Featured | Ingenia

Rachel Lane on Financing: The Incoming, the Ongoing and the Outgoing to Downsizing

As house prices in Australia’s capital cities boom, many downsizers who are asset-rich but cash-poor, are missing out on an opportunity to unlock their existing home equity and improve their lifestyle.

Author and finance expert, Rachel Lane (left) said everyone had the option of staying in their own home, but many found it to be too much maintenance or too lonely if they had lost a spouse.

“A lot of people look at downsizing to either a lifestyle-oriented community or retirement village, however they are distinctively different and the costs can be hard to compare.

“My advice is to break it down to the incoming, the ongoing and the outgoing costs of each. The incoming amount is normally straight forward – the amount paid
for the home or unit.

“The ongoing cost in a retirement village is the general service change, in a land lease community it is the site fees. The unique ownership model in a land lease community allows you to own your own home and lease your land, which means many downsizers are eligible for rent assistance on their site fees.

“The greatest confusion comes from the exit fees, also called deferred management fees. These are standard in traditional retirement villages, and normally a percentage accrued over a period of time, typically anywhere between 25% and 50% after 10 years and there can be sharing in capital gains to factor in as well.

“Land lease communities have no government charges (stamp duty or council rates), and there are no exit fees, and with your ongoing cost of leasing the land being reduced through government assistance – it is a very popular and affordable housing option,” Rachel said.

If we take a look at a case study we can examine how much finances come into play when making the decision to live in an over 55s community.

Case study for lifestyle-oriented community living
Jean is a single pensioner born and bred on the NSW Central Coast. She is looking to downsize her home having lost her husband seven years ago. The house Jean would like to buy has two bedrooms, a study and a powder room, perfect for when her favourite grandson comes to stay. The price of the brand new home is $330,000 and the site fees are $169/week. Selling her home to buy a house in the community will mean that Jean will have an extra $120,000 in her

Sale of home $450,000
Investments $30,000
Personal effects $10,000 (including car)
Total $490,000

Incoming Costs
Purchase of home $330,000
Legal Fees $500
Total $330,500

Jean now has $149,500 to invest or enjoy!

Pension entitlement $22,805 p.a. ($877.10 per fortnight)
Rent assistance $3,396 p.a ($130.60 per fortnight)
Cash invested @ 2% $2,990 p.a. (Cash remaining after sale)
Total $29,191

Ongoing Costs
Site fee $8,788 p.a. ($169 per week)
Living expenses $18,200 p.a. ($350 per week)
Total $26,988

Jean’s Cash Flow $2,203 p.a.

If Jean leaves the community and sells her home she will receive 100% of the capital gains made on the house, less any sales commission. It’s important to note that residents also gain more from living in a lifestyle environment by belonging to a like-minded community, significantly enhancing their quality of life while also making the move as an investment in yourself.