The retirement living sector is booming thanks to Australia’s quickly aging population. So how can savvy property backers get a piece of the action?

Unless you've been living under a rock for the last ten years you would know that Australia?s population, like the remainder of the west, is swiftly aging. The maturing of the nations demographic profile is changing the character of our living arrangements and driving a boom in the retirement living sector.

Retirement town overview

Retirement towns provide accommodation for older, retired people. The majority of accommodation options in Australia have previously been targeted to the aged, low and middle socio-economic demographic, with village-style accommodation and further services such as meals, cleaning, or nursing.

Retirement living options are generally either an Independent Living Unit (ILU) or a Serviced Apartment. ILU’s are composed of detached or townhouse-style villas or enormous two and 3 bedroom flats. These sorts of properties are well liked by mobile, independent retirees and are made for fully independent living. They can go from basic thru to luxury living.

ILU’s aren't dissimilar to standard home housing, though purpose-built houses feature special retirement living fittings like boosted security, emergency call buttons for medical assistance, broader entrances, larger shower cubicles and lift rails in the lavatories.

Serviced Residences are smaller in comparison to ILU?s but offer an augmented level of care to individuals who cannot cope with some daily jobs on their own, such as housework, shopping, the preparing of meals and in a number of cases private care.

Modern retirement living communities may offer a mix of accommodation styles and care options, which permits the hamlet owner to manage residents within the complicated as their wishes increase. For example, a resident may initially move into an independent living villa or townhouse in the community. As their autonomy and mobility decreases, they have the option to move into a smaller, easier maintained apartment also in the community.

It is estimated that around half of the retirement hamlets in Australia are now owned by corporations such as investment banks and large property companies, with the remainder owned by the private or not-for-profit sector, including church groups and good associations.

Rental retirement villages

Rental villages are the only way for stockholders to acquire actual exposure to the retirement sector. In rental retirement villages the units are sold to investors specifically for the purpose of renting to old renters.

Rental retirement villages operate under standard home rental agreements and an expert, retirement town managing company is elected by the body corporate or owners establishment to operate the town for investors. The particular on-site manager is a worker of the managing firm and responsible for the daily operation, leasing and upkeep of the complex.

The managing firm charges letting and management charges, however speculators could be free to designate external real estate agencies for these tasks if they select. Management firms will typically offer extra services to hamlet residents such as cleaning and meals, and these are contracted directly with the renter.

It is correct to say the rental model for retirement towns is still evolving in Australia. In the US for instance, most retirement towns operate under a rental model, charging a once a month charge that varies relying on the amount of add-on services used.

In Australia, the rental model is targeted at the lower socio-economic demographic and the weekly hire charged has to be cognisant of the old pension and rental assistance allowances received by retirees. This can prevent landlords from charging lease that is equivalent to the market rate for an identical kind of property outside the complex.

Rental retirement complexes are sometimes found in fringe and suburban locations and are well liked by retirees who have got a limited capital and income base. The rental units are typically one-bedroom apartments, often not much larger than 40 square metres in size. They could be furnished or un-furnished and would typically not include garaged vehicle parking. The complexes may supply a central dining facility with meal service and as such, the units have only rudimentary kitchenettes.

Financial planners and property spruikers sold many of those town units to ?Mums and Pas? Investors at inflated costs around fifteen years back. As a. Rule, they don?t perform well as investments thanks to the disability of rents to match the market and there's concern around the viability of the financial model for executives of the complex. Other owners include developers who have retained stock and some prescribed speculators.

Investment Facts

One of the advantages of purchasing an investment property in a rental hamlet is the low cost of acquisition. It is still possible to buy units for less than $100,000, although a mean price would be around $140,000-$160,000. Investors must be aware that banks are hesitant to lend against these varieties of assets.
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Investment returns are composed of a rental revenue yield and capital gain upon sale. A gross yield of between 2-9% is diluted by the typical property-related costs like rates, letting and management charges, and property upkeep.

Capital gains are constrained by the absence of opportunity for a stockholder to extend lease, as a tenant?s capability to pay is directly related to the value of the age annuity and lease help allowance. Subsequently, the total value of individual units in the better-located villages may be less than the particular value of the land the village occupies!

Unlike standard home investment property, the performance of a rental hamlet unit will be mostly reliant on the ability of the town manager to drive occupancy and rental expansion. This adds a layer of ?management risk? Which should be remunerated with a higher yield or capital growth profile than that of standard residential property.

With such a low purchase price, the disinclination of banks to loan against the asset as well as constricted yield and capital growth prospects, the logical owners for these properties are low-end owner-occupiers. An advised opportunity for speculators would therefore be to buy, reconstruct and flip to an owner-occupier.

Sourcing properties

Finding units for sale will take investors a bit more work. Sometimes units are advertised in the classified section of the local seniors? Newspaper, however your best choice is to approach the on-site chief of a rental complicated and ask if there are any units for sale. Most bosses would be very pleased to put you in contact with existing investors who are interested in selling.

The Re-sale Market

A productive secondary market for these assets doesn't yet exist. Realtors are loath to list them as the low selling price equates to an equally low commission. Selling a house for $120,000 takes the same effort and time as a property worth 3 times that amount, so why would they trouble? Similarly to finding an investment unit, your best sale option is to work with the on-site manager to sell your unit.

Pro?s

– Growing demand for retirement accommodation
– Few options exist for retirees to hire accommodation
– Lack of new supply
– Lack of low cost retirement accommodation

Con?s

– Tough to find
– Inefficient secondary re-sale market
– Hamlet boss risk
– Sub-market rents
– Constricted capital growth prospects

Investing in retirement villages is currentlythe only workable choice for the average investor to access direct propertyexposure to the retirement sector. They pose more serious risk thanstandard residential property and accordingly buyers should do careful researchbefore investing.

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