Should You Invest in Retirement Villages?

Dilleen Property Group 2022

Retirement accommodations and retirement villages are residential complexes that are designed to be occupied by retired individuals over the age of 55. From an investment perspective, these complexes are generally known for their higher rental yields and strong cash flows. Despite this, there are many other factors to consider before investing in these types of properties.

Here are 3 crucial factors to consider before investing in retirement villages:

1. Risk

There are high risks associated with investing in retirement accommodations such as the inability to offload the property urgently. Unlike regular residential complexes such as Townhouses and Units which can be sold to any individual, retirement villages can only be sold to other investors. This instantly cuts the market in half, meaning it will generally take over 6 months to sell the property rather than just a couple of weeks or months for regular residential dwellings.

2. Finance

Another barrier to purchasing retirement properties is acquiring finance. It is harder to get loans from the bank to finance retirement accommodations because the bank sees this as commercial lending. Retirement villages are often deemed as businesses rather than residential lots. Hence the bank is more resistant to lend money for these properties and a higher deposit of 20%-30% may be required as opposed to 5% - 20% for regular residential lending.

3.  Management fees

Unlike regular residential properties such as Houses and Townhouses, retirement properties require higher management fees. For instance, an onsite carer may be needed for the elderly residing within the village and this will add weekly costs to the property owner. Due to these circumstances, investing in retirement villages often means you will be hit with increased ongoing expenses.

Conclusion

Retirement accommodations are quite different to regular residential properties as they require extra management fees, a larger deposit as well as more time to offload. Furthermore, they do not follow the same growth patterns as regular properties and comparable sales can always change unexpectedly. Hence, taking on these properties requires a lot of extra thought and effort. It is best to rethink these factors before diving into purchasing any retirement properties.

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Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.