Let’s say you buy a home for $100K in 1990 and today it’s worth $1M. You have $900K in appreciation, which sounds good and all. But what can you do with that $900K in appreciation?
You could sell the property, but assuming that you want to live in the same neighborhood in a similar home, you’d end up underwater. The $1M home you sold will only net you something like $700K in cash because of realtor commissions and capital gains taxes. So if you sell your home and stay in the same neighborhood, you’ll just end up swapping a $1M home for a $700K one.
Another option is taking out a loan against the $900K in equity on your home. You could take out a loan for a large sum of money and put up the $900K in equity as collateral. But even then, you’d have to pay interest on that loan which isn’t great.
At this point, you’re probably thinking that I’ve presented a bunch of shitty options without much of an actionable recommendation.
But you’d be wrong, because I do have an actionable recommendation: Buy a home in France.
In France, there’s a type of financial arrangement called a viager, which allows you to easily take advantage of that home appreciation.
With a viager, a homeowner sells their home at a discount to a prospective homebuyer, but there are a couple catches for the homebuyer:
The homebuyer only takes ownership of the home once the homeowner dies.
The homebuyer must pay regular monthly payments to the homeowner until the homeowner dies.
Theoretically, this is a win-win for both parties. Homeowners get to live in their home until they die while liquidating the equity in their home. Homebuyers, meanwhile, get a discount on a home.
There certainly are risks to viagers though.
For homeowners, the risk is that they die shortly after entering the financial arrangement, resulting in them selling the home at an unnecessary discount.
For homebuyers, the risk is that homeowners end up living a very long life. Jeanne Calment, for example, sold her home through a viager when she was 90. She ended up living until the age of 122, outliving the homebuyer in the process.