Follow the retirement village journey

The following example shows how the Deferred Management Fee (DMF) is worked out in New Zealand and how it affects the final payout. 

Example – Mr C

Mr C chose a unit in a village near to his old home. He did his homework which included:

• Using the village checklist
• Visiting several villages
• Talking to key people involved with the village including residents
• Reading and understanding the paperwork provided by the various villages on his short list
• Visiting a lawyer experienced in retirement villages to have all the essential legal components and financial implications explained (ORA, legal title, Deferred Management Fee [DMF], weekly fees, etc.)

The financial arrangement

• Mr C decided to spend $500,000 on the unit (having understood the unique components of an Occupational Rights Agreement - ORA)
• The weekly fees were $150 per week (fixed for life)
• The DMF was 5% per year to a maximum of 20%
• Mr C does not share in any capital gain or loss

Mr C enjoyed six years in the village and continued to pay the weekly fee of $150 per week.

When Mr C died

The calculation for the DMF (the amount deducted from the payment his estate received) was as follows: (Remember the purchase price was $500,000)

Mr Cs estate received $400,000 (less refurbishment costs of $27,000).