Retirement Villages

Hi Wilko,

This topic has been raised a few times before so I recommend you do a search. Click on forum boards and there is a search facility just under that.

In short – retirement units are an untested market and as such there growth is problematic – sure Australia’s aging population is proportionally expanding and the retirement village concept is well marketed but………a few unknowns abound.

Banks will typically not lend 80% of anything less than 50sqm and as such these properties may take more than their share of your available equity. Be also aware that the same banks may also baulk at allowing you to use equity gained in these properties as security for another property.

Banks have been known to change their lending policies so what exists today may be different tomorrow – sometimes this works in your favour and at other times it doesn’t.

On the surface the gross rental returns look very inviting but there are a number of costs incurred in providing the accommodation for tenants. Some units include catering and laundry costs and these tend to make the net rent (as distinct from gross rent) a little less attractive.

Rents are generally tied to the aged pension and rental subsidy scheme and usually equate to 85% of this figure. Rental increases are somewhat certain but increased management fees over time may negate these gains.

Retirement units also, by legislation and/or design, are only open to people who meet an age criteria and as such vacancies may be a little more extended than for a standard residential property.

You will also need to check the management agreement as their may be some issues hidden in the fineprint.

Derek
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