Factor = (Term x 0.02)
Practical examples
To better illustrate the application of the formulas shown, let's go through a couple of examples alternating the negotiation mode.
Let us suppose that Pablo owns a house valued at 120,000 Euros and is seriously considering giving up the bare ownership of it to receive in exchange an income that complements the pension he has just obtained since he has reached his retirement age: 65 years.
Usufruct for life
Case 1: Life annuity (life usufruct)
Usufruct value = 120,000 x = 120,000 x 24%
Usufruct value = 28,800 Euros
Now by difference we can determine the value of the bare property:
Naked property value = Total value - Usufruct value
Naked property value = 120,000 - 28,800 = 91,200 Euros
Temporary usufruct
Case 2: Temporary income for 15 years (usufruct for 15 years)
Factor = 15 x 0.02 = 0.3
We then have that:
Usufruct value = Total value x 0.3 = 120,000 x 30%
Usufruct value = 36,000 Euros
As in the previous case, by difference we obtain the value of the bare property:
Naked property value = Total value - Usufruct value
Naked property value = 120,000 - 36,000 = 84,000 Euros
Reference values for trading
The results of these operations offer a reference from which to initiate a negotiation between the two parties: the individual who requires the rent and the investor who will eventually - upon expiration of the usufruct term - will once again monopolize full ownership of the property.
The terms of the delivery of the rents and the amount of each one of these will be stipulated in the drafting of the respective contract; however, carrying out the previous calculations allows us to analyze the convenience of the transaction a priori.
Given that these contracts are products of negotiations between the two parties, other factors may have an influence so that it is not precisely the calculation that prevails to determine the value of the bare property and, consequently, of the income to which the company is committed. Investor.
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However, it must be emphasized that whatever the agreement, for audit purposes, it will be this form of calculation that is applied to determine the tax amounts of both actors.