All You Need To Know: Renting the Family Home To Pay For Aged Care

Renting out the family home is a common consideration for many families when it comes to the cost of aged care, but it’s crucial to grasp all the factors involved to avoid potential pitfalls. This article highlights both the financial and non-financial implications of renting out the family home, helping you make informed decisions.

Increased Cash Flow Through Rent

The most apparent benefit of renting out the family home is the additional cash flow generated from rental income. This can provide a significant boost to your financial resources, helping to cover aged care expenses. However, it’s important to note that the rent received will be considered as assessable income, which can increase the means tested fee. This could potentially lead to higher fees for aged care services, reducing the overall benefit of the rental income.

Decreased Age Pension

Another critical consideration is the impact on the age pension. The assessable income from rent can affect the amount of pension payable, potentially leading to a decrease in your age pension benefits. After two years of the owner being in care, the home becomes an asset for the income and assets test. This change can have significant implications for Centrelink pension entitlements, possibly resulting in the stoppage of the pension.

Preparation and Maintenance Costs

Renting out the family home may require you to prepare the property for tenants. What might have been suitable for the original home owner may not be adequate for a tenant, consider repairs, maintenance or even renovations. These (usually significant) costs need to be factored into your financial planning.

Ongoing Expenses

Once the property is rented, there will be ongoing expenses such as agent fees, repairs and maintenance. These costs can quickly add up, and the net outcome to cash flow may be limited in supporting aged care fees. With the current maximum permissible interest rate (MPIR) at 8.36%, the net rent and property growth really need to exceed this rate to be financially beneficial.

Property Management

Managing a rental property involves time and effort, which can be challenging for someone already in aged care. If you plan to involve a real estate agent, it’s essential to establish a reliable contact person to manage cash flow and address any issues that arise. Family members or close friends may not have the experience or desire to take on this responsibility, so professional management might be something to consider (also at a cost).

Making Informed Decisions

Before deciding to rent out the family home, it’s essential to carefully weigh these financial and non-financial factors. Understanding the full scope of implications can help you avoid potential pitfalls and make decisions that are in your families best interest.

As a financial planner specialising in aged care, I am here to help you navigate these complexities and develop a comprehensive strategy tailored to your unique situation. Feel free to reach out for personalised advice and support in managing your aged care financial planning and understanding all your options.

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