Should I buy or invest in a retirement home or village
Before you commit, read this first
Retirement is something you’ve been looking forward to for many years, and now that the day nears you are faced with so many choices and decisions about how you’ll spend your “golden” years.
For many people, a retirement village is attractive as they are purpose-built for retirees and their needs, and they offer many lifestyle benefits. Some people choose to invest in a retirement property while they are still working, in the hopes of renting it out and living in it when they do eventually retire.
But is it worth buying a retirement property? What are the pitfalls, if any? Read on to find out.
The future of retirement villages
As of June 2020, there are 4.2 million people aged 65 and over, and this figure is expected to rise as more and more baby boomers retire. This is currently 16% of the population and is projected to rise to 20% in 2036. This means that as our aging population increases, there will be more demand for living options for older people.
Retirement villages are quite in demand among older Australians and as retirees are generally more active and healthier than previous generations, retirement villages are popular for the recreational activities they offer.
As of 2014, 184,000 Australians are living in retirement villages, and this is projected to grow to 184,000 by 2025. The next few years will only bring continued demand which means the retirement village industry will not slow down or retire, any time soon (pun intended).
It is therefore important to be fully informed if you are thinking of buying a slice of the village pie.
What is a retirement village?
A retirement village is a residential facility offering a range of accommodation options, services, and facilities for retirees. Some retirement villages also operate aged care services or nursing homes within them.
How do retirement villages work?
Retirement villages require you to pay an entrance fee, plus ongoing fees, to live there. They also have exit fees.
There are two types of retirement villages in Australia:
- Resident-funded – which is owned and operated privately, with funds coming from residents who have opted to “buy into” the village for the length of time they’re staying there.
- Donor-funded – which is run by a not-for-profit organisation as a charity, funded by donations. Entry is restricted to retirees from low socio-economic backgrounds.
The types of accommodation options include:
- Villas – also called Independent Living Units (ILUs), make up a majority of retirement villages. Suitable for those who need little or no assistance with daily living activities but want to enjoy the benefits of living in a retirement village community. Can range from one to four bedrooms and may be stand-alone or semi-detached.
- Serviced apartments – these provide access to living support, ideal for those who don’t need round-the-clock assistance but might want some assistance with daily living activities, such as cleaning and personal care.
In addition, Retirement villages can come with home care services to assist with things such as domestic work or transport. Retirement villages can also offer residential aged care for those who need round-the-clock care and still want to live within the same retirement village community.
What is the difference between a retirement village and a retirement home?
Retirement villages are generally for those who want independence and flexibility, as residents can travel and still maintain an independent lifestyle. Retirement homes or aged care homes are more for those who need daily care.
Who can buy retirement property in Australia?
Contrary to the name, you don’t have to be retired to buy retirement property. As long as the age restriction is met (commonly 55 years), anyone can buy into a retirement village. You’ll be able to buy it even if you’re still working. If you are younger than 55 years, you can still buy retirement property as long as your partner or spouse is already 55 years.
Can I buy retirement property to rent out?
This will depend on the policy of the particular retirement village you’re interested in. You may be able to buy one while you’re still working and rent it out until you’re ready to move in it yourself. Some places will allow you to buy a retirement property purely for investment purposes. You will need to speak to the facility you’re interested in to find out what they will allow. As always when it comes to investment decisions, it’s important to speak to your financial adviser to help you with your strategy as it may affect your pension.
What are the pitfalls of retirement villages?
We recommend doing as much research as possible if you’re thinking of buying retirement property either to live or invest in. If you are looking to live in it:
- Understand the hidden charges – find out about entry and exit fees, ongoing fees, and any other fees. For example, if things don’t work out for you, you could be hit with expensive exit fees. Different retirement villages can have large differences in costs.
- Understand the living arrangements – are there common areas and what are they?
- Understand the facilities on offer – do they offer activities that suit your interests?
- Get a thorough understanding of the contract and find out about strata titles, leasehold or rental, land title, or any ownership structures. Also, find out about your contractual obligations and legal rights.
- Know the terms and conditions of living in that village – for example pet and visitor policies
- Ask about any onsite assistance – different places have varying levels of assistance offered
- Find out about proximity to amenities such as shopping centres, hospitals, entertainment centres, clubs, public transport, etc
- Find out about security arrangements such as well-lit areas, security cameras, etc.
Read the contract thoroughly and get independent advice, even legal advice if needed. Have a thorough understanding of what you’re signing up for and understand the hidden costs as each retirement property will differ from the next.
Also, have a good understanding of exactly what you’re after so you have a better chance of finding a retirement property that suits your interests and needs. It’s a good idea to visit several retirement villages to compare services, facilities, financial arrangements, and ownership structures.
Finally, think about your future needs and plan for your long-term goals as not all retirement villages will offer aged care services.
Are there government-funded retirement villages?
Retirement villages generally do not get government funding unless they also offer aged care facilities. There are retirement villages run by not-for-profit groups that offer affordable homes for people over 55 years to rent.
Is it worth it?
Many retirees report enjoying a strong sense of community, safety, and security living in their choice of retirement village, but for some, it can be a money trap. Ultimately it comes down to what you can afford, what your interests are, and your current (and future) needs. Have a look at different retirement villages and compare their services and fees, and consider your future needs (such as aged care) into account when making a decision.
Where can I find out more?
The NSW Fair Trading website has a section on retirement villages (click the link) where you can find out everything you need to know about choosing the right retirement village for you, fees, contractual obligations and legal rights, and advice on leaving a retirement village.
