No one likes fees and charges – particularly when you’re on a fixed income. So, what can be done when just about every retirement village seems to have charges of some kind?
In this article, we look at some common exit fees in retirement villages and discuss some alternatives.
What are Exit Fees?
The first thing to note is that buying into a retirement village is not the same as normal residential real estate transactions.
You will encounter a new range of terminology that you need to be familiar with. One of these is exit fees.
Exit fees cover a broad category of charges that residents may incur when they leave a retirement village. The fees are designed to cover the cost of the retirement village, including the maintenance of the village, its facilities, and refurbishing the home after it is sold.
This will affect the return you receive on the sale of your retirement home which may have implications for your future lifestyle and legacy you intend to leave to the family.
Charges like exit fees are just one of the costs you need to be aware of when planning your retirement lifestyle. Let’s take a look at the typical types of exit fees that may apply in retirement villages:
Deferred Management Fees
As the name suggests, deferred management fees (known as DMFs) are maintenance and management charges that are levied when the property is sold.
These fees are calculated as a percentage of the price of the unit when it is sold. This can vary between operators and the length of time you live at the property. Typically, if you live in a retirement village for only one year, the deferred management fee is ten percent. If you live there for three years or more, the fee jumps to 35 percent.
For example, if your retirement home sells for $500,000 and you’ve lived there for one year, the deferred management fee is $50,000 and you receive $450,000.
If you’ve lived in the home for four years or more, the fee is calculated at 35 percent which means the operator takes $175,000, leaving you with $325,000 from the sale.
According to Property Council of Australia research, the average length of tenure in a retirement village is 7.5 years.
Ongoing Charges
It is also important to remember that you will also be responsible for any ongoing fees and charges at the retirement village until your property has sold.
These exit fees cover ongoing costs such as maintenance, repairs, and insurance. They are usually charged monthly and continue until the unit is sold.
In Queensland, for example, you are responsible for all the on-going charges for the first 90 days of leaving a retirement village if the unit is not sold. In the six months after that period, the costs are split between the resident and the resort.
Victorian retirees are liable for all ongoing charges until their strata-titled retirement unit is sold. If the unit is not in a strata title, you will be charged fees up to six months after you’ve vacated if the property is not sold.
In New South Wales, legislation changes in 2021 limit the liability for recurring charges to 42 days on unsold retirement village units.
Capital Gains Fees
Deferred Management Fees are not the only charge you may be liable for. Some retirement villages also charge a fee based on any capital gains made on the unit or apartment when it is sold.
This exit fee is calculated as a percentage of the capital gain.
You may have to share up to 37.5 percent of your capital gains with the retirement village operator. In New South Wales this fee may be up to 50 percent.
For example, you buy into a retirement village for $350,000 and later sell your retirement home for $500,000. The capital gain is $150,000. This means you may be obliged to give $56,250 to the village operator if they are charging the maximum capital gains fee.
Do All Retirement Villages Have Exit Fees?
Yes. Most retirement villages in Australia have exit fees.
Some retirement villages only charge one exit fee, while others may add deferred management fees, recurrent charges, capital gains fees, or a combination of these.
If you’re considering moving into a retirement village, always consult with a financial advisor or legal professional to fully understand the terms and conditions of the contract, including any fees. This will help you make an informed decision and avoid any surprises down the track.
But there is good news. There is an alternative to retirement village charges.
Many active over 50s are exploring land lease community lifestyle resorts. These offer many of the same advantages of retirement villages – low maintenance homes, gated communities, resort and lifestyle facilities – but they don’t charge any exit fees.
How Can Exit Fees Impact You Financially?
Exit fees have a substantial impact on the amount you receive from this important asset. This is vitally important to consider if you are counting on the proceeds from the sale of your retirement village home to help fund advanced care in later years.
Using the theoretical example of selling your retirement village home of four years for $500,000 and the operator charging deferred management fees of 35 percent ($175,000) and capital gains fees of 37.5 percent ($56,250), you only receive a return of $268,750.
That is only a little more than half of the sale price and potentially less than what you initially paid.
According to the Property Council of Australia’s 2020 Retirement Census, the average monthly recurring charges are $518 per month. If your retirement village home remains on the market for a period of time, you may lose another $750 to $1500 depending on which state you live in.
Please note this does not factor in all the normal real estate sales and marketing fees that you may be charged.
How Can I Avoid Exit Fees in Retirement Villages?
There is no sure-fire way to completely avoid exit fees in a retirement village, as they are typically built into the contractual agreement between the resident and the operator.
That is why it is important to consider your projected health and lifestyle needs now and into the future and explore alternatives to the traditional retirement village model.
Should you decide that a retirement village is right for you, there are things you can do to minimise the impact of these fees.
Research the retirement village
Before committing to a particular retirement village, it’s important to research and compare the various options available.
This means being thoroughly conversant on the types of fees and charges retirement villages generally charge such as – entry and exit fees, deferred management fees, capital gains fees, on-going service charges, and refurbishment fees.
Look for villages that have lower or no exit fees, as well as villages with favourable contractual terms.
Ask to visit the resort to see the quality of the facilities available and whether it meets your needs now and into the future.
Negotiate the contract
It may be possible to negotiate the terms of your contract with the retirement village, including the amount of any exit fees, deferred management fees or capital gains fees.
This could take the form of paying a higher cost up-front – sometimes known as an entry fee – in exchange for lower or waived exit fees.
Before you make any commitment, it is important to seek professional legal and financial advice and be sure that you fully understand what fees and charges you are liable for.
Consider an over-50s lifestyle resort
There are retirement options that don’t charge exit fees. One such option is land lease community resorts like GemLife over-50s lifestyle resorts.
Land Lease Communities don’t charge entry and exit fees, deferred management fees, or capital gains fees.
The contracts are also much more straight-forward. You own your home outright and simply rent the land it is on.
This has a couple of additional benefits.
Because you are renting the land, there is no stamp duty to pay which further saves you money.
The weekly site fee pays for the running and maintenance of resort facilities. And if you have an Aged Pension or Department of Veterans’ Affairs card you may be eligible for rental assistance that further reduces that cost.
Resorts such as GemLife also offer greater flexibility in terms of ownership and resale. It’s one of the many reasons why lifestyle villages are worth the investment.
Why Do People Consider over 50s Communities over Retirement Villages?
There are several reasons why people are choosing a land lease community over retirement villages, and you might be surprised to know that the financial part is only one of the reasons.
Lifestyle resorts such as GemLife are increasingly popular with active over-50s, some of whom are still working full or part-time, especially those who are deciding when the right time to downsize is.
Others are looking to downsize to take advantage of moving to a luxury new home without the hassle of garden and pool maintenance.
They are particularly interested in resort-style living with ready access to facilities typically found in a luxury resort as well as the ‘lock-up-and-leave’ security of a gated community while they travel.
Let’s look at more reasons:
Flexibility
Retirement villages place restrictions on what residents can do, including whether they can have pets, overnight guests – including whether they’re required to be retired to live there.
Land Lease Communities are designed for active and young-at-heart over-50s, some of whom are still working and where pets are welcome and family get-togethers and overnight visits from your grandchildren are encouraged.
Land lease communities also offer greater flexibility in terms of ownership and resale. Residents purchase their home outright and can sell their home at any time either through the operator, or a real estate agent of their choice, without incurring exit fees.
Low Maintenance and Running Costs
These homes are typically designed to be low maintenance, with durable materials and modern appliances. This can make them an attractive option for retirees who want to spend less time on upkeep and more time enjoying their retirement.
GemLife homes, for instance, are energy-efficient by design and include connection to a Virtual Power Plant that slashes the cost of electricity bills.
Close Knit Community
Land lease developments help foster a strong sense of community, with homeowners socialising together in the resort-style facilities and forming lasting friendships. Many homeowners get on so well they even holiday together.
Amongst resort facilities found at luxurious over-50s lifestyle resorts like GemLife are a large country club, sports facilities including tennis courts, pickleball courts, ten-pin bowls, golf simulator, lawn bowls, fully equipped gym, swimming pools, and gardens.
Security
Many land lease communities have security in place, such as gated entry and on-site management which provides ‘lock-up-and-leave’ peace of mind for long-term travellers.
Land lease resort-style communities like GemLife also include security screens and alarms on individual homes as well as secure storage for caravans, boats and motorhomes.
No Exit Fees
Best of all, land lease communities charge no exit fees. The contracts are much easier to understand. You own your home and simply pay a weekly site fee which covers the rent of the land and cost of maintaining the gardens and amenities.
Should you decide to sell, all capital gains are yours and there are no deferred management fees to worry about.
Experience the GemLife difference
Don’t start the next stage of your life worrying about exit fees, especially if there’s an alternative that might better suit you and your active lifestyle.
At GemLife, you can begin the next chapter of your life without the burden of exit fees. Experience luxury resort living at a surprisingly affordable price.
To learn more about how GemLife can help you make the most out of your next chapter, enquire with us today or request an info pack.