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Why Are Care Homes Good Property Investments?

Why Are Care Homes Good Property Investments?

Care home property investments are one of the quickest growing sectors in the property investment world. Due to a growing and ageing population, the demand for UK care homes is estimated to increase by a significant 60% between now and the year 2023.

A paper published by The Lancet revealed that within the next 20 years the demand for care homes across the UK will practically double. According to the publication, around 190,000 additional people aged 65 and older will need care by 2035 which represents an 86% rise in the demand for care home places.

Because of this research, many people in the UK are concerned that the current care home system will simply not be able to cope and elderly people could face terrible consequences if the Government doesn’t act urgently to meet the increasing needs and costs of the Health and Social Care sector.

Newcastle University Professor, Carol Jagger, stated that the previous 20 years have seen continuous gains in life expectancy and as a result, older people are spending more of their remaining lives with care needs. There is also an increasing number of older adults with disability and higher rates of illness which is only adding to the current social care crisis.

Because 17% of the UK population consists of over 65’s, there is a higher demand than ever for care home establishments The growth means that the number of over 85’s has been predicted by the NHS Confederation to double from 1.5 million in 2014 to 3.6 million by 2039.

The high demand and low supply has been identified by property investors who are looking to venture out of the regular buy-to-let investments and diversify their property investment portfolio.

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What Are Care Home Property Investments?

Investors can now purchase a UK care home suite in a luxury retirement home for over 65’s or a single room in a nursing home for dementia patients.

Both types of care home investments are ‘hands-off’ – meaning that investors also enjoy full management of the unit and so do not need to spend time dealing with tenanting or maintenance processes. The care home operator will lease the property back from the investor at net yields of up to 10% per annum and will manage every aspect of it from there on a long lease of 10 years.

A luxury care home is for over 65’s who want to downsize their living space and move into a community environment - these homes attract affluent, self-paying residents and allow the elderly residents to still have a sense of independence whilst maintaining an assisted living environment. They can be given help with personal care and have the chance to attend social events such as nature walks, social games and wine tasting.

These kinds of investments have proven to be increasingly attractive to investors as, along with all the other benefits, the weekly rents are higher for luxury units. Residents tend to be affluent seniors who are moving in as much for social and medical reasons as for financial ones.

Areas across the UK have seen strong demand for luxury care home suites where a significant percentage of the population is over 65. Tom Morgan, a senior director for CBRE (the world’s largest commercial real estate firm) said that staying in a care home has become more of a lifestyle choice. Elderly people choose them for a more mentally stimulating and sociable environment.

Berkley Care Group reported that they make a profit of £30k per bed and £2m in profit for each care home. No wonder then that care home investments have become a lucrative investment for many savvy property investors.

The Advantages of Choosing To Invest In A Care Home

The Health and Social Care Industry is worth £20 billion and the increase in demand for care homes is quite easy to understand when you look at the massive advances in modern medicine and technology. This asset class offers a higher return compared to the more traditional asset classes such as HMO’s and buy-to-lets and great defensive qualities in times of economic uncertainty - steady income from rental returns and, with demand for these units likely to increase faster than new ones can be constructed, capital appreciation is a viable expectation.

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Care Home Investments: The Details

The investment price – Care home investments are marketed by developers to private investors for an initial outlay of as little as £35,000. However, for around £70,000 you can purchase a care home unit outright which can assure you an annual return of up to £7,000 right away.

Buyback – Care home property developers will also offer buy-back options after a set period of, say, 5 years for 110% of the initial purchase price or 10 years for 125%. Using the example of an investment of £70,000 you could be seeing a buy-back price of £87,500 after 10 years.

Returns – As mentioned above the returns on a care home investment UK can be great. Knight Frank puts the average yield offered by care homes at around 10% - top of the list of returns from property in the health sector.

So, care home investments offer both residual returns, plus capital appreciation, both of which are often assured by the developers.

The Best Location for Care Home Investments

Like any other specialist property investment, the success of your investment (the rental income and capital growth) will all come down to the location you choose. There is a high demand in the UK for care homes, however, you need to pay attention to the area you choose for your investment.

For example, there are areas in the UK that have a high population of young people, therefore a care home investment in a city such as Manchester wouldn’t really make sense. In areas with a younger demographic – which tend to be urban, city environments – investments in student accommodation makes more sense.

To find the perfect location for a care home investment you need to look at areas with an older demographic. In general, areas that are further from large busy cities, for example, towns and villages or even county-side areas, are much more likely to have an ageing and already retired population. The demand for care homes in these areas will generally be constant because this is typically where the elderly choose to both remain and move to.

The added benefit of these more rural locations is that property, in general, is much cheaper here than in urban areas, which further explains why the investment threshold is much lower for this kind of property. Therefore, the prices for these properties will remain competitive in comparison with urban locations, offering a better pound for pound investment but with higher yields!

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A property investment can give you a stable passive income with assured yields and capital appreciation.

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Care home investments are becoming more and more mainstream as property investors realise that the current deals offered on care homes are extremely generous and lucrative – assuring, at their best, both residual rental returns on high yields and capital appreciation.

Currently, due to under-supply, the biggest issue for investors is actually finding and securing a suite or unit for investment as they tend to sell out very quickly upon release!

At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment.

We also work with experienced investors to help them increase the value and profitability of their portfolios.

To book your complimentary property investment consultation with one of our senior portfolio managers simply click the button below and complete the short form below and we will call you back at the appropriate time.