Is a retirement home a worthwhile investment?

The view that bricks and mortar are safer than share certificates in a business that might not exist this time next year is understandable, especially when markets are volatile and economies in turmoil.

It is a sentiment that has led some older investors to put their money into retirement property. After all, they need a home themselves, and it should provide lasting worth for their beneficiaries when they need a home no more.

At Continuum we are looking at why this could potentially be a very expensive mistake.

The problem with retirement homes

Retirement flats vary tremendously. There are retirement villages that offer a wealth of activities for residents and retirement flats that provide facilities for those who are less active. With wardens and call buttons, many can provide a solution for the needs of senior living.  Many provide an appealing lifestyle with lounges and restaurants, communal spaces and a companionable environment it is hard to find outside. Some offer real luxury. Almost all offer the peace of mind important for elderly buyers.

However, unlike other property types, far from being an appreciating asset some retirement homes may prove to be a financial challenge.

Contact us

Whatever your age, if you are considering a property purchase, it pays to get professional advice. For a free initial discussion, contact us at Continuum.

The root of the problem is the simple fact that most retirement homes cannot be sold on the open market, leaving owners at the mercy of management companies. Their service charges make many retirement properties a costly liability even if they are owned outright.

It might be expected, with a growing older population and demand exceeding supply, that retirement property would be a good investment. In reality the resale value of retirement homes significantly underperform the rest of the housing market.

The average retirement property is owned for seven to eight years, during which time property prices would be expected to increase substantially. However, sellers of retirement homes may find that they cannot sell without a hefty price cut – or, in some cases, at all.

Unlike the rest of the housing market, the average new build retirement home falls 3% in value for each year of ownership.

If your retirement home is no longer suitable for your needs, or if you simply wish to move, you may be facing a substantial loss.

Leaving your beneficiaries with problems

It is not just the residents of retirement homes who can face problems. Families who inherit retirement properties can find themselves left facing financial disaster if homes have proved hard to sell and maintenance fees and ground rents have stacked up.

Service charges, which can pass £10,000 a year for some properties continue to be charged even when they are standing empty. In addition, the lease on the property can be loaded with clauses that restrict how it can be sold and can impose additional charges when and if it is sold.

It may all mean a nightmare for beneficiaries who can find that they are saddled with a property that they cannot live in, sell – or afford.

What can you do?

A retirement home may offer the lifestyle and security that seems attractive in your later years, but like any other investment of property purchase, you should probably get professional advice first.

Anyone considering buying a retirement home should investigate prices of local properties and the prices realised on properties that have come back on to the market – and talk through the terms of the lease with a solicitor.

At Continuum we may be able to suggest alternatives to buying a retirement home.  For example, investing your wealth elsewhere and renting rather than buying a property could allow you to enjoy the lifestyle you want while safeguarding and perhaps even growing your cash. It may mean that you and your family need never be trapped with a property that may no longer be ideal for your needs.

We are independent

If you are looking at making the most of your finances in retirement. Simply call us to find out more.

The key thing to remember is that in retirement, good financial advice is just as important as it is during your early years. At Continuum, we provide financial expertise for every life stage. So if you are retired and planning a move, or simply want to make the most of your golden years, the simple solution may be to call us.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a suitable retirement or investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of property investments can go down as well as up and investors may not get back the amount originally invested.

When investing your capital is at risk

Half of new-build retirement homes sell at a loss – BBC News

‘I can’t sell mum’s retirement flat – and the charges are mounting up’ | Property | The Guardian

How to sell a retirement property | Movewise

Book a Meeting

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.

    Sign-up to our free weekly online publication

    How can we help you?
    Scan the code