Hi,
The rent return on retirement village units look pretty good, though I understand that the management fees can be high.Why, then, are there so many of these type of units on the market, if the returns are good?
What's the downside?
Thanks
RLHi,
One downside is liquidity. As you can see, with so many on the market it they may be hard to sell.
Also, these kinds of investments are typically income rather than growth focussed. If the net yield (after management, interest and expenses) is negative, why own them?
Perhaps if you could put in the details of one of the units we could flesh it out.
Cheers,
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi redleaves
In my experience, banks are reluctant to lend on them – they fall into the same category as serviced apartments.
One of the reasons I don't buy them is because I am not comfortable with how the retirees are treated. Most of these units require that the retirees pay a certain percentage of their pension (usually about 85%) as rent. This leaves them with about $50 per week for living expenses, while paying a quite hefty rent for the units. Horses for courses, and I have no problem with other people using them as an investment strategy, but I just wouldn't be able to sleep well at night knowing that a pensioner is paying off my mortgage and having hardly any money left over at the end to live.
Just my thoughts
K
Hi RL,
These 'pensioner units" or 'senior rental units' complexes are not technically retirement villages under the various state's Retirement Village Acts. They are rented under a standard residential tenancy agreement and rented to over 55's.
Some were developed under a managed investment scheme where you buy units in the trust that owns the whole complex. Others, like the type you are referring to, were built and titled (one ot two units per title) by community or strata title.
Typically the net yield, after all outgoings, on new product is around 6%. Units in older complexes might show higher yields.
Outgoings include such things as manager's fees, body corporate, rates, unit cleaning etc and also includes the managers supplying 3 meals a day to the occupants. The quality of the on site managers plays a big part in the success or otherwise of the complex (investment units).
On the plus side the net yield is reasonably high and there are good depreciation benefits on new complexes because as well as the normal depreciable items including the furniture in the units, the furnished community complex depreciation is passed back to the unit owners (investors). Also the rent increases twice yearly as the pension increases (20 March, 20 September).
On the negative side they are hard to finance as they are classed by lenders as 'specialised security'. As a result the funding tends to be at a low LVR (50% – 60%) as the mortgage insurers avoid specialised securities. Because of their specialised nature they are also harder to sell as the target market is greatly reduced. Management is critical. Any potential buyers should check on the experience of the managers and the occupancy level over time for established complexes.
Many complexes are owned in one line by superannuation and investment funds who like the high net yield, regular income increases twice a year and a strong management group.
They are really for a fairly passive investor willing to put in extra equity and chasing cashflow rather than growth. Not everybody's cup of tea.
We have recently settled on a strata titled retirement village unit in wangaratta VIC. The 1 br unit cost us $109,000 we got a 80% loan through Widebay Australia, a credit union based in QLD. We were without a tenant for 2.5 months as this was a new development, we now have a tenant paying 1050 p/mth, a good return, after costs we are ahead $30 per week. The growth i don’t expect to be much, but it is good for a passive investor like myself. We will see some growth in the future but not as good as a standard residential, obviously.
We are a 1 income family with 3 kids and earn about 40k per year, this is a 2nd investment property, cashflow is highly important to us because we cannot afford to hold a property that is going to cost us a heap of money, this is a good option for us at present.
happy investing
Question for Collie (or Others)
Where do you find details of strata titled retirement village units for sale.Couldnt find any on google.
Cheers,
A lot of the owners can have a denial about having to move in to a full blown nursing home. So they move out of their house and into a smaller unit. As time goes by they then realise that they cannot look after themselves and then have to sell their unit to afford to move into the nursing home.
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