Is buying a unit in a retirement village a good financial investment?
The short answer is no. Here’s why…
Buying a unit in a retirement village should be considered a lifestyle decision, not an investment decision. This is because it will cost you money, not make you money.
When you buy a residential property, you possess the freehold ownership of the property (or the equivalent thereof – ACT and NT, I’m looking at you with your fancy-shmancy Crown leases!). In a retirement village, you buy a right to occupy in the form of a lease or licence. There are constraints around what you can do with the property while you have occupation, and limitations around selling when you leave. For example, you must agree a resale value with the village operator.
Retirement village residence contracts will typically deduct an exit fee from your resale proceeds. This can be anywhere from 25% of the proceeds or even up to 50%, depending on your contract terms.
Any capital gains, if offered, will usually be shared with the village operator or reduced by the exit fee.
As a very rough rule of thumb, and with all sorts of caveats including how long you stay at the village, you could expect to get back around 70% of your original purchase price when you leave.
But here’s the thing…
Most people these days are moving into retirement villages aged in their mid to late 70’s. At this age and stage you are no longer accumulating wealth for your retirement and are likely drawing down on your superannuation balance or similar savings to fund health and lifestyle. This is exactly the way you should look at your retirement village purchase – health and lifestyle expenditure, not as a property or financial investment. Your next move out of the retirement village is either feet-first or into aged care.
So retirement villages are not a good financial investment.
But are they a good health and lifestyle investment? Absolutely!