The Ultimate Care Home Investment Guide for 2021

In our Care Home Investment Guide, we explain why care homes are essential to cater to our global ageing population. Across the world, the numbers of elderly residents and retirees living for longer has increased rapidly and this trend shows no sign of reversing.

According to Deloitte, overall life expectancy is projected to increase by 2023 with 22% of Western Europe’s population being over 65 years old. Whilst this speaks volumes for quality of life and medical advancements, this steady and continuous growth in the UK is presenting significant problems for the elderly and their families. A key issue is that there are fewer care homes to accommodate the UK’s ageing population. There is also an increasing need for investment to drive innovation in MedTech to keep up with the vast number of patients. 

The result? A huge mismatch in the current ability of the care industry to deliver quality services to the elderly, compared to the number of care home beds required. This is only set to worsen over the coming 5-10 years. With the recent years of austerity having slashed public investment, the shortfall is being made up by the private sector and caring investors.

In fact, care home investments by both private and institutional investors have risen sharply in recent years, driven by the significant lack of care home beds to accommodate the UK’s ageing population. Outside of knowing that you can give back to your community, care home investment can gain high rental yields, high occupancy rates and capital appreciation over time.

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    Important note: The advice provided on this website is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.


    Is Buying a Care Home a Good Investment?

    Care home investment is a rewarding opportunity for switched-on investors looking to build or diversify their portfolios. By helping others in their community retire peacefully, investors can also gain a steady rental income whilst saving for their own retirement.

    Care home investments are high yielding and can generate returns of up to 10% for up to five years. This means that with an investment worth £90,000, you can enjoy an additional income of £9,000 a year.

    The threshold for entry is also relatively low compared to other property investments, starting at around £65,000 to get into the care home market.

    Care homes are also hands-free investments. This means the unit that you buy in the care home will be fully-managed by the care home operator. They will be in charge of the care of the patient living in the care home, as well as the maintenance of the unit itself.

    In addition to nursing homes for those with medical needs, luxury care home investments are also becoming increasingly popular. These luxury suites are a particularly valuable investment because they attract higher-paying residents, resulting in higher weekly rentals for the investor.

    Luxury care homes are ideal for elderly citizens who are looking to downsize their accommodation from the family home. There is also the social benefit, as many seniors wish to live in a community environment. It gives the residents a good amount of independence as they can attend social events and go on walks around the grounds. In addition, there is also the care available, where trained and qualified staff help residents with whatever needs they may have.

    The Benefits of Care Home Investment


    Some of the benefits of care home investment include securing your own future.

    Retirement Option

    Older, savvy investors recognise that, by investing in a care home, they have the option of living in their unit themselves eventually. This means that investors can enjoy the rental income the investment generates until they decide to either sell the unit or move in themselves. They might choose to move in, knowing the level of investment that has gone into the care home is reflective in the quality of the establishment.

    This is of course simply an option. Even if the investor does not decide to move in during their retirement, they can still reap the financial benefits of a care home investment for many years.

    Maintenance Included

    The maintenance of the property or the unit you invest in is covered by the care home operator. As well as maintenance, the care home operator will also deal with the tenanting process*. Depending on the investment partner that you choose, you can opt for a hands-off investment. This means that a senior property manager will handle everything while you receive your return on investment. This makes it stress-free for  investors who only have to write the initial cheque,  sit back and enjoy the rental yield.

    *Note that this benefit is entirely dependent on the property investment partner that you opt to work with and some might require you to be more involved and hands-on. Sterling Woodrow only deals with hands-off (“arm chair”) investments so our clients can have a stress-free experience.

    Amenities Add Value

    In a care home community, there will usually be amenities available to retirees including: 

    • Exercise classes
    • Recreational activities
    • Educational courses
    • Social events and a community network

    These amenities provide mental stimulation and social activity for the residents to stay happy and healthy. It is also great for the investor because it adds value to the property. This means that the care home will be attractive to retirees and the investor can enjoy high tenancy rates.

    Less Wear and Tear

    Since the tenants will consist of elderly residents, there will be no children, young adults or pets living in the home that could damage the property. As a result, there will typically be less wear and tear on the property, making it easier to maintain and appreciate in value.

    Ageing Population

    The UK’s ageing population means that there will be an increase in elderly people who will need accommodation in care homes. This steady and consistent market will ensure that your investment has constantly good occupancy rates and therefore better returns.

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    The Risks of Care Home Investment 

    Investing is not without its risks. Although care homes investments have been one of the best performing asset classes on the market in the past five years, like any investment, there are risks involved. It is important to review the ins-and-outs of any deal to understand the specifics of the investment and if it is right for you.

    Monthly Fees

    There are monthly fees that can arise if you hire a property management company for your care home maintenance. Whilst many care homes do not require you to pay a fee for maintenance, we recommend that you ask if you are on a tight budget or want to maximise your earnings.

    Most care home investments do not need you to pay a management fee or do any of the management, however this is entirely dependent on your property investment partner and the benefits they can provide.

    Niche Market

    With care home investment, you have a very specific market to cater to. Unlike traditional buy-to-let properties, not everyone will be able, or want, to live in a care home. For this reason, you may have some concerns about the tenancy rates and whether the rental income will be stable.

    However, it’s important to remember a niche market does not always mean small earnings. Due to the growing number of over 65s in the UK and the forecasted  increase, there is no better time to invest in such a targeted market.

    Limited Locations

    The location of your care home investment is highly important, as not every area will have a care home with high prospects. The most popular areas for potential residents are away from cities, closer to the countryside. Therefore, you should focus on investing in rural locations, where the rental income and annual yields will be much higher.

    The most successful care homes are generally located in an area in picturesque villages and towns, outside of the hustle and bustle of larger cities. Though you might have a solid geographical understanding of the UK, it is advised to seek advice from a specialist property manager on the current hot spots for elderly residents.

    Are Care Home Investments A Long-Term Strategy?

    Care home investments tend to suit investors who are investing for the long-term. This is because the rental yields and occupancy rates are high, so most returns are made on the residual monthly rentals. 

    Another reason why care home investments are ideal long-term ventures is that they can be ‘hands-free’ investments which require minimal ongoing work on the part of the investor, as the care home operator will manage every aspect. Whilst this is applicable to all Sterling Woodrow property investments, it is advised to check that this benefit is available with your chosen investment partner.

    Most worthwhile care home investments are on a 10-year lease with a 10% net rental yield assured. The care home provider or developer will usually have a buy-back option of: 

    • In year 5 of around 110%
    • In year 10 of around 125%

    If you are investing in a care home at £90,000, the buyback for the fifth year would be £99,000 and £112,500 for the tenth year. Combined with the high rental yield, this is why many investors see care homes as a valuable investment with big financial benefits.

    Summary

    This care home investment guide explains whether or not buying a care home is a good investment, the benefits and potential pitfalls of this type of property investment. Whilst the amount of information and research might feel overwhelming, it is important that all investors (no matter how experienced) fully understand the rewards and risks before embarking on a new investment adventure.

    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.

    Get in touch today for your complimentary care home investment consultation with one of our senior property investment managers. We cannot wait to help you with your property investment journey.

    Are you ready to take the next step?

    To learn more about the property investment opportunities available through Sterling Woodrow, contact us today.