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

Unless you've been living under a rock for the last 10 years you would know that Australia?s population, like the remainder of the west, is quickly aging. The maturing of the states demographic profile is changing the nature of our living arrangements and driving a boost in the retirement living sector.

Retirement village overview

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

Retirement living options are generally either an Independent Living Unit (ILU) or a Serviced House. ILU’s are composed of detached or townhouse-style villas or large 2 and three bedroom flats. These varieties of properties are popular with mobile, independent retirees and are made for absolutely independent living. They can go from basic through to luxury living.

ILU’s aren't dissimilar to standard residential housing, though purpose-built residences feature special retirement living fittings like enhanced security, emergency call buttons for medical assistance, wider doorways, bigger shower cubicles and lift rails in the loos.

Serviced Flats are smaller in comparison to ILU?s but offer an boosted level of care to people who can no longer handle some daily tasks on their lonesome, eg housework, shopping, the preparing of meals and in a number of cases personal care.

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

It's thought that around 1/2 the retirement villages in Australia are now owned by corporations like investment banks and giant property firms, with the remainder owned by the non-public or not-for-profit sector, including church groups and benevolent associations.

Rental retirement villages

Rental towns are the sole way for speculators to procure real exposure to the retirement sector. In rental retirement villages the units are sold to stockholders specifically for the purpose of renting to elderly renters.

Rental retirement villages operate under standard residential rental contracts and an expert, retirement town management company is appointed by the body company or owners concern to operate the village on behalf of speculators. The particular on-site executive is a worker of the management company and responsible for the day-to-day operation, leasing and upkeep of the complex.

The managing firm charges letting and management costs, however stockholders might be free to appoint external real estate agencies for these tasks if they select. Management firms will generally offer further services to village residents like cleaning and meals, and these are contracted directly with the tenant.

It is fair to say the rental model for retirement towns is still developing in Australia. In America as an example, most retirement hamlets operate under a rental model, charging a monthly fee that varies depending on the quantity of add-on services used.

In Australia, the rental model is targeted at the lower socio-economic demographic and the weekly rent charged needs to be cognisant of the aged annuity and rental help allowances received by retirees. This will prevent owners from charging rent that is identical to the market rate for a similar kind of property outside of the complicated.

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

Financial planners and property spruikers sold many of these village units to ?Mums and Pops? Investors at inflated costs around 15 years ago. As a. Rule, they don?t perform well as investments because of the inability of rents to match the market and there is concern round the feasibility of the business model for bosses of the complex. Other owners include developers who've kept stock and some fixed financiers.

Investment Facts

One of the benefits of buying an investment property in a rental village is the minimal cost of purchase. It still is possible to buy units for less than $100,000, though a mean price would be around $140,000-$160,000. Investors should be aware that banks are hesitant to lend against these sorts of assets.

Investment returns are comprised of a rental income yield and capital gain upon sale. A gross yield of between 2-9% is diluted by the usual property-related costs like rates, letting and management charges, and property maintenance.

Capital gains are constrained by the absence of opportunity for a backer to increase hire, as a tenant?s capability to pay is related to the value of the age annuity and rent help allowance. Consequently, the total cost of individual units in the better-located villages could be less than the actual cost of the land the hamlet occupies!

Unlike ordinary residential investment property, the performance of a rental village unit will be principally dependent on the ability of the village chief to drive occupancy and rental growth. This adds a layer of ?management risk? Which should really be remunerated with a higher yield or capital expansion profile than that of standard residential property.

With such a low price, the disinclination of banks to lend against the asset as well as restricted yield and capital growth prospects, the logical owners for these properties are low-end owner-occupiers. A recommended opportunity for investors would therefore be to buy, reconstruct and flip to an owner-occupier.

Sourcing properties

Finding units for sale will take stockholders a touch more work. Infrequently units are publicized in the classified section of the local seniors? Newspaper, however your best option is to approach the on-site boss of a rental complicated and ask if there are any units for sale. Most bosses would be happy to put you in touch with existing backers who are trying to sell.

The Re-sale Market

A productive secondary market for these assets doesn't yet exist. Property consultants are loath to list them as the low selling price is equivalent to an equally low commission. Selling a property for $120,000 takes the same effort and time as a property worth three times that amount, so why would they bother? Likewise to finding an investment unit, your best sale possibility is to work with the on-site executive to sell your unit.

Pro?s

• Rising demand for retirement accommodation
• Few options exist for retirees to rent accommodation
• Absence of new supply
• Shortage of low cost retirement accommodation

Con?s

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

Investing in retirement villages is currentlythe only viable option for the average investor to access direct propertyexposure to the retirement sector. They pose more serious risk thanstandard home property and accordingly consumers should do careful researchbefore investing.

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