Can I buy a retirement property to rent out?

Whether it’s an early retirement or you are well into your 60’s or 70’s, there comes a time for everyone to retire.

Perhaps you are looking to invest in a buy-to-let property, have inherited a retirement home, or you’ve already bought one and want to explore your rental opportunities on the open market.

What is a retirement property?

A retirement property is typically a flat, bungalow, or house specifically built for older people. They allow independent living and foster a community as they are usually part of a bigger complex of properties, sometimes known as retirement communities or villages, with extra care facilities and other people around a similar age.

Since retirement villages and properties in retirement developments are intended for retirees, they might be furnished with wet rooms, ramps, and handrails to assist the aged residents.

Most of these leasehold properties are sold with a longer period of tenancy on them; usually, new-build retirement properties come with a 999-year lease.

What ground rent is payable on a retirement property after leasehold reform?

New leases and leasehold extensions of retirement homes have been subject to the new peppercorn ground rent rules under the Leasehold Reform Act 2022. The Act does not reduce ground rent on existing leases, however. Some developers may aim to recoup their costs by raising transfer fees or other contingent fees.

It is typically possible to buy a property established for retirees, regardless of your age. The restrictions surround the residents being over a certain age (usually 55 or 60).

Since retirement housing is usually part of a retirement village, a service charge is included to account for gardening, window cleaning, and security. Ground rent is also chargeable and paid to the freehold owner if the property is bought as a leasehold. That is because, although you own the leasehold property itself, you won’t own the ground that it’s built on.

It’s always a good idea to seek legal advice and assess your options before purchasing a retirement property as charges and rates will differ from scheme to scheme.

For example, there might be a shared ownership scheme available as an alternative option for a property purchase. The specific scheme for retirement properties is called the Older People’s Shared Ownership (OPSO) scheme and allows an ownership share between 25%-75% and pay a subsidised amount of rent on the rest.

The criteria you need to meet to qualify for OPSO:

• Aged 55 or over.
• Less than £80,000 household income per year outside of London, less than £90,000 inside London.
• Either a first-time buyer, someone who used to own a property but cannot afford to buy a new one, or an existing shared owner looking to move.

You don't have to be retired to live in a retirement home. Retirement properties are typically marketed to individuals aged 60 and over, although some have age limits as low as 50 or 55.

It's possible to live in a retirement property while still being employed if you meet the age requirements. In the case of couples, some retirement properties or retirement sites may only require one member to meet the age restrictions.

Can I let out a retirement property?

If you’re looking for the short answer, it’s yes! You can purchase a retirement property to rent out, but there are a few things you might need to consider beforehand:

Are you eligible to buy?

Generally, retirement properties can only be bought by those of a certain age. In some places, you will need to be 60 or over, but in others, it can be 55 or even 50.

Do I need to meet the criteria myself, or just my tenants?

If you are looking to purchase a retirement property to rent it out, you will need to fit the relevant age criteria yourself.

The only exception in the age limit restrictions for buying such a property is for younger family members to purchase a retirement apartment or similar property, for their parents to live in.

If I meet the criteria myself, can I let to anyone?

No. Your tenants will need to meet the criteria for living in the retirement complex, typically that means they must be aged 55 or over.

Can I get a mortgage on a Buy to Let retirement home?

A lot of mortgage lenders have strict rules on mortgages for retirement homes, mainly due to the age of the owner and the required repayments.

If you already own one and want to rent it out, check the terms of the mortgage before heading into an agreement as you might end up in breach of the terms.

Is the retirement property a leasehold?

If it is, you should check the terms of the lease and get permission from the freeholder to rent. As mentioned previously, leaseholders must pay service charges and ground rent so you should calculate these expenditures when factoring in your rental income.

Are rent retirement properties too niche?

Since these properties are predominantly aimed at the over 60s, renting one out means you’re specifically targeting a certain group of people, therefore narrowing down the rental options. This can affect the yield of rent, and you can ultimately end up experiencing lengthy void periods.

You should also bear in mind that retirement properties can devalue over time rather than increase in value like a lot of other types of property.

Considerations when buying a retirement property

• Location.
• Lease restrictions.
• Maintenance and management.

When considering property investments, it's essential to prioritise location. Look for areas with high demand for retirement properties, such as those with good access to public transport, excellent leisure facilities, local amenities, services, and access to healthcare.

Retirement flats often have specific lease restrictions, including age parameters and limits on the property being rented out. It's crucial to recognise these restrictions before making a purchase, so seeking specialist legal advice is advisable.

When renting out a retirement property, it's important to consider potential additional maintenance and management costs, such as service charges, event fees, and ground rent. Passing these additional costs on to your tenant could make the property less affordable or attractive. Understanding these expenses and how they might affect your ability to rent out the property is paramount.

While investing in a retirement flat for rental purposes can be profitable, conduct thorough research and do your due diligence.

The Elderly Accommodation Counsel has some online tools which might be helpful in your research.

Is buying a retirement property a good investment?

When considering investing in retirement flats, it's important to determine the type of investment you're looking for. If you aim for an investment that appreciates in value and generates profit upon selling, then a retirement flat may not be the best choice.

Most retirement flats tend to maintain their value, resulting in similar selling prices to the purchase price. However, if you are considering investing in a retirement flat to rent out, it could be a worthwhile venture, particularly with the increasing ageing population. This suggests that investing in properties within retirement villages for renting may lead to consistent occupancy.

Investing in a retirement flat can also be viewed as an investment in one's happiness and lifestyle rather than solely a financial venture. A retirement flat offers independent living whilst in a retirement development that provides access to necessary assistance, thereby reducing stress.

Additionally, the absence of property maintenance responsibilities such as gardening and external upkeep contributes to a worry-free lifestyle, ultimately leading to increased happiness and well-being. Considering these factors, investing in a retirement flat appears to be a valuable choice.

Is it better to rent or buy a retirement property?

Wondering if it makes sense to pay rent in your retirement? Maybe you think home ownership is the best long-term decision?

How would I rent out a retirement property?

It depends on the lease you have, but most leases allow you to rent out your retirement property. You might need to notify the freeholder and pay a fee, though.

If you do decide to rent your retirement property, you will need to be prepared to deal with day-to-day tenant queries. Regular inspections are also required to ensure the property is being kept in line with the tenancy agreement.

Understand your legal responsibilities:

• Electrical safety – ensure that all electricals have been tested and inspected accordingly by a qualified professional.
• Gas safety – arrange annual gas checks on all gas appliances with an engineer. You must provide a copy of the safety check to the tenant as they move in or within 28 days of the check being completed.
• Energy performance certification (EPC) – obtain an EPC before you rent out your property. It details the property’s energy use and estimated costs.
• Fire, smoke, and carbon monoxide alarms – make sure there’s at least one smoke alarm on each habitable floor of the property and a carbon monoxide alarm in any room that contains a gas appliance.
• Right to rent – check that your prospective new tenant(s) have the right to rent in the UK, failure to check can result in fines or even jail time.
• Tenancy agreement and deposit protection – it’s best practice in the UK, and law in Scotland, to write up a tenancy agreement to outline the landlord and tenant’s responsibilities. If a deposit is requested, you must protect it under a government-approved scheme.

As a landlord, it is your responsibility to ensure that you keep yourself up to date with all relevant legislation regarding renting and making sure your property is fit and legal to rent out.