Retirement Villages - exit fees & other issues

This is a part real estate, part financial planning kind of enquiry, so I hope I've posted it in the right area. I did a forum search and was surprised to find not much existing discussion on this issue - any input is welcome, especially from retirees who've done it or advisers who have had clients look at retirement villages.

My parents are in their early 60's and have come upon a retirement village which they are very keen on, in a unique seaside location (walking distance to metropolitan beach). Everything is brand new with nice facilities.

As well as the entry cost (in this particular case it's in the $450-$500k range) I am concerned about the exit fees (also known as departure fees). When you leave, you sell your apartment back to the village for 75% of its resale value, in other words the village gets 25% of the resale. If you don't like the value you can get a valuation done, etc etc

From my limited research I understand this kind of arrangement is quite common. The implication for my folks is that they really absolutely have to love living the place, because they lose money on exit unless they wait say 10 years (and even then subject to property market movements and resale demand)

So my question is, are there people out there who have been through this or looked at it closely and would be willing to share the benefit of their experience? My main concern is the huge commitment that is involved to the place, you literally have to love it because you can't afford to leave...

I can see the potential for my parents to have a very enjoyable time in this place, but I also see many risks. Would anyone like to share their thoughts?

 

Just been through this with my parents. It's a bugger. Here's a couple of observations:

1) Generally, the industry is set up to prise their last dollar from their dying hand.

2) This takes getting used to, but there's actually nothing *wrong* with point (1). If you can't use your money to make your twilight years comfortable, then wtf. You can't take it with you, so the only people missing out are the inheritors. And far better for the elderly to get good use from their assets.

3) The caveat to (2) is that the arrangement is fair as long as the establishment is giving really good quality of service.

4) There's a huge variety of establishments. Some run for profit, some don't. Obviously that effects the quality of service received per dollar. My parents were in an RSL facility and it was great.

5) The financial rules vary a lot depending on your level of care (high care residential, low care residential, independant living, etc).

6) Each level of care has a different profitability profile for the establishment, and the establishments that are run for profit will be *very* aware of where the "sweet spots" are and what sort of customers they make the most money from. Waiting lists, etc, can frequently be somewhat, ahem, fluid depending on whether the customer falls into a profitability sweet spot or not. This won't be externally visible, but it happens.

7) Think of growing old as a career, and it's important to ensure there's a "career path" at the establishment and they have independant units, low care residential, high care residential and dementia wards all available. Otherwise the resident may need to switch from one establishment to another when their capacities are diminished.

The financial arrangement for the RSL was a bond when moving into an independant living unit. The unit had a guaranteed buy-back price, and this price is a reducing percentage of the original 'purchase' price. So after one year, you get almost all of it back, after two you get a little less back, etc. The limit is 70%, so you can stay for 30 years and still get a guaranteed 70% back.

Beyond that, if the unit is resold within 6 months for more than the guaranteed buy-back price, then the resident gets half of the difference between the guarantee and the actual value obtained on the market. Obviously this leaves the establishment with the opportunity to drag its heels so resale occurs after 6 months, or to engineer the resale price versus ongoing fees, etc, but in practice it was done absolutely honourably. This may not be the case in all establishments, but it was with the RSL.

Yes, it's a big commitment. But retirement villiages are kinda like the Hotel California, partly from the financial perspective but mainly from the aging perspective. It's the end-of-life management business. Cheery, but there you go.

If they're only in their early 60's, maybe they're not ready to check in to a retirement village yet. It's a personal decision, and one best left to them, but it could be worthwhile having a conversation with them to understand what aspects of the retirement village they are seeking. Perhaps selling the big house and moving to a ground-floor apartment or an apartment building with a lift would do the job.