In last week’s post, we explored the defining characteristics of a rental retirement community and weighed the potential benefits and drawbacks. In this second installment of our series on senior living options, we turn to equity retirement communities — also called ownership retirement communities — and explain how they differ from other senior living models.
Equity or ownership retirement communities
Equity retirement communities function much like typical residential neighborhoods: residents purchase their homes in a standard real estate transaction, hold title to the property, and can sell it at market value whenever they choose. What distinguishes many of these communities is an age restriction — commonly 55 and older — so at least one resident in each home must meet the community’s age requirement.
Homeowners in equity communities usually pay a monthly service or membership fee that covers shared amenities such as a clubhouse and swimming pool, plus exterior maintenance for the home and common areas. Interior repairs and renovations remain the homeowner’s responsibility. In some situations, communities may levy special assessments to cover large communal expenses, such as major roof repairs or infrastructure projects.
Some equity communities are also continuing care retirement communities (CCRCs) that provide on-site long-term care services. In those cases, residents typically pay the market rate for care, though a few equity CCRCs offer services at reduced rates. If long-term care becomes necessary, homeowners may be able to access their home equity through an equity line of credit or a reverse mortgage to help cover costs.
In contrast, equity communities that provide only independent living do not usually offer on-site nursing or assisted living services. Residents who require care in that setting must either purchase in-home care privately or sell their home and move to a community with a higher level of care, such as assisted living or a CCRC with care services.
Many seniors are drawn to equity retirement communities because they retain ownership of their home. Ownership preserves any built-up equity and potential appreciation, and when a homeowner dies, heirs can inherit or sell the property and keep the proceeds.
The pros of an equity retirement community
- Homeowners retain their equity for themselves or their heirs
- Homes can be sold at the owner’s discretion
- Exterior maintenance and common-area upkeep are typically handled by the community
- On-site amenities like clubhouses, pools, and recreational facilities
The cons of an equity retirement community
- Ongoing obligations such as property taxes, homeowner’s insurance, interior maintenance and potential special assessments for communal repairs
- If higher levels of care are needed, it may mean added expense or another move
- Most equity communities do not include meal services
- If the homeowner must move or passes away, the property must be sold; until the sale completes, HOA fees, taxes and insurance continue to be due
- Real estate values can decline, which may reduce home equity
- Age restrictions may prohibit friends or younger family members from using the home as a part-time or seasonal residence
>> Related:How Rental and Equity CCRCs Work
Next week we will examine entry-fee or buy-in retirement communities and discuss their potential advantages and drawbacks.