There is no doubt that many people considering moving to a Retirement Village are absolutely bamboozled by the financial model that is usually employed. This can create uncertainty, suspicion, and procrastination.
Worse still, it often means that people finish up committing to other forms of accommodation that ultimately prove unsatisfactory as they age. This might result in another move late in life that could have been avoided.
So let me break it all down and see if we can dispense with all the “mumbo jumbo”, misconceptions and untruths. Firstly, let’s look at some terminology that is commonly used and then look at how the financial model works.
Terminology
Entry Payment
This is the amount you pay to the owner when you enter the village which gives you exclusive rights to occupy a particular unit. This is paid back to you when you vacate, less a few authorized deductions.
New Entry Payment
This is the amount that is paid by the next occupant when you vacate.
Recurrent Charges
This is a charge, usually monthly, for the day to day running costs of the village, shared amongst all the residents. It covers such things as Council Rates, Water Rates, Lawn Mowing, Gardening, Maintenance, Administrative costs etc.
Other than phone, internet, gas and electricity, it is the only amount you have to budget for in regard to your accommodation over the entirety of your occupation. Any other amounts will be paid by way of deduction when you vacate.
Worse still, it often means that people finish up committing to other forms of accommodation that ultimately prove unsatisfactory as they age. This might result in another move late in life that could have been avoided.
Deferred Management Fee (DMF) or Exit Fee
This is an amount usually calculated as a percentage of the New Entry Payment and payable to the owner by way of deduction from the New Entry Payment when you vacate.
Capital Gain
This is the difference between your Entry Payment and the New Entry Payment. It can be a significant amount which of course tends to get larger the longer you live in the village. Best of all, at Hume Retirement Resort, you retain 100% of Capital Gain which can make a huge difference to your costs when you vacate.
An Example
OK, so how does it all work? Let me explain with the following estimate assuming a 7 year (84 month) occupancy.
Entry Payment: $389,000
Recurrent Charges: $36,000 paid over 7 years
New Entry Payment: $530,000
Capital Gain: $141,000 (estimated at 4.52% per annum)
Deferred Management Fee (DMF): $147,000 (includes additional Recurrent Charges during selling period)
In this estimate you will receive an amount of $383,000 i.e. the New Entry Payment less the DMF.
However, to establish the net cost of living in the property for 7 years you need to deduct a further $36,000 (the recurrent charges you paid over the period) from the amount you receive leaving you with a figure of $347,000.
Given that your Entry Payment was $389,000 this means your total cost over 84 months is $42,000 or $500 per month.
Note: There may be extra charges payable such as a Selling Fee and if so they should be taken into account.
If you would like to know more about the “whys” and “wherefores” of Retirement Village living then give Kelvin Gilder a call at Hume Retirement Resort on (02) 60258409 or email sales@humeretirementresort.com.au