Renting cheaper than Retirement Village

Calculations show that Australian retirees could be hundreds of thousand of dollars better off if they were to simply rent a property of choice rather than enter a Retirement Village.

New Long Term Leasing Laws in Victoria will enable retirees to gain security of tenure not available before now. Retirement Villages have been able to offer a security of tenure for retirees not generally available within the general housing market. For this Retirement Villages charge handsomely and whilst providing a few treats such as a communal hall, pool, bowling green etc. village residents pay for these facilities in what can be a complex payment structure whether they use them or not.

These long-term leases will give retirees an opportunity to retain their capital wealth making it easier to enter an Aged Care facility of 1st choice when that time comes or leave a nest egg for family members.

The retiree can face a major social and financial decision both for themselves and their families:-

1. Enter a Retirement Village with an in-going payment of $850,000.00 for just a conditional lease, not ownership.  The operator charges monthly maintenance fees on a unit the retiree does not own, a refurbishment cost at departure on a unit the retiree does not own, a deferred management fee charge of 35% of the in-going payment. On departure the difference ($552,500.00) between the in-going payment of $850,000.00 and the deferred management fee of $297,500.00 is refund to the retiree by the operator. All this whilst the retiree suffers a loss of earnings on their original $850,000.00 for the duration of their village occupancy.


2. Enter a  long-term tenancy arrangement for any commensurate unit within the general community. There will be a market rental cost to be paid to the landlord but none of the other costs generally associated with retirement villages. The retiree retains their original capital amount of $850,000.00 and can earn investment income to offset the rental costs.

As in any major financial decision professional advice should be sought including taxation and pension implications.

The table below examines the differing impacts of a retirement village versus rental on the capital wealth of a retiree over just 7 years of occupancy.

• Retirement Village - A capital value reduction of -$621,912.44


• Rental - A capital value reduction of -$ 77,494.00

The chart below indicates the cost of living in a retirement village is the order of double the cost of simply renting a commensurate property within the general community.  On a property to the value of $850,000.00 a likely rental cost would be $950.00 per week over 7 years wheres a retirement village cost is in the order of $1,805.00 per week.  The serious question for retirees is are any intangible benefits of a retirement village such as communal facilities, communal activities worth the cost of $855.00 per week. Security of tenure is a feature offered by retirement villages that cannot be matched in the general rental market at the moment, the Victorian government is enacting long term leasing laws.