Pop Quiz

Do I have a full understanding of the difference between –

  • 1. leasing a residential property within the general community and
  • 2. leasing a residential property situated within a retirement village, together with any financial implications.

 

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If you do not fully understand the difference between the two questions below and particularly the financial impact under question 2 then you should continue your research and seek good independent advice before signing any documents.

There can be multiple variations between retirement village occupancy agreements and each potential resident should examine their contract thoroughly and consider seeking professional advice. The table below is presented to enable potential residents understand the most common variations between leasing a unit in a retirement village compared to leasing a unit in the general community.

leasing residential accommodation

Question 1.

What is this ?

  1. You are not required to pay any upfront money to the landlord to be granted a lease (not ownership) of residential accommodation.

  2. You are not required to gift any money to the landlord.

  3. You are not required to make an interest free loan to the landlord.

  4. You are not required to pay a weekly fee to cover the cost of maintaining the property of the landlord.

  5. You are not required to pay on departure the cost of full refurbishment of the property of the landlord.

To summarize:- The landlord provides their own capital for the property. The landlord provides their own maintenance of the property. The landlord provides their own refurbishment of the property. You do not surrender any of your life savings to the landlord other than a weekly rental amount.

Answer:-

Question 1 – This is:- Leasing a Residential Property within the general community.

Question 2.

What is this ?

  1. You are required to pay what may be a sizeable amount of your life savings if not all of your life savings to be granted a lease (not ownership) of residential accommodation.

  2. You are required to gift to the landlord 25% – 35% (called a Deferred Management Fee) of the amount paid to obtain the lease.

  3. You are required to lend interest free to the landlord the remaining 65% – 75% of the amount paid to obtain the lease and agree not to receive this money back until you leave.

  4. You are required to pay a weekly fee to cover your share of the cost of running and maintaining  property you do not own only lease..

  5. You are required on departure to pay the cost of full refurbishment of a property you do not own only lease.    http://www.retvill.net/refurbishment/                                                                                                                                       This could be inclusive of the cost of a new kitchen, new bathroom, all chattels etc.

  6. You are required on departure to wait up to 6 months (in some instances longer) to receive back the 65% – 75% of the money lent interest free to the landlord.

  7. You will suffer a reduction over time in the $ value of the amount you loaned interest free to the landlord by the impact of inflation, rising property prices and rising nursing home entry fees. This leads some into to what is known as the retirement village poverty trap.    http://www.retvill.net/poverty-trap/

To summarize:- The residents provide most if not all of the capital for the property. The residents provide the maintenance of the property. The residents provide the refurbishment of the property. The residents pay a large portion if not all of their life savings to the landlord for simply a lease not ownership. The residents get only 65% – 75% of it back but not before inflation and exit charges have decimated it’s present day value.

Answer:-

Question 2 – This is:- Leasing a Residential Property within a Retirement Village.

retirement village poverty trapThis so named retirement village poverty trap is where the $ value of the money you loaned interest free to the landlord is so diminished over time by inflation that it places you at a point where you can no longer afford to leave the village and re-enter the property market or have sufficient money to enter a nursing home of choice as a result of an Aged Care Assessment.  

The higher the percentage of total life savings used to pay the entry cost of the village –

1. the higher the likelihood of being in the so named ‘poverty trap’ on departure.

2. the higher the likelihood of requiring family assistance due to a lack of capital.

3. the higher the likelihood of being dependent on a government funded nursing home placement rather than a placement of choice.

 

 

 

 

 

 

 

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