Five things to know about living in a retirement village

Monday, 8 October 2018

Retirement villages are becoming an increasingly popular option for older people looking for an easier lifestyle.

But there are a few things to know before you sign up. The Commission for Financial Capability has warned about potential fishhooks - and there are others.

You don't always own the property

When you 'buy' a retirement village unit, you're often not buying the property itself, but instead the right to live there.

**READ MORE:

* Massive growth for retirement villages, but they're not for everyone

* Warning about the financial 'fish-hooks' of moving into a retirement village

* People no longer want to live in fortress-like gated retirement villages**

That means you don't get any capital gains out of the investment. If you buy the unit for $150,000 and the operator then sells it on to someone else for $400,000, that extra $250,000 is profit for them, not you.

Instead, all you would get back would be between 70 per cent and 80 per cent of your initial $150,000, depending on what the village operator takes as a 'deferred maintenance fee' from exiting occupiers.

There are some retirement villages that do offer outright purchases, if that is important to you.

Ongoing fees will be charged

It's not just the upfront cost you have to worry about.

You will usually be expected to pay ongoing weekly fees to cover the upkeep of the village and other services for residents, such as housekeeping.

It is worth checking how these fees would change, if at all, if you were widowed and became a one-person household. What seems manageable as a couple could be tougher on one income. Find out how much say you will have on how your fees are spent.

The transition to higher-needs care is not always simple

Find out what the process is if you need to go from an independent unit to a set-up where you require more care. Would you be given priority for a spot within the same complex, if there is one? How would the transition work financially?

​Your ability to renovate might be restricted

Sometimes you will be limited in what alterations you can make to your home. Find out how much freedom you have to make changes to the unit, and what would happen at sale time if you had done significant work. Would you be compensated? Might you be expected to return it to its original state?

Check who is responsible for maintenance and carrying out required repairs. Sometimes it's up to you to arrange internal repairs, while the village carries out external work. But some village operators carry out all repairs and then charge the cost to the resident.

Find out whether you will be expected to contribute to a sinking fund.

Have you been caught out? Email susan.edmunds@stuff.co.nz

Getting out is not always straightforward

Often, you'll have to wait for someone else to buy your unit before you get your initial capital back. In that time, you usually will have to keep paying the weekly fees.

The law requires these are cut in half after six months, but that's a long time to pay fees for a unit you're not living in.

Check you understand how much control you will have over the sale process. Would you be responsible for any capital loss? Even in situations where residents do not benefit from capital gains, some operators still sting them for any fall in value

You might also have to pay the operator's legal and marketing costs, and you will usually have to stump up for the cost of complete refurbishment of the unit. This is often contentious - residents have complained about being handed a bill for a complete repaint when they had only lived in the property a short time.  after a couple of years' occupancy.

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