What is a deferred management fee?

As people age, many consider downsizing their homes and starting a new chapter of their lives. Retirement villages offer a variety of benefits, including a sense of community, security, social activities, and access to care and support when needed. Not to mention a range of amenities and facilities. However, one aspect of retirement village living that are often misunderstood are the associated costs, particularly the deferred management fee (DMF).

What is a deferred management fee?

The DMF is the most common financial model for retirement villages in Australia, which is simply a fee that is payable when a resident leaves the village. The fee is effectively an ‘enjoy now, pay later’ scheme, which helps reduce the cost of moving into a retirement village. It covers the operator’s initial investment in the village and helps to ensure that all residents have access to quality facilities and amenities while they’re living in the village. It funds capital replacement works and village upgrades.

So, when it’s time to leave the village, a portion of the funds from the sale of your home will be kept by the operator. The DMF is typically a percentage of the entry or exit price, but it can vary depending on the village and the terms of the contract.

At RetireAustralia, our independent living residence contract, which is offered in our leasehold and licence villages, allows you to calculate exactly how much you’ll get back based on your entry payment. The deferred payment fee will not exceed 35% of your entry price and is accrued during your first three years in the retirement village. There are no further increases after this period, no matter how long you stay. See our calculator here.

In our strata village contracts, the deferred payment fee will not exceed 37.5% of the resale value in strata title villages in New South Wales and 35% of the resale value in Queensland. This is charged and deducted from the gross sale proceeds. This way, it’s easy to calculate exactly how much money you’ll receive after you leave.

What is the benefit of having a DMF?

When you buy into a retirement village, the price is generally lower than if you bought a similar property outside the village. That’s because you’ve deferred paying that difference until you leave. By deferring payment until you leave the village, you will have more available money to use during your retirement. Additionally, the DMF contributes to capital improvements and community infrastructure in the village, which will benefit residents during their time there.