The race to find your ideal retirement village!

I often get calls from people who are in the very early stages of thinking about a retirement village and they are so overwhelmed they literally do not know where to start.

So here is the process I go through when helping clients…

First things first – work out if a retirement village is actually the right move for you. I covered this in a previous blog post HERE.

Second, decide the location where you want to retire to. Unfortunately I can provide no easy solutions to this question. You need to decide where you want to retire taking into account considerations such as your lifestyle, connections in your community, family and of course making sure you can afford to buy in a particular location. At this time it is also worth identifying how many bedrooms you require as well as your care needs (if any).

Once you have decided on a location the next step is to make a list of all the retirement villages in that area. Record as much detail as you can through researching on the internet and other resources such as the Yellow Pages.

Next, you check out the villages on your list. This could include a simple ‘drive by’ in the first instance to look at the general location and appearance of the village, progressing to a personal inspection on the selected retirement communities that make your cut.

Once you have narrowed your choice down to one or two retirement villages, ask for a copy of their purchase contracts so you can pull out the fees and charges that apply to each and make an assessment as to which one is the better deal.

Before signing anything, make sure you get a solicitor that is experienced with retirement village purchase contracts to do the conveyancing for you and assist you with making changes to any clauses that you don’t like.

And that is pretty much it! Yes I have simplified this process somewhat, but there should be enough information here to get you started on investigating your retirement village lifestyle today!

What is an over 55′s retirement village ? Is it actually a retirement village?

OK, well lets get the technical legal terms out of the way first: A retirement village is technically whatever is described as a retirement village in your particular state or territory retirement villages act. Typically, it describes a retirement village as a community of older people (usually with a prescribed minimum age limit of 60 or 65) that occupy homes under a retirement village ‘scheme’, whereby they pay an in-going contribution and an exit or departure fee.

To call itself a ‘retirement village’, a retirement community has to be registered under the state or territory retirement villages act, and comply with that act.

Over 50′s or over 55′s villages are completely different.

These communities come under your state or territory’s demountable homes or caravan parks act. This is because the nature of your occupancy is more in line with caravan parks than retirement villages, in that you own the house and lease the plot of land that the building sits on. So you only pay for the house and you lease the plot of land from the community operator. Age restrictions are not part of the legislation, but may be enforced under the local council’s development approval from the village or the retirement community’s by-laws.

In theory, if you wanted to leave the village you are quite within your rights to lift up the home (as you would a caravan) and take it to another site. However in practice, the homes are there to stay and cannot really be moved. Many of the original over 55′s villages were demountable-type homes which could be relatively easily moved, although the new over 55′s villages today are proper brick and tile on slab buildings no different to a standard suburban home.

Other features of over 55′s villages include:

• They are targeted to a younger demographic than your standard retirement village, which may have a qualifying age limit of 60 or 65.
• You own the house outright and lease the plot of land – in retirement villages you occupy your residence under a lease or licence, or occasionally under a freehold arrangement.
• You pay a regular fee (ie, weekly or monthly) that is similar to a body corporate or owners corporation fee and covers off the maintenance of the grounds and common areas, security, insurance, etc, as well as a component of rent for the land.
• The rental or lease component for the plot of land your house sits on may attract the government rental allowance, if you qualify.
• Most over 55′s villages don’t apply departure fees or take a share of any capital gain when you leave.
• Because the facility is aimed at a younger demographic there are usually no care services provided on site. However there is nothing to stop you from bringing in any care or other services you need from an external provider, the same as you would if you were living in your own home.
• They should be a cheaper accommodation option because there is no land component in the purchase price.

Some things you need to be aware of  however:

• Make sure that your lease term on the land extends for a decent length of time – at least as long as you will be living there. 40+ years should be adequate.
• Make sure your lease agreement does not allow the operator to terminate your lease agreement for any reason that you think is unreasonable, such as if the village operator goes broke or sells the village.
• Make sure that your lease agreement does not allow the operator to arbitrarily raise the lease fee amount.
• Find out who pays the rates – is this included in your weekly fee or not?

I am a big fan of the over 55′s villages if they don’t apply exit fees, as they will provide the retiree with a good financial outcome when they exit, unlike retirement villages, which can decimate your savings

It is always important to good advice on any purchase of significance and retirement villages are no different. Give us a call if you have any questions on 1300 425 442.

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 Victoria, a retirement village is defined under the legislation as a community where most of the residents are aged 55 or over, have retired from full-time work and upon entering the village, paid a lump sum (called an ingoing contribution) that was not rent. There are around 400 retirement communities in Victoria.

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.

Retirement villages in Victoria are administered by Consumer Affairs Victoria.

There are five ways that retirees are able to own or occupy a retirement home in VIC. 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 Victoria, 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 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?