As our ageing population increases so do our choices and needs for more retirement living options. In this article I will briefly explain the types of accommodation available and some of the tips and traps when purchasing this type of property. One thing to try to remember retirement living is a lifestyle choice not an investment choice.

Retirement living options are typically either an "independent living unit or a serviced apartment". They can range from luxury, high-end to budget properties. There has been an increase in high rise apartment style retirement villages. The ageing population is becoming healthier and living longer, so there needs to be more facilities, entertainment options, such as golf courses, swimming pools, spas and other integrated services such as nursing facilities. Some retirement villages also have "age care" services. This service is separate to the "Retirement Living" and they are not included in the purchase of the retirement unit.

The complexities can be very overwhelming, and unfortunately just when we need to find an alternative accommodation for a loved one it is only then that we find out how complex it is.
The average age of people who move into a retirement home is 70 years of age. Here are some triggers that can influence a person or person's decide to move into a retirement living arrangement.

• Alone or lonely (widowed, neighbors and friends have moved away)
• Fear for safety/security issues
• Don't drive
• Bored
• Older property that needs a lot of money spent on it
• Existing home has issues - stairs etc.

To start with there are five main schemes that Retirement villages are operated under. They are:

• Freehold, typically strata-titled. This is similar to any freehold property purchase. They are typically located within a retirement community and are covered by state community titles legislation. This type of scheme is generally the best financial outcome for the resident as they own this type of property out right
• Leasehold where the resident leases the unit or owns the unit and leases the land via a lease from the village owner.
• Company title - where a corporation owns the village and a resident purchases shares in the company at a market value that is reflective of the property value.
• Rental - this is not a purchase scheme as it operates under standard residential tenancy agreements, whereby the owner or operator of the unit leases a residence to a tenant. These types of properties are normally smaller units with small facilities like kitchens.
• The Deferred Management Fee or DMF scheme, also known as loan/license or Loan/lease - This is the most common form of retirement scheme and operates 90% of the market. The resident pays the retirement village for a "right to occupy". The fees can be a combination of ongoing, exit or initial fees. Following is a break down of the fees in relation to a deferred management scheme.

Typical Fees incurred with a Deferred Management Fee

Deposit - a notional amount that should be refundable in the event that either party withdraws from the contract. This can be as little as $100.
In-going contribution - the amount payable under the contract to secure the right to reside in the retirement village.
Contract Preparation costs - legal and other expenses incurred by the village owner in the drafting and execution of purchase contracts.
Stamp Duty - state tax on freehold property purchases.
GST - federal tax payable on the purchase of newly constructed Freehold properties
Personal Services charge - cost of additional services purchased by a resident.
Refurbishment cost - an obligation for the resident to fund the refurbishment of the unit back to a "markable condition".
Sales commission - the amount charged by the selling agent upon the sale of your property.
General Service fee - regular fee charged to each resident for the funding of costs such as grounds and maintenance, insurance, security etc.
Body Corporate or Owners Corporation fee - same for General Services fee but charged by the Body Corporate or Owners Corporation.
Deferred Managed Fee - an annual fee charged for each year of occupancy, capped at a set number of years, and calculated as a percentage of either the original sale or subsequent re-sale value of the license. The fee is accrued annually at each anniversary of the resident's commencement at the village, and paid out to the village owner from the proceeds of the re-sale of the unit.
Share of capital gains - the owners entitlement to portion of the capital gain made on the re-sale of a unit.
Exit entitlement - the money returned to the resident under deferred fee schemes following the re-sale of their unit and the removal of all accrued exit fees, commissions and charges.

An example of DMF calculation: (this may vary from village to village)

At exit

As you can see from the above example after 10 years of growth, the unit holder is left with an investment net return of $37,500. This is considerably less than inflation return over this time frame. It really is a lifestyle choice not an investment choice. You need to make sure that you know the contract carefully and also the terms and conditions before going ahead with any agreement. You can negotiate some terms like the share of capital gains at the end of the term the entry fee etc. It is advisable to have the contract read over by an independent solicitor who is experienced in retirement living.

When considering purchasing in a retirement village you need to research and investigate all the options. Compile a list of villages in the chosen location, collect data on each village. Consider these factors, the age of the building, location, overall condition, views and or perspective, quality of finishes and size of complex. When purchasing off the plan, only buy from developers with a good reputations, avoid off the plan projects unless commenced and make sure that the unit will be ready for occupation by the time you sell your house and move out. You will also need to think about the timing of selling an existing home and when the possible settlement date of the new unit would be. This can be a very stressful time for anyone it would be especially stressful for an elderly person.

Monique Message works in a centre of like minded professionals whose aim is to guide their clients by empowering them to take control of their lives through education in investing and financial advice during and after family break downs. She specialises in advising women who are going through this difficult time and helping them make important financial decisions that can impact their future well being. PetersMcKeown Pty Ltd 039939 6758.