Comparing Continuing Care Retirement Communities

Last month we introduced Continuing Care Retirement Communities (CCRC) and their different pricing options. Each community combines independent living, assisted living, and a nursing home. Residents are guaranteed lifetime care. Some require a modest deposit and monthly fees.  Others require a large payment that might be partially refundable to your heirs, and they charge lower monthly fees. A few CCRCs sell equity interests in addition to charging monthly fees.

The CCRCs that sell equity interests are the fastest-growing segment of the market and have a lot of appeal to a generation that experienced a lifetime of steadily appreciating real estate. Many equity-ownership CCRCs have waiting lists of buyers and bidding wars when units become available.

The major appeals of an equity ownership CCRC are the possibility of appreciation and the belief that something of value will be left for the next generation.

The costs of buying an independent living unit in a CCRC vary by location and the type of facility. But many CCRCs are high-end projects. Expect to pay at least $100,000 for a small studio unit. Many units cost much more.

The purchase price is perhaps the least important factor to consider. In addition, owners are charged monthly fees and receive a range of services for the fees. Typical services are maintenance and repairs, utilities, weekly cleaning, laundry, access to exercise facilities, and at least some meals.  There also should be a range of social and community activities. Some CCRCs will charge extra for some services, while others are all-inclusive. Most vary the fees based on the number of people living in the unit and the size of the unit, using formulas not discernable to an outsider. Different fee formulas and the varying range of services make it difficult to compare fees between units and between CCRCs.

An equity CCRC includes in the monthly fees a maximum number of days of lifetime medical care. Those are the number of days that someone in an independent living unit can spend in assisted living or the skilled nursing facility without incurring an additional charge. The period varies from 30 days to 183 days (six months).

Here is where an equity-ownership CCRC differs significantly from other CCRCs.

After using up the lifetime days of medical care, the resident will be charged extra fees for each day spent in either the assisted living or nursing care section. That could mean two layers of fees if the independent living unit is retained. The equity owner has the option of selling the independent living unit and moving permanently into assisted living or nursing care. The sale proceeds from the independent living unit can be used to pay the future monthly fees. If one spouse still is in independent living, the larger unit might be sold and replaced with a smaller unit.

A major advantage to an equity-ownership CCRC is that the assisted living and nursing care daily fees usually are much less at the equity CCRC than at similar facilities in the geographic area. A recent survey by The Wall Street Journal found that the monthly charges at the equity CCRC can be half of those at nearby facilities. That is one reason there are waiting lists at the equity-ownership CCRCs.

Before buying an equity CCRC, study the terms for selling units. Rarely does the owner keep all appreciation in the unit. At one CCRC, sellers split the appreciation evenly with the CCRC. At another, owners first get a return of their initial purchase price, minus a 7% fee to the community. Then, the owner receives 25% of the appreciation. The portion of the appreciation that goes to the community pays for services, capital projects, and the lower cost health care. Usually, the money is paid to a non-profit owners association or a similar organization. Often, the community actually handles the sale and approves the buyers.

Also, be sure to check on the monthly fees, the rate at which they are likely to rise, and which services are not covered by the fees. Then, check the rules on a sale. Who handles the sale? How will the sale proceeds divided? Must sales be approved? Finally, married couples need to know what happens if one spouse needs a higher level of care and the other will remain in independent living.

One last point: You must take action while still healthy. Most CCRCs will admit only people who can prove that they are able to live independently. To get the affordable care that a CCRC provides, you have to move into the CCRC before knowing if you ever will need the care.

An equity ownership CCRC ensures that you will leave something for loved ones. It also ensures that you can move from independent living to higher levels of care and receive that care at lower rates than are available at other facilities in the area.