One of the less understood considerations when buying into a retirement village is the Deferred Management Fee, or DMF.
For some people, the concept seems unfair but that’s usually because they don’t understand it very well.
The Deferred Management Fee helps pay for all the public facilities in a village that everyone uses – community halls, bowling greens, swimming pools and the like.
It’s true that not all villages run a DMF scheme, and not all DMF schemes are exactly the same. You should always seek independent financial advice when joining a village.
However they work under the same principle; and it’s really quite simple.
When you buy into a village, the price is generally cheaper than if you bought a similar property outside the retirement village.
That’s because you’ve deferred paying that difference until you leave.
The amount of the DMF is calculated as a percentage of the sale price multiplied by the number of years you’ve lived there.
For instance, if the DMF is 3%, you sell your property for $400,000 and you’ve lived in the village for 5 years and, then fee is calculated like this.
3% of $400,000 – that’s $12,000 - times 5 years equals $60,000.
Of the original $400,000 sale price, the operator keeps $60,000 as a deferred management fee, and you take the rest - $340,000.
To recap, the DMF is an amount you pay when you leave a village, rather than when you join. It’s a percentage of the sale amount, often paid for by your estate.
It’s there to help pay for the public facilities that everyone uses.
Most, but not all villages have a DMF scheme, and each one is subtly different. Be sure to get independent financial advice on what’s right for you.
And remember, like all things in a retirement village the idea behind a Deferred Management Fee is to help you age well.