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- Earn Up To 10% Contractually Guaranteed Income

- Immediate Income With Fixed Exit Agreements from £65,000

- Scroll Down For Intro, Benefits, FAQ's & Expert Insight

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asset class summary

Healthcare Property Investment Benefits

  • Fixed rent for up to 25 years
  • 8-10% net income with no costs
  • Contractual exit strategy
  • No Stamp Duty Land Tax
  • Substantial demand UK wide
essential market data

Knight Frank Healthcare Market Analysis 2020

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UK Occupancy Rate
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Average Weekly Fee

Introduction to Care Home Investment

Care homes are the latest alternative/commercial sector to reach mainstream investors. They are often considered by retail investors due to the high yields, fixed income and long-term tenant demand. Private care home builders and healthcare operators offer individual properties within their purpose-built care homes in return for contractually guaranteed income.

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Why Invest In Care Home Properties?

If done correctly, care home investment represents a fantastic opportunity for private developers to improve the significant under-supply of such property across the UK, along with providing investors with a secure and reliable income-generating investment. Whilst it’s important to look at the individual merits of a particular scheme and operator, typically the below benefits apply to the asset class.

One of the first things most investors look for in examining an investment property is the rental income. It’s important not to analyse this as a cash figure, but more so in relation to the cash outlay/purchase price. We work on a net return basis, as an example, if you invest £100,000 and earn £6,000 per year (after all costs), in income, this is a 6% net return.

In regional cities such as Manchester, Liverpool and Leeds you will be able to find residential properties which return 4-7% net yields after costs. The Care sector offers 8-10% net returns, so in terms of cash flow and consistent income, care home property investment offers a significantly higher return than typical residential single let properties.

With care properties, the developer that owns the care home will contractually guarantee your income. So commonly your rental return of 8-10% is fixed for 10-25 years – this provides certainty and predictability, as you are safe in knowing there will be no fluctuations in your income (some developers provide the assurance for the entire lease period up to 250 years, others will renew the contract after the first 10 years).

This contractually guaranteed income is typically much longer than it is for other asset classes. For example, student accommodation usually has a period of 2-5 years. So for those looking for long term and transparent additions to their portfolio, the care home investment class is one to consider.

One of the most commonly asked questions from those considering investing in the sector is the resale ability. The flexibility is lower than what you will find in the traditional residential property industry. With a residential apartment you can sell to an owner-occupier, mortgage investors, or cash investors.

In contrast, Care is a niche sector so the resale market is more limited. To combat this, developers offer ‘buy back’ terms within their sale agreements. This is the developer contractually guaranteeing they will buy the unit back from you in the future at a predetermined price/timeframe, typically from year 3 onwards.

We could write extensively about buyback options, but we’ll keep it brief for the purpose of this article – just be aware there is a secure medium/long term exit strategy in place for care home investment, providing inbuilt capital growth.

Sometimes investors confuse a property being managed by a letting agent and a fully managed investment structure. If you buy a residential property or if you consider student accommodation after the fixed income period, your property will be subject to charges and upkeep costs such as service charges, ground rent, management fees and maintenance costs. Now although you can predict your return NET of these costs, it will, at some point eat into your returns and your time. If the property needs painting, needs new furniture, the tenant pays late, or there are void periods – your agent will be on the phone to you. The care sector is truly fully managed; therefore, the management company will cover all costs and will maintain the room, not eating into your time or profit margins. Finally, in most cases, there will be no Stamp Duty Land Tax due on purchases.

Thanks to advancements in medical research and improved technology, we are living longer and the elderly population is increasing. According to the Office of National Statistics, in 2016 the UK population was 65.6m, the largest ever. 18% of this population was quoted at over 65 and 2.4% aged 85 and over – see here.

The UK has a long history of providing quality care home accommodation, the demand for such accommodation is already substantial and will only increase into the future as the population continues to live longer. The occupancy rates for all care homes across the UK for 2018, is at 89.4%, see here.

Furthermore, the lack of government funding for the public sector means publicly funded built and operated care homes are less common. As a result, private providers are stepping in and meeting the demand for quality accommodation within the market. Even so, Knight Frank forecast there will likely be a shortfall of 192,000 care suites by 2024.

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Things To Consider

Care homes don’t tend to be located in city-centre locations, but that isn’t something we would look for in this asset class, unlike residential property. We are more interested in the care homes target market – is there a demand for such specialist care services in the local area?

It’s wise to consider a number of factors when reviewing care homes, such as the Care Quality Commission rating, the weekly fees being charged to residents, online reviews, average occupancy rates and operational success. This may not all be available for the specific home you’re thinking of purchasing, but nonetheless the developer should be able to demonstrate examples from similar sites in their portfolio.

Market Research

Expert Industry Analysis

Knight Frank latest Care Home Trading Performance Review

  • Profitability measured as EBITDARM is 27.4% for 2019
  • Over one third of homes are achieving EBITDARM margins in excess of 30%
  • Weekly fees UK wide range from £721 to £897 per week
  • Only 1% of English homes were rated as “inadequate” by the Care Quality Commission
  • Improving care standards: Pressure from regulators is forcing many providers to improve and reinvest in their facilities and the operations.
  • Increasing medical needs: Elderly people continue to enter care later and with more severe medical needs, resulting in a shift towards more expensive nursing or dementia care

Knight Frank Healthcare Capital Markets Report 2020

  • Transactions hit £1.76 billion in 2019 up 17% from the year prior
  • Demand from a range of investors, including institutional funds, private property investors, REITs and overseas buyers.
  • Overseas capital account for 32% of healthcare property deals in 2019
  • 95% of care homes are privately owned
  • Mixed funded residents in well occupied homes are producing 5-6% yields
  • Healthcare returns have also been the most consistent and least volatile since 2015
  • With allocations to alternative and specialist sectors predicted to increase and healthcare property providing one of the most stable income streams, we expect to see a similarly strong profile of performance in 2020
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Care Home Investment Properties

Frequently Asked Questions

Below you can find a range of common questions from previous investors. If you require specific details and advice please do not hesitate to contact us today on +44(0)203 627 3987 or via [email protected] 

Unlike traditional leasehold property purchases, given the investment structure, care homes offer an income which will not fluctuate. Service charges, ground rent and management fees do not apply. A care home purchase would typically be stamp duty exempt with no furniture pack costs, sometimes you can even have the legal fees covered, a key factor attracting investors.

As you are buying a physical property with registered title deeds rather than a share of a management company, you have the security of a tangible asset.

Should anything happen in terms of the operational aspects a new operator would be appointed to continue running the home. This means, if the home is sold, the buyers would have to adhere to leaseholder obligations. We always suggest investing with an experienced developer who has a range of care homes to act as operational and financial support, as well as a strong track record of occupancy rates.

According to Knight Frank the average weekly fees paid by residents across the whole of the UK is £837, so even considering running costs, there is a hefty profit margin in most cases – specifically, 27.4% in 2019 (see statistics above).

The demand for care homes is already substantial and it is only likely to increase as the population ages and continues to love longer. And it is this demand which will help to maintain resident fees and profit margins, making for a truly sustainable business model.

Your presence will not be required during or after the purchase process. There is a specialist care home team onsite who ensure residents receive the specialist care and attention required for the high standards of a regulated home, monitored by the Care Quality Commission. As a result, you can be assured you will have professionals looking after the property on your behalf taking care of all operational aspects of ownership. 

Care home suites are funded via cash-only purchases, mortgages can’t be used.

directors insight

What does Nick, our Founder and Director, think of healthcare investment?

“Healthcare as an investment class is still relatively niche in terms of awareness amongst traditional residential investors. However, the market is dominated by institutional level investment coming from real estate investment trusts (REITs) and overseas capital. Corporate organisations recognise the low-risk profile and attractive trading yields in comparison to other sectors – Knight Frank position it as the lowest risk when comparing to the Residential, Hotel, Office, Retail and Industrial sectors.

As a broker operating across various asset classes, we regularly introduce investors who are perhaps focused on another niche such as student accommodation or have yet to come across care home investment. Once buyers understand the market demand, structure and security, it’s typically very well received. We serve a number of UK based domestic investors and overseas ultra high-net-worth families overseas who are heavily focused on healthcare investment”. 

Nick Hyland, Director

Contact Us

 Our role is to advise, educate and present the most suitable care home property opportunities to investors. If you would like to discuss your options with the team you can call us on +44(0)203 627 3987, email us on [email protected] or send us a message below.

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