Retiree Capital Wealth Smashed by Deferred Fee

The capital wealth of Australian retirees is being smashed by the deferred management fee business model used by a large part of the retirement village industry.



Both the retiree and the village operator bring identical capital wealth to the transaction, the retiree $850,00.00 in capital and the village operator a unit with an asking price of $850,00.00 for the right to occupy it but not own it.

The graph and the table below illustrate the dramatic reduction in capital wealth of the retiree over just a 7 year occupancy period within the retirement village.  Also illustrated is the even more dramatic increase in capital wealth gained by the village operator using the deferred management fee business model.

Two scenarios are illustrated using standard retirement industry parameters:-

Scenario 1.

• Deferred Management Fee of 35% on the in-going value of village unit.


• 100% of the capital gain to the village operator.


• Maintenance fees


• Unit refurbishment cost.

Results Scenario 1 -

Village Operator  Start - $850,000.00  Finish - $1,990,697.00

Village Resident   Start - $850,000.00  Finish - $242.773.00

 

Scenario 2.

• Deferred Management fee of 35% on the out-going value of village unit.


• 100% of the capital gain to the village resident.


• Maintenance fees.


• Unit refurbishment cost.

Results Scenario 2 -

Village Operator  Start - $850,000.00  Finish - $1,725,362.00

Village Resident   Start - $850,000.00  Finish - $508,107.00

 

Graph 1

 

Table 1