Property Rental or Retirement Village

Property Rental or Retirement Village - Australian retirees can suffer a dramatic reduction in their capital base depending on whether they choose to rent a property and retain the capital amount from the sale of the family home or purchase a lease for accommodation within a retirement village.

In this example a retiree has access to $850,00.00 in capital and can face the following options.

1. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 0% of any capital gain in the value of the unit.


2. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 100% of any capital gain in the value of the unit.


3. The retiree could rent a communsurate property within the general community and pay a weekly rental amount.


4.  Stay in the family home.

The graph and the tables below illustrate the dramatic reduction in capital wealth of the retiree over just a 7 year occupancy period within a retirement village.  Financial outcomes can depend on the contractural provisions offered by the village operator.  Renting a property within the general community can have a much less dramatic impact on capital wealth but as in all financial decisions there are multiple issues to consider.

Scenarios are illustrated using standard retirement industry parameters:-

Option 1.

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


• 0% of the capital gain to the village resident.


• Maintenance fees


• Unit refurbishment cost.

Results Option 1 -

Village Resident   Start - $850,000.00  Finish - $228,087.00

A capital reduction of minus $621,913.00

 

Option 2.

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


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


• Maintenance fees.


• Unit refurbishment cost.

Results Option 2 -

Village Resident   Start - $850,000.00  Finish - $493,373.00

A capital reduction of minus $356,627.00

Note:- This improved result over Option 1 is totally dependent on the size of any capital gain. Should there be 50% less capital gain ($204,066.00) the result would be a capital reduction of minus $560,693.00.

 

Option 3 -

• Rental property value $850,000.00


• Rental return to Landlord initially 5% then a 5% annual increase in rent


• Retiree retains $850,000.00, the proceeds from the sale of the family home


• Retiree invests the retained capital, calculation uses 4% return on investment compounded

Results Option 3 -

Renter   Start - $850,000.00  Finish - $772,506.00

A capital reduction of minus $ 77,494.00

 

Graph 1

Table - Option 1

Table - Option 2

Table - Option 3

 



 

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