For many retirees, moving to a retirement village or community is a lifestyle choice – and if you find the right one, it makes great financial sense too. But the fees within many villages are complex, and in some cases, excessive.
There’s a lot of different retirement living options, and each have their own unique contracts and fee structures. It’s important that you understand exactly how much you’ll be paying in fees before you sign – because if you’re not careful, you could end up paying more than your fair share. So what type of fees are charged, and how do you know if you’re being asked to pay too much?
Entry Fee or Purchase Price
This is the amount you pay upfront – and it will depend on the type of contract you’re entering into, and on the home itself. The contract may be a freehold or strata title, which means that you hold the title to the house or unit, and pay a set price to purchase it. Another common contract is a lease or licence, where you pay an upfront entry fee known as an “ingoing contribution fee”, and this gives you the right to occupy the home for as long as you choose.
Both the purchase price and ingoing cost will vary greatly, depending on the location, age and quality of the unit. For example, in Traralgon’s Village Lifestyle Park, you can purchase a brand new home for around $200,000 – but in locations closer to the city, you’d pay around $400,000, or more.
Service or Maintenance Fee
A big benefit of retirement living is having access to a range of services and facilities within the village or community, and many contracts require that residents pay a fortnightly, monthly or yearly service fee. Having one fee to pay is convenient for residents, as they don’t need to worry about paying the many different bills that you juggle when living in your own home.
Operators charge service fees to recover costs, however, it’s important that you closely examine what you’ll be charged to make sure it’s reasonable. Be wary of villages that charge additional fees on top of the service fee including administration fees, municipal rates and water rates, as you’ll end up paying a lot extra every year.
Exit Fee, Departure Fee or Deferred Management Fee
If your contract requires you to pay exit, departure or deferred management fees, when you sell your home, then you’ll be handing over a big chunk of the sale price to the village operators. There’s many different fee structures, and the way they work can be extremely confusing. Make sure you get expert advice and understand exactly what you’re up for when you move out – because in some cases you’ll be handing over 30% of your sale price.
But the good news is, though, that not all villages and communities charge an exit fee. Village Lifestyle Park does not charge a deferred management fee, which means that when you sell, all your profits end up in your pocket.
Get Expert Advice
There’s no doubt that retirement village contracts can be confusing. Make sure you know exactly what you’ll be paying in fees – upfront, ongoing and when you leave – before you sign any contracts. It’s worth getting expert advice before you commit, because the small amount you invest now, could save you thousands in the long run.