The dos and don’ts of aged care real estate

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The dos and don’ts of aged care real estate are important because there is a lot of misinformation out there. If you or your family want to buy or sell aged care real estate there are options many people are unaware of.

 

 

Thinking of buying into aged care

 

 

Many people are under the impression they must sell their homes to move into aged care. This is incorrect and you can choose to sell or keep your home if you prefer.

 

 

Many wrongly believe that you need to sell your home to pay the ‘Refundable Accommodation Deposit (RAD). That lump sum payment is refunded once you leave Eldercare. The ongoing fees called the Daily Accommodation Payment (DAP) are non-refundable rental-style payments.

 

 

So, with all these costs many assume that they must sell their home upfront. However, you can choose to meet the cost of your aged-care accommodation in other ways and there is no need for a forced home sale. In fact, you could actually end up worse off in the long run if you do sell.

 

 

 

Simply it works like this

 

You may choose not to pay the entire accommodation payment as a lump sum (RAD), but instead, elect to pay some (or all) of it as a Daily Accommodation Payment (DAP). In essence, the DAP is the interest charged on the unpaid RAD, as follows:

 

 

DAP = (RAD x MPIR)/365

 

Daily Accommodation Payment =

 

Refundable Accommodation Deposit        X         Maximum Permissible Interest Rate

_________________________________________________________________________

    365

 

 

 

The DAP is like an interest-only loan or something similar to a rent payment. If you paid all of the RAD there would be no DAP. You could pay a smaller RAD and have the DAP deducted from the RAD. As the RAD reduces, the DAP would slowly rises.

 

 

Many people sell their homes without knowing that their home is exempt from the pension assets test for two years after they move into residential aged care. If you are a couple, the two years start when the last person leaves the home.

 

 

For aged care, the value of your home is only included in your assets up to a capped value of approximately $175,000. If the home is worth less than that, the actual value is used.

 

 

For people who have a home that is worth significantly more than the accommodation deposit selling the family home could be a loss of pension, potentially worth up to $24,700 a year. Also, a means-tested care cost goes from a negligible amount to more than $28,000 a year. It could be double those amounts for a couple. So, you may actually lose out by selling your home before moving.

 

 

To avoid paying $20,000 a year of interest, aged care residents could be costing themselves more than twice that amount in lost pension and increased aged care costs. Unfortunately, many find out they didn’t need to sell their house, their pension is lost and the cost of care goes up.

 

 

Funding aged care requires a plan that considers how to fund the cost of accommodation and the ongoing costs, together with cash flow, tax, pension and estate planning. Seek specialist advice in this highly complex area.

 

 

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Those fees

 

 

There are multiple fees that are each calculated differently. This can make it difficult for potential aged care residents to figure out whether selling or keeping their homes is better financially.

 

 

The fee structure includes:

 

 

Accommodation payment

Basic daily fee

Means-tested care fee

Extra service fee / Additional services fee

 

 

Accommodation payment

 

 

You may be required to pay an accommodation fee for a room. If paid in full, this is referred to as a Refundable Accommodation Deposit (RAD). The average RAD in Australia is approximately $470,000, and it is refundable after the resident leaves the aged care home.

 

 

Residents can also choose to pay a daily accommodation payment (DAP) instead, which is similar to a rental payment and is not refundable. Alternatively, residents can pay via a combination of both RAD and DAP.

 

 

Basic daily fee

 

 

Every aged care resident pays a basic daily fee directly to their aged care facility towards the cost of their daily care.  This fee is not affected by a resident’s assets or income because it is not means-tested.

 

 

Means-tested care fee

 

Residents who can afford to pay more towards their care pay the means-tested care fee in addition to the basic daily fee. This amount is determined by a resident’s income and assets and therefore may be impacted depending on whether a potential resident sells or keeps their home.

 

Selling the home

If a resident sells their house, the money they receive after all outgoings are paid is counted as an asset. This in turn raises a potential resident’s means-tested fee because the value of their total assets is higher.

 

Keeping the home

If a resident keeps their home, only a portion of its value is counted as an asset when calculating the means-tested care fee. This portion is referred to as the home exemption cap. Currently, the value of the home counted as an asset is capped.

 

 

 

Extra service fee / Additional services fee

 

 

Residents requiring extra services the provider offers may pay either an extra services fee / additional service fee. These are not subsidised by the government, so they will pay the full cost.

 

 

Wanting to sell an aged care property

 

 

You may decide that aged care living is not for you or your circumstances change and you need to sell.

 

 

You normally have the right to sell your unit through an independent agent of your choice, either an external estate agent or the retirement village operator. However, you may need to clearly articulate that you want that option when purchasing.

 

 

The Victorian Government outlines the laws protecting consumers. It is important to know that if you engage an external estate agent (independent of the retirement village operator) to handle the sale, the retirement village operator cannot charge a fee or seek a commission for the sale.

 

 

It is extremely important you understand the conditions of your purchase. For example, know the criteria the aged care provider is using to approve the incoming resident. If the operator does not approve of the buyer, the sale may not go ahead. Disputes about this must be resolved through the Victorian Civil and Administrative Tribunal.

 

 

Before you sign a contract with an estate agent to sell your unit:

 

 

  • the agent must advise you in writing if you have to pay a commission if the sale does not go ahead because the operator does not approve the buyer. The agent must get you to initial the page containing this information;

 

 

  • view our buying and selling property section.

 

 

Depending on the terms of your retirement village contract, you may also have to pay the retirement village operator:

 

 

  • a share of any capital gains;

 

 

  • deferred, departure or exit fees;

 

 

  • other charges drawn from the proceeds of sale.

 

 

 

If a retirement village operator has a waiting list but is not the selling agent for your unit:

 

 

  • you do not have to sell to people on that list;

 

 

  • the operator does not have to give the waiting list to your selling agent.

 

 

Buying and selling property that is connected to aged care is complex and definitely requires professional advice. Before selling that family home ensure that is your best option and that you will not be disadvantaged from selling.

 

 

When buying into aged care ensure you are clear of the conditions of the contract. The contract must service you not just the aged care provider.