This article was written by Rachel Lane from Aged Care Gurus.
If you are thinking of moving into a retirement village, you probably have not worked out what happens after you leave.
While many people know about retirement village exit fees— a complex formula of management fees, sharing of capital gain or loss, renovation costs, sales commissions and marketing fees — the other key consideration is how soon you will get your money back.
There are many things to consider before you move into a retirement village.
A “buyback” is a term that describes when a retirement village operator buys back a unit from a resident in the situation where it has not yet been sold. The official term usually in contracts is that the resident has received their “exit entitlement”.
State-based legislation sets out the conditions and timeframes for unit “buybacks”.
Broadly speaking, the time frames vary from 18 months in South Australia and Queensland to no buyback (with the exception of people moving into aged care) in Victoria. NSW falls in between, with six months in metropolitan areas and 12 months in the regions.
While the legislation sets the time limit for buybacks, it is not uncommon to find villages, particularly those run by larger operators, to offer a buyback in a shorter time period.
Sometimes the time frame depends on the contract you choose: It can be as short as three months in a state where no buyback is required.
If your unit in the village sells relatively quickly, then you would likely get your money soon after it sells.
What is a ‘buyback’ worth?
Putting a dollar figure on a buyback is tricky. It is a bit like insurance: It is not worth anything unless you need it.
A buyback applies if your home has not sold within the set amount of time.
In the past few years, the property market has boomed, and retirement village occupancy nationally is at about 90 per cent. However, that won’t always be the case and may not be when you eventually leave the village.
A big part of the value of a buyback is what I call the “pillow factor”, which basically means how well you sleep at night knowing that you — or your estate — would receive the money within a certain time period.
Generally speaking, your home is your most valuable asset, and the majority of people leave a village to move into residential aged care, or because they die.
Residential aged-care costs
If your next move is into residential aged care, then the cost of your new accommodation is a key factor to consider.
Most people pay the market price for their residential aged-care accommodation, which in most metropolitan areas starts at about $550,000, but can go as high as $3 million.
For example, let’s say you are moving from a retirement village into aged care, where the price of your new accommodation is $550,000. Your exit entitlement from the village is $400,000 and your unit is not selling.
If your buyback is 18 months, then on the $400,000 you are waiting for you can pay a daily accommodation payment (DAP) of $54.79 per day to the aged-care facility, which equates to $30,000 over 18 months.
If your buyback is six months, then the DAP would cost $10,000, saving you $20,000 and 12 months of worry.
There is a lot to think about when you are moving to a retirement village. For most people, what happens after they leave is the furthest thing from their mind.
However, it is definitely worth crunching the numbers before you move in, or getting a financial professional to help you. We are happy to assist you through this. Contact Claudia here.