A group of elderly Spanish gay men are rebelling against the homophobia of their generation by setting up what will be the country's first gay and lesbian retirement home.

"Homosexuals who go into homes often also have to go straight back into the closet," said Federico Armenteros, the man behind the scheme. "This will be a place that is open to everyone and where no one will have to hide their sexuality."

In a country where many people over 40 grew up being taught that gay people were sick or criminals, the atmosphere in some retirement homes is still crudely homophobic.

Armenteros, who heads a gay and lesbian NGO called December 26, has already found a site for the new retirement complex, with land being ceded by the leftwing town hall of Rivas-Vaciamadrid, a Madrid dormitory town.

Now he needs to find 120 like-minded people to sign up as members of the co-operative and start paying the quotas needed to raise a bank mortgage. Around 20 have already joined.

"We'll have a gym, a library, a laundrette and a conference room," he said. "We will even have our own shop and restaurant."

The retirement home would cost €1,000 (£834) a month to live in, he said – much lower than the average Madrid price of €1,400.

It will have 30 staff to look after the 230 residents in the 120 apartments and studios in the complex, with some set aside for people who are HIV positive. "Most homes simply won't let them in," he explained.

Armenteros insisted that it would not be a place only for gay, lesbian or transsexual people. "What we want is a space of tolerance, where anybody can come," said Armenteros.

His NGO, named after the day in 1978 when gay men were finally removed from a law against people deemed "socially dangerous", has already found that single elderly women are happy to join their weekends away at Spanish seaside resorts. "They seem to feel secure with us," he said.

And younger people will also be welcome – though they will be expected to lend a hand in the co-operative's work.

Among those to have contacted the NGO are a 90-year-old transsexual fed up with her current Madrid retirement home.

"I imagine she needs somewhere where she can feel to talk about her life and her experiences, or even explain why her body is like it is and how she was operated on," he said. "Old people need to be able to talk about their lives openly."

José María Herreras, a resident at another Madrid retirement home has also joined the list, complaining that other residents either ignore or insult him.

Nobody will share a room with him, so he must have one of his own. "I am alone," he said.

"They come from a generation that was brought up to think that there was something filthy and wrong about homosexuality," said Armenteros.

"Older gays and lesbians have had a difficult life. We were downtrodden in the Franco years and many people were arrested. It took years for us to win our rights," he said. "We refuse to go back to that atmosphere when we retire."

A spokesman for Rivas-Vaciamadrid town hall, Emilio Silva, said the retirement home had passed through council planning procedures without causing a scandal.

"This is a tolerant town," he said. "We put the land out to tender for people to come up with projects that were socially useful, and this is the one that won. It seems perfectly normal to us."

But the gay and lesbian retirement home is such a new concept in Europe that the town hall has received phone calls from potential residents from as far away as Switzerland.

"A Spaniard living in Switzerland who planed to retire soon saw it on the television there and rang me," said Silva. "He was very enthusiastic."

But Armenteros admits that, despite the power of both the gay euro and the grey euro, Spain's economic crisis means it is hard work finding people ready to invest in the co-operative.

"If we don't get enough people, then our NGO will take ownership of the rest of it and rent apartments out," he said.

If all goes well, he added, the residence will be up and running by 2014. The NGO sees Rivas-Vaciamadrid as just a first step.

"If this works, we will start looking at other places," he said. "Benidorm is one possible choice, as is Sitges – which is a popular gay resort."