‘Aged Care’ housing has been a growing sector of the market over quite a few years now and that’s no surprise given Australia’s rapidly aging population.
As I shared in this blog last week, there are many alternatives when it comes to the style of accommodation that you can acquire these days…but more confusingly, there are many alternatives when it comes to the financial package or fee structure attached to this style of accommodation.
Last week, we looked at a scenario where some of our past clients have purchased a new home but don’t actually own the land that it’s been constructed upon.
As you could probably gather from this blog, it’s not something that I would necessarily recommend, and our clients are now deeply regretting their decision and hope they can find a way out without it costing them a small fortune.
Today, I want to look at another ‘Over 50’s’ option…
- You purchase a unit but pay a fee if you sell it and share in the proceedings from any capital growth – I have a client looking to purchase a unit in a complex with this sort of arrangement right now.
I must admit…I can’t really get my head around this so I’m open to an explanation of why a management company should take such a large fee if someone can provide me one.
So, here’s the scenario…
My client is looking to purchase a unit in a complex that is certainly beautifully appointed (and the unit is gorgeous as well).
It has just been completed and residents are currently moving into the multi-storey unit development although it does appear that there are more still for sale than what the developers are representing.
To be blatantly honest, the salesperson from the Aged Care company is applying very high-pressure tactics to a lady who is 75 years of age and hasn’t long ago lost her husband…and I find this quite disgraceful.
The sales person is telling her that the particular unit that she’s looking at is the last unit of this type in the complex but from what I can tell, there are several units on this corner of the building that are all in complete darkness at night so I do have my doubts about this claim.
She was encouraged to pay a large deposit on the spot and sign a contract upon the second inspection.
I advised her to obtain a copy of the contract and obtain legal advice about what she’s signing which she has done.
To cut a long story short, the property she’s interested in purchasing is in a fabulous location, offers a picturesque water view and provides what appears to be a fabulous lifestyle but the exit fees are horrendous.
It is a 2-bedroom, 2-bathroom unit and is listed at a price of approximately $580,000.
Like any unit, you’ll pay a significant fee (that’s really a Body Corporate fee) but the property is only ‘Leasehold’…meaning you actually don’t own it but are leasing it from the owners.’’
If you decide to ‘sell’ your property, you’ll pay a fee that’s calculated at 5% of the original purchase price per year (capped at 25% for 5 years).
The Owners/ Managers of the unit will share any capital growth with you on a 50/50 basis.
Their sales pitch is that the unit does have a water view and units with water views “always go up in value”.
That’s a very bold statement that I can easily disprove so I did advise our client to proceed with caution.
Let’s say it does increase in value by 20% over the next 5 years (which doesn’t sound like much but in this particular area, units have actually dropped by around 20% over the past 5 years), then the unit would be worth $696,000 (and I’ll be honest… I can’t see this happening).
The Managers will take a fee of $145,000 (25% of the original purchase price) plus $58,000 (50% of the capital growth over this time) which equals $203,000…meaning our client would be left with $493,000 or in other words, she would lose $87,000 over 5 years.
Keep in mind that this is on a unit that the Managers would have just re-sold for $696,000 and the cycle starts again.
To top this off, it is up to the lessee (the person that ‘purchases’ the property) to re-paint, re-carpet and cosmetically bring this unit back up to the original condition so she’ll be out of pocket more money should she decide to acquire this property.
Keep in mind that this is all on top of Body Corporate fees (they can’t call them this because they technically don’t own the unit, but this is what the fee is for) as well as other outgoings etc.
Now perhaps I’m not that smart but I fail to see how this is a fair system – someone could effectively purchase a unit (for a high asking price anyway given the size of the unit) and lose $87,000 plus renovation costs on an asset that has just appreciated by $116,000 over a 5 year period.
If it sounds like the proverbial “license to print money” to you, it does to me as well!
Needless to say, we’ve advised our client to proceed cautiously and don’t let the high-pressure sales tactics force her into signing something that she’s not ready to sign.
If she does decide to purchase, she’s asked us to sell her current home for her but to be honest, I’d rather that she take her time to make a choice that’s right for her instead of a rushed choice that could cost her a lot of money.
To be fair to the developers, they do (apparently) offer a full money back guarantee if she changes her mind within the first 60 days but I’ve told her to make sure she reads the fine print on this one.
She might live there for 6 months and then have some new neighbours that she doesn’t like or perhaps she could encounter some health challenges that she may not foresee coming…and all of a sudden, she might want or need to move out…and the financial loss for her could be enormous.
She’s quite a fit lady and her health is good and I’ve told her that in my experience, most of the clients who sell through us and purchase this type of accommodation are very happy in their new complex but you clearly pay a price for this.
If you work hard all your life and this is your choice, then that’s fantastic…but it’s important to make sure you know what you’re doing if it doesn’t work out the way you envisage.
Next week…we’ll look at one final Aged Care option that we’ve seen a few of our past clients consider.
Until then…Happy Listing & Happy Selling.