Retirement village contracts are different to purchasing a family home.
For most villages do you do not purchase the home, you lease it, let’s say for 49 years.
Also different is the fact that you pay the lease up front as a lump sum.
You don’t pay any more for your home until you leave – which is usually when you die.
Your estate then receives back your lump sum less the rent you need to pay for the time you were in the village.
This end fee is most commonly called the deferred management fee or DMF.
There is usually a choice of contracts but the most common is a DMF fee of 5% of your upfront lump sum payment for each year in the village, capped at 35%.
Let’s say you pay $500,000 upfront and stay in the village 10 years. Your estate would receive the $500,000 less 35%. It cost you $175,000 for your home in the village for 10 years.
This is the equivalent of a rent of $336 a week.
For this you get to downsize from your family home, usually pocketing a nest egg of money to live on for the rest of your life, a new home to age in safely, no maintenance, a safe and supportive community, greater financial security and a village operator who stays with you as you age providing support.
You will contribute to the cost of running the village which can average $80 to $100 a week. Residents control this budget and the operator cannot by law make any profit.
Some operators share the capital gain when they resell your home but most do not, including church funded retirement villages.
Why have hundreds of thousands of Australians taken up these contracts? Well, villages offer a safer and more supportive community than staying in an expensive family home isolated and alone.
You can be living better now and pay for it later.
It’s all about ageing well.