I’ve been meaning to write a blog about buying retirement property as an investment for some time. A couple of years ago I started looking into the feasibility of buying a retirement apartment for my dad and found it to be a bit of a minefield. To a property investor it’s hard to see any form of property without looking at the investment angle or future profit versus loss angles, which is what this blog focuses on for those foolhardy enough to want to give it a go.
Financing A Retirement Property
OK so this is the hard part, particularly if you are looking at it from an investment angle.With this type of property there is a very limited range of lenders available who will even offer mortgages or re-mortgages. In the main this is because of the age restrictions which are specified by the sellers property lease. ( More about that below.) It’s likely that you won’t be able to use a Buy To Let mortgage to finance a retirement flat either, for the same age restrictive reason. Most loan providers seem to feel it’s a higher risk not worth taking. If you manage to find a lender who is amenable, you will no doubt be looking at a minimum 25% deposit with an additional high interest rate.
Another big thing to consider when looking at retirement flats as any form of investment is the stipulations within the lease. Most retrement properties are leasehold not freehold, and as such, can include some pretty heavy covenants in the lease. These are known as restrictive covenants.
They range from;
- Who can occupy the property ( this can include family member restrictions and all kinds!)
- What age range is allowed for eventual re-sale.
- If the property can be rented. ( Usually this is not allowed.)
- If pets are allowed. ( Often they aren’t.)
- Excessive noise.
- Restrictions on visitor amount / times.
Of course, what all the above items scream is the limited future saleability of the property. It’s worth noting that lenders are very wary of any restrictions because if they need to take possession and then dispose of the asset at the best price, this can be difficult. As we all know, lenders are all about mitigating risk.
Other Factors To Consider
As an owner of a retirement property you need to know if you would be wholly or partly responsible for the cost of any repairs? It is important to be clear about this from the onset, as many retirement apartment blocks are huge. Maintenance costs too will generally be much higher on retirement properties due to the extra facilities provided, and you would probably have no control over any future rising costs.
Retirement Flats Purely As Investments
Having looked at all the angles from an investment point of view I personally think retirement properties are not really suitable as investments unless you are into high risk, or possibly if you are involved in the building development side. Capital values will tend not to grow as much as regular properties, the rental market for them is very limited, and the resale market is also very slow. Lastly, many retirement housing homes were built in the 1980s and sold on 99 year leases. Today, some of these schemes have leases of less than eighty years left which in reality makes them a reducing asset.
Most definitely a case of buyer beware!