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Crunching the numbers on retirement villages

 

Retirement Village contracts are a mix of rights, responsibilities and costs – it is about weighing it all up and deciding what is best for you. When it comes to choosing the right village possibly the greatest determinant of your happiness is not in your contract, it’s “the vibe”.

There are a variety of lifestyle options from those offering an active lifestyle to those who provide care and support – and everything in between. Do your research, attend the open days and social events and make sure the village
(and the people that live there) is something you want to be a part of.

When it comes to your contract, your ownership or right to occupy in a retirement village is often a leasehold or licence but in some cases, it is strata title or even a company share or unit trust arrangement.

Retirement villages are governed by the state (or territory) legislation, typically the Retirement Villages Act. The legislation provides the framework that retirement villages must work within and determines the legal documents required (commonly contracts and disclosure documents) and regulates some but not all of the financial arrangements – typically retirement villages are not allowed to profit from running the village and in some states there
are rules about when a resident can be refunded their entitlement before their unit has sold.

When it comes to the costs of a retirement village I find it easiest to break it down into the ingoing, the ongoing and the outgoing.

 

The ingoing

This is the price you pay for your right to occupy your home and use the common facilities. Where the home is in a strata title village then the amount you are paying is to own the home and enjoy use of the common facilities (often through an owner’s corporation). In the case of strata title, you may need to factor stamp duty into the ingoing costs. In some cases, there may also be legal costs associated with having your contract drawn up.

 

The ongoing

In retirement villages residents pay a weekly or monthly fee to cover the running of the village, often called a “general service charge”.

The General Service Charge is similar to the costs of an owner’s corporation, where a budget is prepared, residents are able to have input, and the costs are apportioned either based on the unit or the number of occupants.

In addition to the general service charge, you will have your own personal expenses: groceries, utilities, travel etc.

Some retirement villages also offer extra services like cleaning, meals and even care either through employees or external contractors with whom they can negotiate a better price through a “bulk buy”. These services are often provided on a user pays basis, so if you are going to use them you should factor them into your budget.

 

The outgoing

The greatest confusion comes from the exit fee, the biggest part of which is typically the deferred management fee (DMF), but can also include sales and marketing expenses and the cost of repairs or improvements to your unit.

The DMF is normally a percentage of your purchase price or the resale price, anything between 25% and 40% is common and may also include a sharing of capital gain with the operator.

Moving to a retirement village can have wide ranging consequences on your personal finances. It is important to understand the impact on your pension and eligibility for rent assistance, Home Care Package costs, the ability to afford living in the community and the amount of money that will be received when the unit is sold or the amount paid under a guaranteed buyback and how quickly this will occur. All of these factors will impact on the long-term
asset position which needs to be considered in light of the next move – aged care.

Crunching all of the numbers and weighing up your rights and responsibilities can be complicated, but it’s necessary to ensure there are no surprises down the track. The right advice is a good investment.

 

The information contained in this article is general in nature and does not constitute legal or financial advice.

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