Over the last few years, I’ve written a number of posts describing the various types of residency contracts offered by continuing care retirement communities (CCRCs or “life plan communities”), the less understood nuances among each, as well as how to properly compare and contrast the choices.
But it was recently pointed out to me that a lot of our content is focused on the entry fee models, even though about 20 percent of the industry operates under a rental or equity model, neither of which require an entry fee. (Twenty percent is an estimate. Some CCRCs may offer rental contracts in addition to entry fee contracts, so it’s difficult to determine the exact percentage.)
For those who may not be as interested in an entry fee model, here is a little more detail about how rental and equity CCRCs work.
>> Related: A Primer on CCRC Residency Contracts
Residents living in an equity CCRC actually own their home or apartment but still pay a monthly service fee or “membership fee” for services and amenities, including home maintenance and all of the other hospitality and operating services.
As with any type of residential real estate, the property may appreciate in value (or possibly depreciate) and eventually pass to the resident’s heirs or the estate. Additionally, if a resident of an equity model CCRC requires long-term care, they would likely be able to tap into the equity of the home via an equity line or reverse mortgage, if necessary.
With this model, residents will usually pay the full market rate cost of long-term care services if and when needed. However, there are some equity communities where these services are offered at a discounted rate.
One important consideration of the equity model is that in the event of death, the resident’s heirs may be responsible to continue paying the monthly service fee until the home is resold to another person who qualifies based on age, finances, and health.
Some equity CCRC models do not offer actual ownership but instead are thought of as an equity share arrangement. Under this model, if a resident moves out of the community or passes away, the operator still owns and resells the residence, but the resident, or the resident’s heirs, receive some pre-determined portion of any price appreciation.
Finally, some equity CCRCs operate under a cooperative (co-op) model. Instead of purchasing the home, a resident of a co-op CCRC buys shares in a corporation, which affords them exclusive rights to their home. The corporation owns the real estate and all financial benefits accrue to the shareholders, or members.
The residents of a co-op CCRC are their own landlords, and management decisions are made by a resident management committee. This has its advantages and disadvantages. While it builds a sense a community and shared leadership, it can sometimes lead to strong differences of opinion on management decisions.
Rental CCRC contracts require no entry fee or possibly a nominal “community fee” of a couple thousand dollars or so. Contracts are usually month-to-month, which means there is no long-term commitment on the part of the organization to the resident. The monthly service fee paid by the resident will almost certainly be higher than what you would pay in a comparable entry fee community.
Most rental CCRC contracts do no provide residents with priority access to services in the healthcare (nursing) center; therefore, available spaces may just as easily be filled with someone in need of care and coming from outside of the community. Note: Some entry fee communities operate this way, as well. Residents of a rental CCRC will always pay the full market rate for long-term care services.
Considering the fact that the monthly service fee for independent living will likely be higher than it would be at a comparable entry fee CCRC, and the fact that long-term care and healthcare services will be offered at the full market rate, a resident in a rental CCRC could conceivably pay more over their lifetime than they would in an entry-fee community. Obviously, this would be a function of how many years they live there and how much care they ultimately require. This could especially be true in the case of a couple, where each person would pay the market rate cost for care services received.
A personal choice
As you consider your senior living options, it is wise to look at the different communities and contract types that are out there. Just as no one CCRC is going to be right for everyone, CCRC contracts are not one-size-fits-all. By learning about the nuances between the various types of contracts, including equity and rental contracts, you can make a more informed decision about which terms work best for your financial situation and your preferences.