A deferred management fee (DMF) is a popular financial mechanism with some retirement living communities. But what is a DMF and are they good or bad?
Deferred Management Fee
The DMF is a fee associated with living in a retirement community, but it’s not an upfront fee. As the name suggests, the fee is paid at the end of one’s stay at a community, not upfront.
A DMF will lower the upfront fee of a home by a significant margin, usually around by around a third of the home’s market price. This is a useful tool for people who are retired and one a fixed income as well as on a budget.
The sale price of the home will be lowered by the amount of the deferred fee. This is a payment that will go to the community’s owner.
Communities that use a DMF will have a maintenance fee associated with living there, usually around $100 to $200 a week.
The DMF mechanism is common in Australia and New Zealand, but it is not exclusive to either country.
How Does A Deferred Management Fee Work?
This might seem vague, and that’s because a DMF is a contract that can vary from community to community. To simplify, many people think of a DMF not as a payment but of an accrual of rent that you don’t actually pay each month, and rather pay when you leave a home.
When you leave the home there will be a sale and a payment to you, the seller. Some communities will guaranteed sale of the home, usual a repurchase by the community owner, at which point the DMF will be removed from price of the home and the remainder of the money will go to the seller. In other communities the seller will not be paid their portion of the sale price until a buyer is found.
The community owner will handle any upkeep, improvements, or maintenance the property that is required until another buyer is found.