When you start shopping around retirement villages looking for your new home, you will be confronted with a myriad of different products, contracts, prices and fee structures. So how can you tell if a home is reasonably priced, or if you are being ripped off?

The very first cost you will face is the asking price. How can you tell if the asking price is reasonable or inflated, or actually represents a good buy?

The prices of retirement village units typically mirror those in the surrounding residential property sector, so initially the best way to assess the reasonableness of the asking price is to compare it with similar properties (ie, a 2 bedroom unit in a retirement village vs a 2 bedroom unit) in the neighbouring suburbs. The best and easiest way to compare prices is to arrive at a ‘cost per square metre’ for the properties.

You derive a cost per square metre by dividing the asking or sale price of a property by the total square metres of the internal built area. Next you find the average price per square metre of all the units you are comparing by dividing the total of all the asking prices by the total of all the internal areas.

The deviation from the average is the percentage difference between each unit’s price per square metre and the average price.

The total square metres of a unit considers internal floor space only and should not include areas such as balconies, pergolas, garages and decking. This is because these areas typically cost less than the internal built area and can vary greatly in size.

Most retirement village sales brochures feature floor plans with the size of each area clearly identified. For comparable local residential properties, simply scan the existing list of properties for sale in the area in the paper or on the internet, or speak with local real estate agents.

Don’t bother asking your real estate agent friends to check past sales of retirement village units on their RP Data database because they won’t be their. Sales of retirement village units do not show up on these reports, as they are not considered ‘freehold sales’.

The price per square metre calculation does not include land area, so if you are comparing detached or semi-detached retirement houses or villas, then remember to include the size of the land area in your considerations, although not in your calculations. If you examined two directly comparable units, one of which had a larger land plot, the unit with the larger land plot should have a higher purchase price because land generally has a higher value than built structures.

The price per square metre calculation for all your comparison properties should be roughly similar. Variances can usually be attributed to variations in the quality of the finishes, the age of the building, the location or whether the unit has views/perspectives.

Directly comparable properties (those of equivalent age, standard and condition) should be much the same price. This provides you with a good indication of the benchmark price for a particular style of property in a particular area, and a good base from which to start your price negotiations with the vendor.

Some retirement village operators claim that village units cost around 80 to 85 per cent of comparable residential properties. In my experience, however, retirement village units are typically equivalent in price or even higher than comparable properties in the same area.

The material in this blogpost has been taken from our new book “Don’t buy your Retirement Home without ME!”, published through Wiley Press and available in all good bookstores from Feb 2012.

Not-for-profit ain't necessarily so...

Many people are attracted to the idea of living in a retirement community operated by a not-for-profit (NFP) organisation because the purchase contracts will be more reasonable. But is this necessarily the case?

The retirement home sector has traditionally been dominated by the NFP sector, such as church groups and charitable associations. Over the last decade the sector has attracted significant interest from “for-profits” such as investment banks and property companies, to the extent that more than half of the retirement villages in the country are now owned by the for-profits.

I think you could safely say that that the NFP’s were originally motivated by a strong sense of “mission” in building their portfolios of retirement village assets. In fact, the much-maligned Deferred Management Fee scheme was created by the NFP sector, who discounted a property by 20-30% off the market value to allow the struggling retirees to purchase a unit, and then made the discount back via the deferred management fee when the resident departed the complex.

Today however, there is little difference between the purchase contracts offered by NFP’s and for-profits. Both use deferred management fee schemes with great effect to their bottom lines. Some NFP’s do allocate a portion of their community to subsidised housing, although this is not common.

It is hard to make a generalisation about the best owners/operators of retirement villages, as they are all very different. On one hand it would seem that NFP’s would have your best interests at heart because they are, well, not-for-profit. However NFP’s do try and make money from their operation to (I assume) fund other social ministries supporting the community that don’t make money.

It could also be argued that NFP’s are not as efficiently run as for-profit organisations and they certainly wouldn’t attract the same quality of executives as a Lend Lease, AMP or Stockland. The larger listed companies are also very sensitive to adverse publicity and are likely to be more responsive to resident concerns.

As a very general rule, we would recommend finding answers to the following questions when selecting your village owner/operator:

• Does your owner/operator have a strong balance sheet (ie, no more than 30% debt as a proportion of their assets)?
• Is retirement living their core business?
• Are they in the retirement living business for the long term?
• Is there a corporate/head office structure dedicated to retirement living sitting behind the village management?
• Are they too focused on expanding their portfolio by developing new communities?

Many people are confused about the difference between a retirement community and an aged care facility, and I would certainly agree that the lines appear to be blurring between the two.

So what is a retirement village?

A retirement village is basically whatever is defined as a retirement village in your state or territory’s retirement village legislation. Typically, the legislative definition describes it as a property where retired or older people reside, and they purchase a right to occupy (usually via a lease or licence to occupy) and may purchase additional services for a fee. A village needs to be registered under the state retirement villages act in order for it to charge all of those weird and wonderful fees like deferred management or exit fees.

However, you may have heard of other retirement living facilities such as an Over 50′s or Over 55′s village, or a lifestyle resort. These complexes typically sell you the freehold title to the built structure (the house) and then lease you the portion of land it sits on. These developments come under the state or territory’s manufactured homes legislation, usually the same legislation that covers caravan parks and the like.

Other retirement-style facilities include freehold complexes, where you own the freehold title to the unit. These facilities may or may not be registered retirement villages and may or may not charge all of the same fees (such as deferred management or exit fees) that you will find in a village operated under the retirement villages legislation.

There are around five different types of purchase and occupancy arrangements for retirement villages and each one has its own framework of fees, charges and complexity. Generally speaking, the occupant pays an upfront fee similar to the freehold value of the property, then a small regular fee during their occupancy, and a larger deferred fee upon exit.

Retirement villages are typically targeted to retirees who can live independently, although many villages now offer some care services as well.

Aged Care on the other hand, comes under the one Commonwealth Aged Care Act 1997, which dictates how the charges and occupancy is arranged. There is still a fair bit of discretion on the operators behalf as to the quantum of charges, and you should be sure to get good advice from a financial planner skilled in the aged care area before you sign anything. As with retirement communities, certain aspects can be negotiated and you should never rely on the company sales agent to give you the right advice.

Under the aged care model a resident may be charged for the care and services provided, as follows:

• Basic daily fee – as a contribution toward accommodation and costs of daily living.
• Income tested fee – as a contribution towards the costs of care.
• Accommodation payment – as a contribution towards capital accommodation costs.
• Extra services charge – applies to residents occupying extra service places (both permanent and respite) for the provision of a significantly higher standard of accommodation services and food.
• Additional service fee – where the resident requests or agrees to additional services (such as newspapers and hairdressing).

Aged Care facilities are targeted to seniors who need an element of nursing support in their day-to-day lives. This can range from a little assistance through to full palliative care. You can find out more on the Australian Government’s aged care website.

I think the confusion arises where you have retirement villages which offer an aged care facility within the same complex as the independent living units. These villages are called “integrated villages” and seek to offer a complete spectrum of care to alleviate the need for its resident’s to ever move again. Well-planned complexes will have the aged care area well separated from the independent living area so that able-bodied residents don’t mix with those who are requiring care.

Integrated facilities typically offer aged care as an incentive to potential purchasers interested in the independent living units, because this is where operators make their money. It is worth noting however that there is usually no guarantee to an existing resident of the village that there will be a place for them in the aged care facility, and they may still have to go onto a waiting list for a place. You may also have to sell your existing unit to fund your aged care place, and the fees associated with a sale of your residence can seriously deplete your capital base.

The aged care facilities within a retirement village may operate under the Aged Care Act 1997 and charge the purchase and occupation fees accordingly, or they may simply charge a weekly/monthly rental, or they may operate under the same deferred management fee schemes as the independent living units within the retirement village.

The whole area of aged care and retirement communities can be a real minefield. I strongly suggest that you find a good financial advisor who can guide you through the process and make sure you get the best deal you can.

If you would like to know more about Aged Care, Noel Whittaker and Rachel Lane recently published a book called “Aged Care – Who Cares?”. To promote the book they are running a series of aged care seminars in Brisbane, Sunshine Coast and the Gold Coast. The seminars are free and I would strongly encourage you to attend if you are interested in learning more about aged care.

The details for the general public seminar are attached here: WM Invitation – Aged Care Public Sessions 2011. Make sure you call to book your seat – previous seminars have booked out.

The details of the seminar aimed at aged care operators and industry is attached here: WM Invitation – Aged Care Industry Conferences 2011.

Queensland has around 190 registered retirement villages, with many of these located around Brisbane and the southeast corner of Queensland, including the Gold and Sunshine Coasts. The region is popular with retirees due to its pleasant climate, beaches and easy access to quality hospitals and health care. Many of the villages located near the Brisbane CBD are older villages, built around 30 years ago. The newer villages are located in suburban fringe locations where retirement village developers have been able to access large plots of land.

When considering where to live in Brisbane, the first decision you need to make is “which side” of Brisbane to live in. This could be the north side, as far up as Bribie Island or Caboolture, east in the Redlands region, south, as far as Logan, or west, out as far as Ipswich.

Understandably, the closer to the Brisbane CBD you want to live, the more expensive it is. For example, a two bedroom apartment close to the CBD may be $400-$500k, whereas a similar standard of apartment may be accessed for around $250k in the more regional locations.

Living in a retirement community can be a great lifestyle choice for retirees. Unfortunately, the process of buying a home in a retirement village is complex and confusing, with many hidden traps and charges awaiting the unwary buyer. It is important that you get good, independent advice and don’t just rely on what the village sales agents are telling you. Find My Retirement Home is a Brisbane-based independent advisor and buyer’s agent specialising in retirement homes. You can give us a call on 1300 425 442.

Retirement villages in Queensland are administered by the Department of Fair Trading.

There are five ways that retirees are able to own or occupy a retirement home in Brisbane. You can learn about the five different ways HERE.

One of the most difficult issues for the buyers of retirement homes to understand is that of Exit Fees, also known as departure fees or deferred management fees. You can learn more about Exit Fees on my video tutorial HERE.

If you would like to conduct an online search for the retirement villages available in and around Brisbane, please go HERE.

In NSW, a retirement village is defined as any residential complex predominantly occupied by retired persons aged over 55 years. These residents have entered into some form of contractual arrangement with the owner or operator of the village, usually in the form of a loan/lease or loan/licence agreement.

According to the NSW Dept. of Fair Trading, there are approximately 591 retirement villages across NSW, accommodating more than 36,000 residents.

Living in a retirement community is a great lifestyle choice for retirees. Unfortunately, the process of buying a home in a retirement village is complex and confusing, with many hidden traps and charges awaiting the unwary buyer. It is important that you get good, independent advice and don’t just rely on what the village sales agents are telling you.

There are five ways that retirees are able to own or occupy a retirement home in NSW. You can learn about the five different ways HERE.

One of the most difficult issues for the buyers of retirement homes to understand is that of Departure Fees, also known as exit fees or deferred management fees. You can learn more about Departure Fees on my video tutorial HERE.

If you would like to conduct an online search for the retirement villages available in NSW, please go HERE.

A sign you don't want on your door in a retirement village!

We have all heard stories about retirement village residents being kicked out of their homes, but is it really such a big issue?

A retirement village resident’s tenure in their unit is determined by the nature of the purchase or occupancy contract they signed when moving into the village. The nature of the purchase or occupancy contract is determined by the legislation under which the retirement village operates.

For example:

The occupancy contract, whether it is a lease or licence, determines the nature of a resident’s tenure and outlines the circumstances in which a resident can legally be ejected from the retirement village. For strata freehold communities these issues are covered under the strata community by-laws.

Typically, the only circumstances that allow for the legal removal of a resident from a retirement village revolve around a breach of the terms of the lease, licence, village rules or community by-laws. The resident is usually provided with a period of time in which to rectify the breach before any further action is taken.

Some contracts contain clauses that allow for the village operator to “move on” a resident in the event that they are deemed to require higher care than what is offered within their current residence or village. These clauses can allow rouge operators to apply this determination maliciously, so you should be careful to have your solicitor cross them out or weaken their application.

Other contracts may allow for a change in the retirement village ownership (including receivership) to trigger a right to buy back units and eject the residents, particularly if the complex is old or ripe for re-development. It is doubtful that the village operator would change this clause, so if you want better security of tenure, try somewhere else.

Most of the horror stories you do hear about in the media relate to rental retirement communities. In a rental retirement community the resident executes a lease with the individual unit owner, who could be an investor or a company that specialises in rental retirement villages.

The lease itself is governed by a states’ residential tenancies legislation and the only difference with a standard residential lease may be the provision of other services such as meals, laundry or personal care. Consequently, your tenure is determined by the lease term, typically six to twelve months. Once the lease term has expired, the owner of the unit is quite within their legal rights to either increase the rent, or eject the tenant and execute a lease with someone else.

Again, if you are looking for better security of tenure, I suggest that you either execute a very long term lease, or look for another kind of occupancy arrangement.

In conclusion however, it is worth noting that it is actually very rare for residents to be ejected from their units in a retirement village. Even if a village goes broke, the resident’s tenure is still secured by the terms of their lease or licence. It is similar to a large CBD office building – you wouldn’t see the tenants evicted simply because the owner of the building has gone broke, because their tenure is secured by the terms of their lease.

So don’t be too concerned about being kicked out of your retirement village – it is simply not that big of an issue.

I came across this great article recently from the Wall Street Journal talking about business entrepreneurship among the 50+ age group.

Did you know, for example, that rates of entrepreneurship are 50% higher for people between 55 and 64 than people between 20 and 34? Furthermore, rates of entrepreneurship among people ages 55 and 64 have generally been trending up since 2007, whereas rates for that younger group have stayed relatively flat (source: Kauffman Foundation).

It appears there are various reasons for this – many people struggle to find gainful employment if they are aged 50+ in the event that they made redundant from a middle to senior management job. In this event, people may not have a choice as to if they should start a business because there simply may not be any other options for them. At the older end of the spectrum, other retirees simply find that retirement is boring and they have all these great skills sitting there un-utilised.

I think the attitude towards retirement is changing.

People no longer dream of a retirement life of leisure simply sitting in a retirement village  and golfing, fishing or whatever. People can and do want to stay productive as long as possible.

Thankfully in Australia, advances in technology and our low rate of unemployment means that organisations are amenable to their workers tele-commuting or contracting. This type of work solution has really never been available before and allows retirees to become productive once again on their terms! No more 9-5 daily commute on inefficient public transport, the productive retiree of today can work from home, travel from home or set their own hours to be in the office.

And I think this is what retirement will ultimately become – simply just the opportunity to set your own work schedule doing something that you enjoy.

What do you think?

I was recently interviewed on the Sky Business channel, talking about retirement homes.

Here are some of the excerpts from the show…

Buying a retirement home is a complex and confusing business, with many hidden traps and fees to snare the unwary buyer. To make matters more difficult, there is a real lack of good quality independent information that prospective buyers can access to assist with their research.

Take for example, this report here, from the website www.villages.com.au.

The report claims to compare the cost of staying in your existing home against the costs of living in a retirement village. Based upon a couple of key assumptions, the report claims that you either break-even, or are slightly better off, by moving into a retirement village instead of remaining in your home.

I take issue with this report for two reasons:

Firstly, you are ALWAYS, and I repeat ALWAYS, going to be better off financially by staying in your existing home rather than moving into a retirement village, even if you have to get a mowing or cleaning service in to assist you with maintaining the property. This is because the buying and selling of property incurs large expenses that can take years of capital growth to off-set.

Secondly, a retirement village is about lifestyle, not cost. No-one moves into a retirement village to make or save money. You move into a retirement village because you want the benefits of retirement community living – security, social life and a low-maintenance property.

I also have an issue with their key assumptions:

The investable difference.

The report assumes that the retiree is able to sell their home and pocket (in this case) over $350k which is invested elsewhere. It would be great if this were the case for anywhere but the northern beaches of Sydney! Many people I speak with use most of the funds from the sale of their home to purchase a retirement unit. Remove this amount from the equation and the outcome is very different for the retiree.

Capital Growth.

The report assumes that a retirement village will experience the full capital growth of 7-10% pa whereas a standard residential home should only expect 70% of that growth assumption. Yet Derek MacMillan, a director of the Retirement Villages Assoc. and head of Australian Unity Retirement Living says HERE that retirement village units are priced at around 85% of the median house price in the same area. You can’t have it both ways. Based on this report’s assumptions, the retirement village unit is going to exceed median house price growth in the surrounding suburb, meaning that over time, local residents will not be able to afford to move in. Unlikely. For the record, I would estimate that normal resident property will increase beyond that of retirement village units due the the absence of fees associated with retirement village living.

If you do want to move out of your existing house and the financial outcome is important to you, then you need to consider the best ownership arrangements for that new property.

The ownership structures delivering the best financial outcomes, in order, are as follows:

1. Downsize to another freehold residential property. Under this arrangement you don’t incur any fees additional to that found in a normal property and you get all of the capital gain when you sell.

2. Find a freehold retirement community. Freehold retirement communities that don’t apply exit fees will deliver your best financial outcome at exit. Unfortunately very few of them exist and they don’t offer many lifestyle facilities, such as swimming pools.

3. Buy a Leasehold retirement property. A true leasehold property is where you own the house and you lease the plot of land the dwelling occupies.

Most retirement villages in Australia sell their units under a deferred management fee structure, more popularly known as a Loan/Lease or Loan/Licence scheme. Under this arrangement, the resident pays the full freehold equivalent price for a “right to occupy” the unit in the form of a lease or licence. For every year they are in residence, they incur a deferred management fee, or exit fee (or departure fee in NSW), which is paid only when the resident leaves and the unit is re-sold. The outgoing resident may also have to pay half or all of their capital gains (if any) to the village operator as well. For more information on how deferred management fees work check out our blog post and video HERE.

As someone “on the ground” negotiating these contracts every day for my clients, I can tell you that if a resident can leave a village within ten years and re-coup their original capital investment, then they are doing very well. Most residents can expect to leave with around 60-80% of the original purchase price.

The Villages organisation that produced this report are associate members of the Retirement Villages Association (RVA). The RVA is an industry body with a membership encompassing retirement village operators, owners and developers. It is NOT a government body and it does NOT represent that interests of retirement village residents.

Despite my criticisms of retirement village purchase contracts, I am a huge fan of retirement villages and the lifestyle they offer to retirees. Whilst I recommend that you make the decision to move into a retirement village on lifestyle issues, you should also be careful to analyse the financial implications of the purchase contract as well.

What do you think of the report? Are they on the money?

Lesley Parker wrote this great piece for the Sydney Morning Herald and The Melbourne Age’s “Money” insert today.