In last week’s post, we explored the defining characteristics of a rental retirement community, as well as the potential pros and cons of choosing one. In this second installment in our series on the different types of senior living communities, we examine equity retirement communities, also referred to as ownership retirement communities, and what sets them apart from other senior living options.

Equity or ownership retirement communities

In most cases, these types of communities are really no different from any residential community: Residents buy their home in a traditional real estate deal. They own the home and can sell it at any time at whatever price the real estate market dictates. The primary difference is that they typically are age-restricted communities, meaning that there must be someone age 55-plus residing in the home.

Most equity retirement communities will require residents to pay a monthly service fee or “membership fee,” which will cover the cost of shared amenities like a pool and clubhouse, as well as exterior home maintenance. (The cost of any interior home maintenance or renovations would be at the owner’s expense.) In certain cases, residents may also be charged an assessment fee if a large communal expense arises, such as a major communal repair.

There are some equity communities that are continuing care retirement communities (CCRCs), offering on-site long-term care services if needed. With this model, residents will usually pay the full market rate for care, though there are some equity communities where these services are offered at a discounted rate. If a resident does require long-term care, they could potentially tap into the equity of their home via an equity line of credit or a reverse mortgage, if needed.

For equity communities that are exclusively independent living communities, residents that need care could either pay out-of-pocket for whatever in-home care services they need, or they would need to sell their home and move to another type of community with an appropriate level of care (such as assisted living).

For some seniors, the appeal of the equity retirement community is that they still own their own home. If they move, they retain whatever equity they have in the home and any appreciation in value; if they pass away, their heirs can inherit the home or sell it and retain the proceeds.

The pros of an equity retirement community

  • Residents retain the equity they have in their home, for themselves or their heirs
  • Residents can sell the home whenever they would like
  • No-maintenance exteriors
  • On-site amenities

The cons of an equity retirement community

  • Ongoing costs like property taxes, homeowner’s insurance, and interior maintenance, as well as potential assessment fees for major communal repairs
  • If care is needed, it can create an additional expense and/or necessitate another move
  • Most do not provide any meal services
  • Should a move be required or if the resident passes away, the home would need to be sold, and costly monthly HOA fees, taxes, insurance, etc., would still be due until the sale is completed
  • Real estate can depreciate, potentially reducing the amount of equity in the home
  • Cannot be used by friends/family who do not meet the 55-plus age requirement (such as with part-time/seasonal homes or in the case of inheritance)

>> Related: How Rental and Equity CCRCs Work

Next week, we will examine the entry fee retirement community, sometimes called a buy-in retirement community, and its potential pros and cons.

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