Dear downsizers, beware the devil lurking in details


by Nick Bruining – Your Money Weekend

Deciding when and how to downsize is one of life’s bigger decisions. When you’re in your 60’s, the “4×2 with BG pool” might otherwise be described as “big empty home with pool that costs a fortune to maintain”                                                                                                                                                                            Like thousands of others, you start to look around.                                                                                     You’ll soon discover there’s a world of choice where a poor decision could end up costing you thousands of dollars.                                                                                                                                                     Seniors, basically, have three options when it comes time to downsize. Your first will be to move to a smaller home or a strata-titled property such as a unit or villa.                                                                          In this scenario you have a direct interest in the property, with your name registered as proprietor with Landgate. While you wear the costs of maintenance and upkeep, you enjoy the benefit of being the property owner.                                                                                                                                                           If it appreciates in value, you or your loved ones will pocket the profits.                                                       Being real property, you can use it to take out a reverse mortgage or as security for the expanded Pension Loan Scheme, to apply from next year.                                                                                                        Neither of these is available if you select options two or three and use the proceeds of your home to enter a retirement or lifestyle village.                                                                                                                         Village promoters are experts at pushing the positives, so let’s spell out some other issues to consider. In this arrangement, you buy a right to reside in the village and to use the facilities on offer. Sometimes, this right-to-reside will cost hundreds of thousands of dollars, and the unwary might think they have bought a new but smaller home.                                                                                          But this is not a real estate transaction. You don’t own the land and while in some cases you might own a relocatable structure, where might you move it to if you decide to leave?                                      Your specific entitlements and obligations are spelt out in a multi-page contract.                               In reality, most of the contract seems to be dedicated to protecting the rights of the village operators.                                                                                                                                                                    The terms of the contract become apparent once you’ve signed up and moved in – maintenance may have to be provided by the operator at a price they have set, there are possible refurbishment costs on exit and also monthly fees which continue to rack up even if you’ve been forced to move out.                                                                                                                                                                                                   You may have to use the promoter’s agent to sell your place. If they are flat out selling “stage 5” of another village, don’t be surprised if it takes a while for yours to sell, and all the while, the fees can continue to erode your final payout.                                                                                                                              The staff at the Government’s Senior Housing Advisory Centre, say examples where a $500,000 outlay turns into a $300,000 payout is not uncommon.                                                                                           While that may affect your loved ones when you are gone, it can also have an impact on you because it reduces the amount you can contribute to aged care if needed.

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