Understanding Retirement Villages’ ingoing, ongoing and outgoing fees.
Retirement Village fees may appear complicated and opaque by potential residents. Understanding the basics of ingoing, ongoing, and outgoing fees is an important first step in understanding which option is right for you.
A Retirement Village operator’s profit comes from 2 sources, firstly when the village is established and the operator provides the lease to the first resident, then when the outgoing resident sells their unit to an incoming resident.
Ingoing Fees
The ingoing fee gives you the right to occupy the Independent Living Unit (ILU) or apartment for a period of time that will be far greater than you require.
This is the market price payable for the ILU/apartment, reflecting supply/demand factors. Note that some non-profit operators may price their ingoing fee to provide affordable housing and may provide a rental alternative.
Ongoing Fees
The ongoing fee, usually payable monthly, is the cost to the operator to provide communal services and must be a non-profit charge, i.e. the owner/operator must not profit from this fee.
This fee provides communal services such as upkeep of all common areas, access to activities, community centre and facilities, bus transport, etc, with residents only responsible for costs associated with their own unit/apartment and backyard.
Outgoing Fee
The outgoing fee is deducted from the sale price of the ILU with the net proceeds paid to the outgoing resident.
The quick explanation is that the outgoing fee is the sum of the Deferred Management Fee (DMF) and other fees (refurbishment/renovation fee, sale fee, etc). The outgoing fee is deducted from the sale price and the net proceeds are paid to the outgoing resident.
This is a simplistic explanation of Retirement Villages’ outgoing fees, however, some operators offer variations on the common DMF model, one reason being that the ingoing fee may affect your level of, and eligibility for, the age pension.
Other variables that will affect the net amount the outgoing resident will receive include whether the DMF is calculated on the outgoing fee or the ingoing fee and whether the outgoing resident is entitled to participate in 100% of the capital gain or a lesser %. While the property market is buoyant at this point in time, what happens to the DMF if the unit is sold for less than the ingoing price? Also, consider when will the outgoing resident receive a payment if the unit remains unsold for a period of time?
Retirement Villages are required to disclose all relevant fee information in the Fact Sheet provided to you prior to committing to a Retirement Village ILU/apartment, so ensure you have this information before making any decisions.
It is important to remember that moving to a Retirement Community should be regarded as a lifestyle decision, not a financial decision and that the overwhelming feedback from Retirement Community residents is that “we should have moved here years ago”.
What is a “lifestyle decision”? Retirement Communities have a range of facilities and benefits available to residents. Some residents prefer to keep to themselves, whereas others prefer to be involved in activities and social events that are a normal part of a Retirement Village offers. Bowling greens, gyms, heated pools, visiting hairdresser/doctor/physios, organised and casual events, on-site caravan parking, etc enable residents to live a lifestyle of their choice without the usual additional cost and responsibilities of maintaining the family home.
At STS Accounting Group, we are here to support you in this decision-making process.
For further clarification, information or to consider your Retirement Community options call the Winchelsea office on 03 5267 2673 or Rob Landale on 0429 824 324.
