Retirement Villages - Are they a good investment?

I have recently been shown around the new villa of elderly family friends. Their particular village has a policy that basically has the residents pay x amount for the privilege to stay in their house for however long they want - however if they decide to move/sell they only get a percentage back of what they paid (and this percentage reduces every year). As I am sure retirement villages would have a fairly high turnover, this would allow the owner to continually re-lease or re-sell (not sure what to term it) houses in the village.

Do the costs of running such a village outweigh the obvious advantages? Any thoughts or experiences are appreciated.

 

Hi,

I'm not sure I understand the question. Are you asking if retirement villages are, as a business, profitable? I would assume they are, unless they are operating for the sake of good karma?

 

Look at the ABC TV Four Corners program about how retirement villages work to enhance profits. It should still be on iview.

Some seem to be pretty unprincipled in terms of how they charge; changing the rules at short notice; having complicated agreements that are difficult for sometimes vulnerable residents to understand.

From memory, the issues exposed in the program have sparked an enquiry into the industry and how providers operate.

 

Not generally if you're buying in to one to live.

You don't have freehold, restrictions on sale, lease & inheriting the estate.

 

Rather than purchasing an individual villa (which I don't think you can do, unless you'll be living in it), you can certainly buy shares in the companies that own/run these villages. As they are a business, and therefore, out to make money though the way that they operate, then this could be an option for making yourself some $.

I know that Aveo group (the company that the Four Corners report was about a few months ago) still have poorly performing shares (they fell through the floor literally overnight when that show went to air). However, I believe that the show has sparked an investigation (as mentioned by @Joynz ) that is likely to regulate the industry and improve their accountability/operations.

It could be worth looking into, as (like you've said), you'd have to expect the demand for the services that they provide will continue to grow (with the ageing population). There are other companies that are also listed on the ASX, such as Estia Health etc, that provide similar services, so Aveo aren't the only ones.

 

Hey Ethan, I am sure they do make a great profit, I was just curious as to the additional costs that would come along with this type of villa e.g. having health workers on call etc.

Yeah that's why I was asking about this, Australia has a very large bump in the population distribution heading towards retirement in the coming years. Would developing and owning your own village be too hard or is becoming part of a franchise better? I have absolutely no idea the work that goes into starting something like this..

 

i'd go in on that! You want to own and operate to rake in the cashola. Thats where the money is. they charge for everything and keep a cut of the CG after you kick the bucket, depending on the village and how much mess you leave

Im going JV with @Leo2413 he just doesn know it yet

 

That's actually something we are looking into, developing a small aged care facility. I know a few people who specialise in it and it can be very lucrative. @bob shovel if you can do all the plumbing and piping then your in!

 

The start of something great I'd be interested in how you go about setting everything up, so if it does end up happening, let me know!! I'm a few years off being able to get into anything of this magnitude No worries, population curve will getting thicker around the 70 + range in the next 20ish years.. I've got time.

 

They don't have to be lease-for-life - like a caravan park with a brick house. The Villages I'm involved with are strata titled. No deferred management, no sinking funds, no refurbishment.

Bob Maumill is advertising the villages I'm involved with on 6PR Perth. Not many around, but they are out there.

I would suggest you keep looking for something similar.

 

I don't know about your State but here in WA you can also build Over 55s dwellings just as dwellings and get good density bonuses. Currently the legislature here is that you have to build 5 of them but they are proposing an ammendment that you only need to build 2 to increase the number and diversity in areas

That means it's possible for the local Mum and Dad investor to build a triplex of over 55s with no amenities, staff etc etc

Its a very simple way to get into the bulging demographic and the density bonuses without going into a whole nursing home/village scenario

 

Hi

Yes the population demographic is changing and we are going to become a country full of old people!

Whilst the Retirement Villages Act remains the way it currently is I can tell you that these villages can be "EXTREMELY" profitable. Residential units within a retirement village do have a 12 year average turn around time which is the point where the owner/operator of the village can take advantage of the Deferred Management Fee which for you will be the profit.. So if you have squindles of cash and are looking for a good long term investment, retirement villages can be very good for your future bank account, and I mean really good.

The money that you sell your first bunch of units for is just to get your costs back and keep your head above the water as you do need to invest your own money on the offices, common facilities area and whatever extra facilities that you are going to provide to your residents so that you entice them to pay more for your units than your oppositions unit in another retirement village. The weekly fee that you charge your residents which in reality should be no more than 23% to no way higher than 25% of the weekly pension needs to cover electricity costs, water rates, council rates so that the resident only needs to cover their own health care costs, clothing and food. You will not make any profit from the weekly occupancy fee.

If you are a good operator as some are in the industry you will also cover all of the repairs and maintenance required to keep the unit costs low for the resident which is built into your ownership package of the entry fee to purchase, weekly occupancy fee and of course the deferred management fee., however some operators out in the market place try to take advantage of the elderly and even charge some residents $50 to $100 to change a light globe and this is not good to hear or $2,000 to repair a leaking shower and whilst yes it can cost that to fix a shower and sometimes lots more it makes a huge impact on the residents cash flow and qualify of life/standard of living and the better operators out there do know that to have an attractive village you need to cover these costs.

Developing your own village requires a fair bit of land and some good equity to get going and keep running because your first pay day where you make your money/profit really isn't till your first resident passes on which going by the averages is over a decade. You also need to take into consideration that some residents can remain for over 25 years as has been seen and as people are now living longer you need to work out your sums to make sure you take that into consideration. Also keep in mind that once the resident passes on the unit will need to be refurbished so that it is appealing, immaculate and can achieve top dollar from the next resident. All of this refurbishment will be done by the operator once it is vacant and usually between every time the unit turns over.

One of the reasons why the Retirement Villages Act was created was to assist elderly people by giving them a place to live comfortably and pay the cost of this by releasing the equity of where they live when they no longer require a ppor, in other words when they have passed on, however a big threat to the whole industry at the moment is the Retirement Villages Act and whether the industry will need to adjust to changes in how they operate if any changes are made to the act.

I might have bambled on a little bit, but I do have an interest in developing, owning and running a retirement village.

Regards,

alicudi

 

Thanks Alicudi, that was an interesting read for sure I am sure it will be an interesting and profitable project to start up and run a village. Hopefully I will be in a good enough position one day.. Good luck with your plans!

 

Hi

As time goes by the plans do start to look more like dreams but maybe because I prefer investments with low risk or what I consider to be lower risk.. Whilst I am ok financial wise at age 43 I would have to risk absolutely everything by selling everything I own and put all the funds into a retirement village if I wanted to do it today and don't really want to rely on a single industry and a single act which is the Retirement Villages Act to make sure that I will make a profit and that I will in fact receive my profits in years to come.

It would be good to have an initial investment of $20m or so to really hit it full steam ahead so maybe it would be something I would prefer to do with 3 to 4 partners and create a long term plan and we all put the funds in to get the ball rolling.

Will I ever do this?, I am thinking 50/50 at this point in time. Maybe Propertychat will be a forum that connects like minded people to do this venture but I can tell you I am realistically at least 5 years away from doing this and all I could do at this point in time would be to secure suitable acreage for now and let it sit till I am in a financial capacity to go the next step.

I hope you will also be in a good position to do this one day.

Regards,

alicudi