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.

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 Aging Population – Number of Elderly UK Residents Rise

The market for care home investments is driven by the rising life expectancy of residents in the UK.

The Office for National Statistics found that in the UK the population is older than ever, with people aged 65 and over making up around 18% of the total UK population (11.4 million people). This figure is estimated to rise to 25% by the year 2044. On top of this, the number of people aged 75 and over is increasing, making up about 8% of the population.

The rising numbers of seniors are mirrored by the rising demand for long-term health care facilities. Currently, occupied beds cost the NHS about £250 a day and a predicted 61% of these beds are lost because people are waiting for space in a care or residential home.

Care home investments and developments from private sectors are relieving the pressure on the NHS by helping to combat this problem.

Between 2005 and 2014 there were reductions in public spending on social care for the elderly by 18%, leaving the UK care sector significantly underfunded. The lack of public funding has opened the door to profit-seeking private investors looking to take advantage of the high demand.

The Current Situation Requires More Care Home Investments

A report by the Joseph Rowntree Foundation stated, “To keep pace with the demographic pressures over the next 50 years, residential and nursing home places in the UK would need to expand by around 150% and numbers of hours of home care by around 140%”.

As a result, UK care home investments are rapidly becoming a popular alternative to traditional investment opportunities for investors wanting to profit from a growing sector. Demand for care homes is forecast to increase by 60% by the time we reach 2023 due to increasing life expectancy.

If you are looking for a secure and profitable investment, a UK care home investment can offer great returns for a set period. Care home investments will make a good addition to a property portfolio as it is fairly low risk and hands-free. Just be sure to do your due diligence and understand exactly what you are getting into before you sign on the dotted line.

Are Care Homes A Good Investment For You?

In 2014 there was over £4.5 billion worth of deals within the care home sector, a number which tends to validate this type of property investment as a sustainable strategy.

According to IPD’s Annual Healthcare Property Index results, the healthcare property sector out-performed all other UK property assets. The total earnings increased by 3.4% in whilst other all other UK property had an average increase of just 1.5%.

The care home industry has been demonstrating a high level of market stability and an appealing risk-reward ratio since the index’s launch in 2007. For this reason, investors see this asset class as a great investment with consistently robust returns.

The fact is that many investors are looking at the healthcare market for future investment opportunities. A property survey carried out by Knight Frank in January 2015 asked 69 investors, developers and lenders a series of questions to find out what their attitudes towards specialist property investments were. When the target group were asked, “if you are planning to increase your exposure to specialist property, which sector will you be targeting?” The results of the survey indicated a shift in investors’ focus towards specialist asset classes as 70% of them named the UK healthcare market as the sector they would target. This shift in focus is one factor contributing to the care sector’s exponential growth in private funding.

The future of care home investment opportunities in the UK is forecast to be strong due to the sustainable demand and one of the highest returns of any property asset class. Care home investments give investors an income-generating asset whilst also providing social support to a significant demographic of the UK population – so this is an investment that, as well as making financial sense, you can also feel good about as it is helping fill a gaping hole in appropriate and affordable accommodation for seniors.

If you are looking for a long-term investment with a 10-year rental assurance of up to 10% per annum and a buy back option of up to 125% of purchase price then you need to look at care home investments. Care home investments are also in high demand and have extremely high occupancy rates as a result.

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.

In 2014 there was over £4.5 billion worth of deals within the care home sector, a number which tends to validate this type of property investment as a sustainable strategy.

According to IPD’s Annual Healthcare Property Index results, the healthcare property sector outperformed all other UK property assets. The total earnings increased by 3.4% in whilst other all other UK property had an average increase of just 1.5%.

The fact is that many investors are looking at the healthcare market for future investment opportunities. A property survey carried out by Knight Frank in January 2015 asked 69 investors, developers and lenders a series of questions to find out what their attitudes towards specialist property investments were. When the target group were asked, “if you are planning to increase your exposure to specialist property, which sector will you be targeting?” The results of the survey indicated a shift in investors’ focus towards specialist asset classes as 70% of them named the UK healthcare market as the sector they would target. This shift in focus is one factor contributing to the care sector’s exponential growth in private funding.

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.

What to Consider in Care Home Investments

Care home investments can provide similar benefits to a buy-to-let investment with longer leases and arguably higher returns. They also provide benefits to the community by providing private funding for a sector that is experiencing a chronic under-supply as the public funding has consistently decreased over the years.

However, despite the many positives investors must go into these investments with eyes open and do the appropriate research.

Many care home investments will be off-plan – investors purchase the plot before the construction is completed, this gives the developer some pre-sales to satisfy their financial-backers, whilst offering the investor the chance of some instant capital appreciation as the off-plan purchase price will be significantly lower than the property’s value upon completion. The time from buying off-plan to the completion of the development can be anything from six months to two years so when buying off-plan it is important to research the developer and their track record thoroughly.

Developers with transparency and a track record of delivering for investors and whose principal management have a good history in construction and investment will obviously give investors peace of mind, so be sure that you do your due diligence.

Another huge factor in any property investment is the location. Location is still important even in a property investment like care homes which is under-supplied and with predicted increased demand for years to come.

A good location, like any location in property investment, is one which is attractive to your target market. So, for care homes, you will be looking at nice, quiet non-urban locations, in areas which are already popular with seniors.

As well as location, with care home investments you need to consider the quality of the development and the level of care residents will receive. Even though there is a chronic under-supply, families will not want to place their loved ones in a sub-standard home, so pay attention to these factors when deciding which investment to choose.

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!

Conclusion
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.

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