Deferred Management Fees explained | Your guide
Deciding to downsize in retirement is an exciting move with lots of benefits.
Not only will you be spending less time on home and garden maintenance, but you will also be enjoying a great lifestyle with likeminded people.
Downsizing to a new home which better suits your lifestyle is a great way to add to your superannuation balance as well as reducing day-to-day living expenses.
But once you start your search, you might come across unfamiliar terms such as loan and lease, exit fees or deferred management fees.
These terms have financial implications that can have a serious impact on your long-term retirement plans.
Let’s look at one of the big ones – deferred management fees.
What are Deferred Management Fees?
You might have heard mention of retirement village deferred management fees on television current affairs programs. But what exactly are they?
In Australia, just about all retirement villages charge deferred management fees (DMFs) as part of their business model.
This is described as an ‘enjoy now, pay later’ model in which the costs of running the village become due when you sell your home.
The fees run on a sliding scale depending on how long you live in the retirement village. The longer the stay, the higher the deferred management fee.
Not being aware of the full implications and costs of DMFs can seriously affect your plans to fund future care or leave a legacy for your family.
And deferred management fees are not the only costs to be aware of when buying into a retirement village. Other charges can include ingoing contributions, service fees, holding deposits, waitlist fees and more.
Are Deferred Management Fees and Exit Fees the Same?
No, there is a difference between exit fees and deferred management fees in retirement living in Australia.
Exit fees are a broad category of fees that operators may charge when a resident leaves a retirement village. These fees can include deferred management fees, as well as other costs such as capital gains fees, recurrent charges, or other fees specified in the contract.
Deferred management fees, on the other hand, specifically refer to fees that are charged as a percentage of the sale price of a resident’s unit or apartment when it is sold. These fees are intended to cover the cost of providing services and amenities to residents while they are living in the village.
While deferred management fees are a type of exit fee, not all exit fees are deferred management fees.
The presence and amount of deferred management fees can vary widely between retirement villages, and it’s important to carefully review the terms and conditions of any contract before signing.
Also, keep in mind that you may not really ‘own’ your home but rather buying a 99-year lease on the residence.
Are exit fees and deferred management fees the same?
Exit fees and deferred management fees are used as interchangeable terms.
However, deferred management fees might only be one component in the broad category of exit fees.
It is important to do your homework to see if exit fees in the retirement village that you’re considering encompass other charges including the cost of refurbishment, and balance of unpaid service charges as well as capital gains fees.
Why do retirement villages charge deferred management fees
Deferred management fees are used by retirement village operators to recoup the cost of building and maintaining the retirement village and its facilities.
These are charges that would, in a regular real estate transaction, be covered in the purchase price – hence the use of the term deferred.
The stated aim of deferred management fees is to provide a lower entry point for potential purchasers. That is, you buy into a retirement village at a price lower than the real estate market rate for the equivalent property and facilities.
What are some examples of deferred management fees
Deferred management fees vary between village operators which can make it difficult to compare ‘apples with apples’.
This is why it is vital that you take the time to thoroughly do your research, and fully understand the implications of all fees and charges before signing a contract. These fees can range from 20 to 40 percent of the sale price.
As we mentioned above, deferred management fees also have a sliding scale, dependent on how long you’ve lived in the home.
And that’s not to mention other fees you may be liable for such as refurbishment fees and capital gains fees.
All of this can lead to confusion and angst for older homeowners and their families when it comes time to sell.
How do you calculate deferred management fees?
Deferred management fees typically start at:
- 10 percent for the first year
- 20 percent for the second year
- 35 percent for the third year and remained capped
So, what does this mean in dollars and cents terms?
As an example, a retirement village unit bought for $500,000 three years ago with a 35 percent deferred management fee will pay $175,000 to the retirement village operator on the sale of the property. The former homeowner will receive $325,000 minus any selling fees.
If the village you choose also charges capital gains fees on top of the deferred management fee, the calculation falls like this:
The purchase price of the unit is $500,000 and it sells three years later for $550,000. The retirement village charges a 50 percent capital gains fee. It calculates the 35 percent deferred management fee on the purchase price of $500,000 plus another $25,000 which is half of the capital gains.
In this scenario, the retirement village operator will receive $183,750 and the homeowner receives $366,250, less selling fees. *
*Calculated using the formula on the Queensland Government’s Department of Housing website.
Are there any benefits in charging deferred management fees?
Retirement villages residences that charge deferred management fees claim to be up to 80 percent cheaper than buying a private home in the same area.
Promoters of deferred management fees point to lower initial cost of entry, so retirees have more cash to spend in their retirement and do not worry about paying the balance until after they choose to sell.
For retirees who are not relying on the proceeds of the sale retirement home to fund more advanced age care or don’t intend to leave a more substantial legacy to family, this might be a good choice – especially if there is a seamless transition to high care facilities within the same complex.
Are there any cons to paying deferred management fees?
As you can see from the figures, deferred management fees mean what you receive from the sale of the property is substantially less than what you paid to move in.
This can be quite a shock when we’ve come to expect real estate to go up in value over time.
And, when combined with other fees and charges, such as maintenance charges, refurbishment fees, and capital gains fees, the outgoings can be quite substantial.
But not all retirement living options are the same. Land lease resorts operate under a completely different model that might better suit active and youthful over 50s.
Why doesn’t GemLife charge deferred management fees?
GemLife operates land lease over-50s lifestyle resorts with a very easy to understand contract.
You own your home and rent the land. The rent takes the form of a modest weekly site rental that pays for the cost of the resort operation and maintenance.
There are no deferred management fees and, when it is time to sell, 100 percent of the capital gains are yours to keep.
This is a great alternative for active and independent over-50s who love the idea of downsizing to a modern, high quality, low maintenance home in a lifestyle resort with facilities typically found at high-end hotels.
The straightforward contract means it is easy to budget for expenses in retirement.
And, as you are renting the land your home is on, there is no stamp duty to pay on the purchase of the property. If you hold the eligible Australian Pension or Department of Veterans’ Affairs card, you can also receive rental assistance that further reduces the cost of the site rental.
Why consider GemLife for your next move?
There are several different reasons to consider GemLife for your ‘rightsizing’ move.
For many of our homeowners it’s about no longer having to worry about the maintenance and repairs on a larger, older home and its gardens. For others, it’s about making new friends with like-minded people who are enjoying the next chapter of their lives.
But let’s look deeper at some of these reasons.
Premium facilities & resort locations
GemLife resorts are located at some of the most sought-after destinations in Australia, including Woodend, the Gold Coast, Lake Cathie and the Sunshine Coast.
It’s like living at a five-star holiday resort all year round. Our award-winning Country Clubs feature premium facilities that are designed for entertainment, leisure, sport and activities.
Typically, Country Club features include:
- Grand ballroom with theatre stage
- Indoor heated swimming pool with spa and sauna
- Golf simulator
- Ten-pin bowling
- Games room
- Luxury cinema
- Hair salon
In addition, the resorts come with other recreational facilities, including sports courts such as tennis and pickleball, walking trails and secure off-leash dog runs.
Beautiful homes
Imagine a luxurious new home with premium European appliances, ducted air-conditioning, solar panels and window coverings all included as standard – not extras. GemLife homes are also designed to be energy efficient and low maintenance.
The homes have been thoughtfully designed for entertaining family and friends with each featuring open plan indoor-outdoor spaces, and plenty of room for overnight stays from the grandkids. They also have the benefit of being in a secure, gated community which gives you ‘lock up and leave’ peace of mind when you travel.
No DMFs, No stamp duty & zero stress
GemLife does not charge deferred management fees and, should you decide to sell, all the capital gains are yours to keep.
Because GemLife is a land lease community resort, you do not pay stamp duty when you buy your home and, if you have an Australian pension or a Department of Veterans’ Affairs card, you may be eligible to receive rental assistance toward the modest weekly site fees.
Downsize in Style, Without the Burden of Hidden Fees
If hidden fees are something that concerns you about downsizing your home, we invite you to see the GemLife difference for yourself.
GemLife charges no deferred management fees or exit fees. You own your home outright and only pay a modest weekly site fee which covers onsite management and maintenance of the resort.
We’d love to hear from you, our friendly team is available to answer any questions that you have and can book a resort tour. Alternatively, request an info pack today.
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