Great movie, and an awesome title. But I would have done it the other way round – the Ugly, the Bad and the Good. OK, it doesn’t roll off the tongue quite as well, but it’s a better way to approach life – that way you end on a positive note. But I digress, this article is about life right, not about movies.
In a nutshell, buying a life right is similar to buying a home, but with some very important differences. When you buy a life right, you ‘buy’ a dwelling and the solution that comes with the dwelling for the duration of your life – and that of your spouse. You don’t take the title of the dwelling, and the solution includes the maintenance of the dwelling and surrounding facilities and, most importantly, access to comprehensive healthcare based on your needs. So, it is a hybrid product with the goal of facilitating a good quality of life that is accessible to more retirees.
There’s a lovely scene in the TV Series Doc Martin, where someone asks Martin about a patient: ‘is she going to die?’ and his response is: ‘yes, but not today.’ And that’s the ugly fact. You are going to die (but probably not today). And here’s an even uglier fact. Before you die, you will probably be sick and suffer from compromised mobility or mental acuity – maybe for a few days, maybe for a few months, or maybe for a few years.
Oh – and here’s another ugly fact. While we acknowledge that you will die, you could carry on living for a long, long time – especially if you’ve been eating your five veggies a day. You may survive your spouse and many of your friends, so you may get lonely. And if you’re living alone, and not quite as spry as you used to be, you may become more and more vulnerable to crime. And – possibly most frightening of all – you may outlive your investments, or your pension may fail to keep up with inflation and leave you with very little to live on. And it’s in response to many of these uglies that the life right model was developed.
But the life right model is not perfect, and – depending on how you look at it, and who you ask for advice – it could be considered a bad decision, and certainly – from a purely financial perspective – it’s not considered an investment. Here’s why.
The most financially challenging aspect of life right is that you can’t take advantage of the increased value of the property. When you move out of your life right home, which will usually be feet first, all you will get back is your purchase price. This is the most common formula, but there are variations. The property will then be sold again to a new resident at a market- related price that might be double what you paid (and what you get back). Now clearly, that is not a good return on investment from a purely financial perspective. So, yes, it is a disadvantage. And, of course, you will still have to pay levies.
Clearly, there must be some advantages, or no-one would buy into it. Yes, there are – and they are significant.
- Unlike sectional title schemes, the life right developer is committed for life and does not disappear when the last unit is sold. In order to sell life rights in the future, they must deliver an excellent ‘lived experience’ for their existing residents. Reputation is everything.
- When you buy a life right, you have a home for the rest of your life – or that of your spouse, whichever is longer. You don’t own the property, but your right to occupy it is protected by law.
- Because you don’t own the property, you are not responsible for maintenance, gardening services, property insurance and other expenses.
- Although you pay levies, you will not be expected to pay special levies for any unexpected expenses, as you may be if you had bought a sectional title unit.
- Because you are buying a right, not the actual property, it is likely you will pay less than you would for a freehold or sectional title property of the same size and value. So, if you have sold a house that you’ve been living in for decades in order to buy a life right, chances are you will have some left over to invest.
- Because the termination capital that is returned to the exiting life right holders or their estate is pre-set at the time of purchase, there is some flexibility in the purchase Some developers may let you choose a lower purchase price for the life right, and then reduce the return capital on termination – for example, 80% of it when you resell. But you will be dead, of course, and you will have had the advantage of that extra cash while you were alive.
- If your finances change – for example if an investment fails, or you live so long your pension starts looking like pocket money – some life right developers will give you access to the capital tied up in your life right for paying levies and/ or for healthcare, and then offset it by a reduction in the terminal capital.
- Most life right purchases are in dedicated retirement villages that may provide some meals, and will usually allow greater or lesser access to nursing care, frail care and/or dementia care. And you won’t be bothered by crying babies and kids riding around on bikes.
- If you think the previous point should go under Bad or Ugly, then be reassured. You can buy life right in some genuine multigenerational estates where you may hear peals of childish laughter throughout the day – and some crying babies, perhaps. And you’ll still be able to access all the things we prefer not to think about, like in-home nursing, frail care and such-like.
Life right is not necessarily the right choice for everyone, but it should certainly be considered. And when you do consider it, you need to weigh up all the pros and cons – financial, practical and emotional. Making decisions based on the fact that you are going to die seems morbid, but it’s important to think these things through while you are still fit, healthy and flexible enough to think clearly, and to settle into a new environment without too much stress and trauma. And, of course, the younger you are when you buy a life right, the longer you are likely to get to enjoy it, so you end up with a bit of a financial advantage, too.