When you’re looking into a retirement village, it’s important to understand all of the fees involved. One fee that may be less familiar to some people is the Deferred Management Fee. Let’s take a closer look at what this fee is and what you need to know about it.
What is a Deferred Management Fee?
A Deferred Management Fee (DMF), also known as an exit fee or departure fee, is a charge that is sometimes levied by retirement villages. It is generally payable when you leave the village and is usually paid by your estate.
The DMF is calculated as a percentage of the retirement village unit’s sale price multiplied by the number of years you’ve lived there.
For example, let’s say that you purchased a unit in a retirement village for $400,000. The contract states that a DMF of 3% will be payable on exit. If you sell the unit after five years, the DMF will be calculated as follows:
Sale price of unit x DMF percentage x number of years lived in the village ($400,000 x 3% x 5 = $60,000)
In this instance, the DMF would amount to $60,000.
In its simplest form, when you leave the retirement village, you get to keep $340,000 from the sale of your unit ($400,000 original sale price less the DMF of $60,000).
Why Do Retirement Villages Charge a Deferred Management Fee?
The DMF is used by operators to contribute towards the improvement of the retirement village services and facilities. This ensures that the village can continue to provide high-quality accommodation and facilities for future residents. It is also used to fund the refurbishment and costs of re-selling the unit.
Is a Deferred Management Fee Worth Paying?
This is a decision that you will need to make based on your personal circumstances. You should consider the following factors:
- The size of the DMF
- How long you intend to stay in the retirement village
- Whether there are any alternatives to paying the DMF (e.g., downsizing to a smaller unit)
If you are considering a retirement village that charges a DMF, be sure to get all the facts and ask questions before making a decision. Retirement should be a time of enjoyment and relaxation, so don’t let unexpected fees ruin your plans. Always seek professional financial advice to ensure that the retirement village is the right decision for you.
