Reasons why it is worth investing in the UK care home market

• How the government helps provide
• Britain's ageing population and underfunding
• Number of people with Dementia
• Government care to people with Dementia
• How investors make direct investments
• The risks
• The Luxury Sector

How does the UK government help provide for the cost of care in the UK

At the moment, if a person living in the UK has the need for Nursing Care and they have less than £23,250 worth of personal assets, the government will cover the full cost of care. This applies to care for the elderly infirm and specialist dementia care. There is a means test whereby some level of contribution will be made towards care for those who have less than £118,000. In a way, as an investment class, the UK care home sector provides a level of certainty of income because the rich can afford to pay – will pay – and the government subsidises those who cannot.

Britain's ageing population and underfunding

Britain’s population is ageing and the government does not have the resources available to provide care for them. In 2018 central government gave local authorities £21.3bn for social care, less than the £22bn it gave in 2011. The ageing population has only exacerbated the funding issues. According to the Office for National Statistics, in 2016 18% of the population was aged 65 and over and in some regions as many as one in three people were over the age of 65. With regards to future demand, according to The Lancet more than one million more people aged 65 and over will need round-the-clock care by 2035, which is a rise of over a third.

A budget shortfall has meant that the government is more reliant than ever on private companies, who are willing to bridge the gap as there is a sustained demand for beds. Whilst Boris Johnson has pledged to invest more money in the social care sector, going off records of previous government’s investment suggests this isn’t likely to materialise. Under the Conservative government, spending on adult social care in England has fallen by 3% since 2009/10 according to the Institute for Government.

Even if the cash injection is delivered as promised, many are in double whether it will go far to remedy the situation. Think Tank the King’s Fund described the social care funding boost as “the bare minimum needed to patch up services for another year”, suggesting it is just papering over the cracks of a much deeper problem.

The number of people with dementia

Number of UK patients with recorded diagnosis of dementia increases by 62 per cent over seven years between 2007-14 (according to the Health and Social Care Information Centre). They need specialist 24-hour care with qualified nurses.

Is the government looking after people with dementia?

The National Health Service in the UK has been reducing capital and seeking out private partners to develop and manage care homes. Virgin Care entered the market in 2010, and over the past six years has been awarded contracts worth more than £1billion and runs over 200 NHS services. So private companies are developing and managing the care homes. The government will pay the bills – where the people can’t afford to.

How investors can make direct investments in this sector?

One can purchase a UK care home suite in a luxury retirement home for over 65’s or a nursing home catering for dementia patients. In both instances the care home operator will lease the property back from the investor at net yields of up to 10% per annum. The care home operator essentially runs their business from the premises and rents property from the investor on a long lease of 10 years.

‘High yielding, hands off investments like care homes and student accommodation investments have been very popular with overseas investors because they are fully-managed and pay regular income’ says investment director, Arran Kerkvliet, at One Touch Property; a specialist property broker in London that sources well-researched property developments for global investors seeking to diversify their income.

What are the risks

Nursing care, qualified nurse shortage. Inflation and minimum wages driving costs up. This is why those leases are only 8% Net.

The luxury care sector

Luxury care homes typically attract more self-paying residents, due to the higher weekly rentals. Luxury care homes are aimed at 65+ year olds who wish to downsize and move into a community environment. They provide an assisted living environment where residents still maintain a degree of independence, but are given help with personal care and have opportunities to attend social events such as wine tastings, social games and nature walks. There is a strong demand for suites in luxury care homes in the affluent parts of the South West of England, such as Somerset, where twenty-six per cent (26%) of the population are over 65 years of age. Tom Morgan, a senior director for CBRE comments that staying in a care home has “become more of a lifestyle choice. People choose them for the mental stimulation and sociable environment”.

With a typical unit costing under £150,000, this type of commercial property investment bypasses stamp duty fees, and investors can make a healthy 10% contracted return per annum – much higher than returns achieved from putting the money in a savings account (typically around 1%). Retirees who sell their homes can trial living in a retirement home and avoid paying stamp duty if they make a subsequent purchase within three years. This affords them enough time to see if they like the retirement living environment or whether they wish to purchase accommodation elsewhere. Investors can also choose to rent out the unit for a set period and then decide whether they want to live in the unit or use the rental income to live in another development. If they choose to sell their house and downsize to a retirement property, they can gift money to their children and grandchildren, limiting the amount of inheritance tax they’d have to pay otherwise.

Many luxury retirement home investments restrict the sale to over 65s only on a lifetime lease basis. The benefits of the luxury care investment opportunities One Touch offer are that they can be sold to owner-occupiers or investors alike. This opens a wider pool for resales, and allows for better capital uplift. Also, lifetime leases cannot be passed on to a beneficiary so if the occupant dies within 5 years the investment is returned to the company with no benefit to the remaining family’s inheritance and at a far greater cost. Conversely, the fixed-term nature of the leasehold that accompanies investments offered by One Touch can be passed onto other family members should the owner pass away before the leasehold is up.

In short, retirement property investments give individuals a lot of flexibility to choose what they want to do with their wealth, and at the very least they let them choose whether they are suited to living in a retirement home environment.

The opportunity to invest in luxury care homes and purchase a studio in a luxury retirement village is proving to be a lucrative one, as Berkley have reported that they make £30,000 profit per bed, and £2million in profit per care home. Weekly fees have increased in some instances by over 50%, driven by the lack of beds in luxury care homes. Investors have recognised the high returns that can be made, and appetite for high-end care homes with self-paying residents is surging. Knight Frank cites £10bn of overseas equity that is set for investment in the sector, attracted by the stable income stream and the “hands-off” nature of the investment. Start a conversation to explore how investing in care home rooms could work out for you

Can you make money from retirement home investments?

With banks offering minimal returns on your savings, are there savvier ways to invest your money?

• What makes a good retirement property investment?
• Benefits of investing in retirement homes
• The disadvantages of investing in retirement homes

For those approaching retirement age, they may have been considering investing in a buy to let for retirement income, so what are the best investments for retirement income? Retirement property investments generate healthy returns and give the investor time to decide whether they would wish to move in at a later stage or use the rental income elsewhere. This is one benefit of investing in a unit in a retirement home. What are some other benefits, and what are the drawbacks, and are retirement care homes a good investment? Here is your checklist to purchasing retirement property.

If you have money sitting in the bank you probably are wondering how to really make it work for you. Perhaps you’ve considered property and are wondering whether retirement homes are a good investment?

What makes a good retirement property investment - four factors

If you have savings and you are thinking of investing in property, you will want to make sure that you choose the right investment in the right location. So what makes a good retirement property investment?

1. Choose somewhere in an area with a high demand
2. Choose an area where there is an undersupply
3. Unique position or service offering
4. Sustainability of investment

It is understandable that those with savings will be extremely attentive when assessing any sort of investment. If you’ve worked hard all your life and have managed to save a little money, you don’t want to pour it into something that might not meet your financial objectives. Here is our advice to everyone considering retirement homes, from the seasoned investor to the couple looking at investing in property for retirement income.

Choose somewhere in an area with a high demand

Firstly, you will need to evaluate the demand for the property type you are purchasing in that area. There would be little point in buying a student property in the middle of the countryside away from all universities, or in a town where the local university is able to cater for most students. Similarly, with retirement property older people tend to move away from cities and settle in quieter villages in the countryside or by the sea, so it makes sense to look for retirement complexes that are situated in these areas. Our UK retirement home investments are often situated in seaside towns in the south west of England, in counties such as Devon and Cornwall. In an area where an existing retirement village is located, one in four people are over the age of 65.

Choose an area where there is an undersupply

Following on from point number one you’ve now chosen an investment in an area with high demand. The key is to uncover areas with a limited supply. Ideally, you would want to identify the demand in an area before other people have discovered it. Sometimes it is not always feasible to seek out undiscovered areas in the UK.

What is to stop other developers from recognising the appeal and lucrative returns, and build luxury retirement homes in areas that will eventually rival your own investment? You will need to consider that and barriers to entry. In areas such as Devon, there are lots of National Parks and Areas of Outstanding Natural Beauty, which must be conserved. Local government initiatives that control the supply of property can include restrictive planning permission for new build properties. Aside from local measures, the national government prohibits building on vast swathes of land under the Green Belt (Protection) Bill 2017-19. This means that there is only a limited amount of space to build upon, thereby limiting competition from other developers.

Unique position or service offering

If it is the case that you invest in a city with lots of competition, you should choose a property that has a unique appeal. This could be the additional onsite amenities, the build quality, the historical aspect of the building or location. “Often our retirement home investment opportunities are refurbishments of Grade II listed buildings, and their historical heritage really appeals to the elderly generation. Our investments also include luxury amenities such as spa and beauty treatment centres, cinema rooms and fine dining experiences”. Says investment director at One Touch Property.

Sustainability of investment

Once you have done your due diligence and have selected an investment in an area where there is an undersupply, it is time to start considering the longevity of the investment. You don’t want to pick an investment with a limited market. For example, you may choose to invest in a retirement home in Portugal which accommodates British expats, but Brexit may affect the number of British people choosing to live in Portugal which would dramatically affect the income you receive. Therefore, if you are looking to invest for long-term income, it is also better to think long term.

The benefits of investing in retirement homes in the UK is that Britain has an ageing population and for the foreseeable future it is only going to get older. Last year the average age in Britain increased to 40, and the number of over 75s is meant to almost double by 2040 to 10m according to the Office for National Statistics. This generation is also as wealthy as it has ever been, which Knight Frank estimating that over 60s in England alone have over £1,200billion in unmortgaged housing wealth, which means they are in a good place to afford the fees associated with luxury living.

Benefits of investing in retirement homes

1. The area and surroundings
2. Social benefits
3. Hands-off investment with strong rental projections
4. Care always on hand

The area and surroundings

Retirement homes are generally situated in picturesque villages and towns in regions popular with an older clientele, such as the south west of England. Residents can enjoy their surroundings and a slower pace of life. They’re often situated next to National Trust parks or near to the coast. Financial incentives

More and more people are discovering the benefits of downsizing and distributing their wealth to ensure their family gets as much of their equity as possible. Even if the individual does not feel ready to move into a retirement village yet, they can invest and enjoy the rental income whilst they decide whether they want to move and if so, where they want to move to. Even if they decide not to occupy their investment in the future, the rental yield could go some way to covering their expenses elsewhere.

Social benefits

Perhaps an aspect that is much overlooked is the social benefit of investing / living in a retirement village.

Half of all people over the age of 75 live alone, and one in ten of those aged 65 or over say they feel lonely either all the time of often. Half of all older people consider the TV to be their main form of company, and 36% of over 65-year olds say they feel out of pace with modern life. Loneliness isn’t confined to being an unpleasant experience either, it can also have a significant impact on one’s health. Research has shown it can have the same detrimental effect to health as smoking 15 cigarettes a day, and people who feel extremely lonely are twice as likely to develop Alzheimer’s, have poorer mental health and suffer from more falls and periods of hospitalisation.

Some luxury retirement homes regularly host wine tasting events and organise outings to explore the local area, giving residents the opportunity to socialise with each other in measures to alleviate loneliness, and get out and about, if they were previously restricted to the house due to poor transport systems and no longer being able to drive. Residents are free to socialise as much or as little as they wish, and can also enjoy daily home cooked meals together prepared by the country’s top chefs.

Hands-off investment with strong rental projections

One thing is for certain, with the UK’s ageing population, there will always be a demand for residential home units. For those who are not quite ready to sell up their family home and move into a retirement village, good rental returns are guaranteed. Units at this north Leeds care home offer a 10% return over a 10-year commercial lease. It is fully operational and units can be purchased from £84,995.

Care always on hand

These sort of retirement homes allow residents to really enjoy their independence, but also have peace of mind that if they do need care, it is always on hand. This is especially reassuring to those who can do most things for themselves, but who may require a little more support as they get older.

The disadvantages of investing in retirement homes

1. Limited locations
2. Management fees
3. Limited market

Limited locations

More and more retirement homes are being developed, but they are often confined to typical retirement towns and villages. This may mean that if you choose to occupy your unit later, you may have to move a considerable distance from your friends and relatives.

Management fees

The benefit of having a management company in place who oversees the day-to-day running of the care home is that it makes for a completely hands-off investment. The downside is that there are fees incurred, which reduces the overall rental yield you can achieve. Fortunately, the yield is still high because of a strong demand, but it is limited due to these additional fees.

Limited market

Of course, these care homes are limited to the over 55s, so there is a smaller pool of potential residents. Fortunately, Britain currently has a sizeable elderly population so projected occupancy levels are good, but it is worth being cautious in case that number dips in future.

If you wish to understand more about the care home and luxury retirement property market, download our care home guide. Start your property search today or speak with one of our experienced consultants to find out how it could work for you.

Care Property for Sale

When evaluating the full spectrum of care property for sale the types include; investing in a nursing home, a residential care home for sale or buying a retirement property before you retire. Here are some of the questions and ideas to consider:

1. Finding care homes for sale
   
2. Care Quality Commission
   
3. Types of Care Property
   3.1 Residential Care
   3.2 Nursing Care
   3.3 Later Living Retirement Property
   4.What is the profit margin for UK Care Homes?
   
4. How to invest in the care sector:
   5.1 Buying a care home business
   5.2 Forward funding a care home development
   5.3 Investing in a purpose-built care home REIT
   5.4 Buying a care home room
   
5. Conclusion: Understanding risks and rewards
   

Finding care homes for sale

Look around at the care homes for sale you will find a number of care home agents or business transfer agents that are marketing care homes. A large percentage of the businesses for sale are in need of improvement and the properties in need of updating. Care homes that have a poor CQC rating will often have a reduced income and the regulator has the ability to shut down them down. Ultimately who would want their loved one to stay at a home that has a poor record are delivering care?

Care Quality Commission

The Care Quality Commission (CQC) is the regulator of the care home sector; they inspect and provide ratings on residential care homes and nursing homes in the UK. They uphold safeguarding of care home residents and evaluate whether care home staff are receiving sufficient training to effectively meet the individual personal needs of residents when they carry out their duties.

Types of Care Property

Residential Care Homes

The majority of care homes provide residential care which includes services such as preparing meals, assisting with personal hygiene, creating stimulating activities and providing connectedness though a sense of community.

Nursing Care

Some of the care home operators have a specialist team of qualified nurses who will be able to provide the additional services of 24 nursing care for patients with dementia, post-operation recovery (respite care) and those with providing end of live support to patients with terminal illnesses such as cancer.

Later Living Retirement Property

Later living villages are communities which are built for people over 55 who a looking to downsize. Purpose built retirement property has all the features of usual homes but will be designed for future accessibility as the needs of the owner or resident may change over time. The owner still has a great deal of independence.

The increasing appeal of assisted living is that the services on offer including; personal shopping, preparing meals and providing community entertainment and with excellent onsite facilities such as medical treatment centres covering physiotherapy, doctor’s surgeries and water aerobics.

Some of the senior living investors heavily investing in this sector are large pension funds are like Legal and General in their Guild Later Living Villages and Royal London’s £80 million Joint venture with Audley Group. The idea is to create communities that appeal more to residents that the homes that they were leaving.

What is the profit margin for UK Care Homes?

Care Homes provide annuity style income which is both a steady and increasing income stream is ideally suits the long-term commitment that insurance companies and pension funds have to their investors. This could be the reason that they are growing their investment in the sector and why you should be seriously thinking about it too.

Knight Frank Care Home Trading Performance reviews

We have kept a close eye on the care home market reports since 2013. By studying the tables, you will also notice the that average weekly rental rates increased from £622 to £746 between 2013 to 2017.

That is an increase of 19.9% over 4 years.

The 2019 average U.K rents had increased to £837 per week by 2019. Thereby showing a further 12% increase.

Investors should take comfort in the fact that typical occupancy just shy of ninety per cent (89.5% in 2019) and that annual revenue increases more than inflation.

One should bear in mind that returns can vary on a care home and regional basis.

How to invest in the care sector:

Buying a care home business

When considering how to invest in the care home sector. Remember, that in most instances, you will be purchasing a care home business. It is not the bricks and mortar – although purpose-built and modern buildings can command a higher rental income – it is the revenue stream that you are purchasing. Those care homes which are consistently delivering the best service and managed-well will most likely be most profitable over the medium-term.

Forward funding a care home development

Established care home operators do search for and develop their own care homes. However, a landowner could also joint venture with property developer to build new care homes. The lease agreements with care home operators is often secured before the development takes place.

Investing in a purpose-built care home REIT

Care Home Real Estate Investment trusts like Target REIT and Impact REIT purchase the care homes with long term leases in place with well-established operators. They have a countrywide portfolio and target 6% annual returns. The total asset management costs of these type of REITS can be higher than other property funds. According to AJ Bell website, Target REIT’s 2019 annual costs were:

The annual ongoing costs of 3.76% reduce the net returns that investors could receive. The peace of mind that investor gains is that there are a team of asset managers and surveyors would conduct appraisals on the portfolio and meet with the care home operators to review the businesses annually. This obviously comes at a cost.

Buying a care home room

One Touch Investment has been marketing care home rooms for investment since 2015. The way it works is that some care home operators choose to release equity from their businesses by selling the underlying care home and leasing it back on fifteen to twenty-five-year lease (15-25). That way the operator is still able to conduct their business from the premises and have spare capital to fund their business growth and further care home purchases. This allows individuals to invest in residential care homes, nursing care homes or those in the luxury sector.

We tend to source care homes opportunities and nursing home investment opportunities that are trading assets with a proven cash flow and income stream that cover the net income of the lease agreement. Operators are typically willing to contractually agree to a 10% net income on the lease which is either paid as a portioned monthly or quarterly income payment.

By now, you are probably starting to see some of the benefits and gain a comfortable understanding of how it may work for you. To discuss the best way forward arrange a call back with your investment consultant.

Conclusion: Understanding risks and rewards

There are several ways to access the care home market. Whether you choose to purchase an entire care home, forward fund a care home development through a joint venture opportunity, purchase shares in a REIT or buy a care home room. Each option has its risks and rewards.

It is important to choose an option which makes the most sense to you. By that, we mean gaining an understanding and conducting some of your own research.

Here at One Touch we place useful information at your fingertips. Be it property sector information reports, comparable properties for sale and fully operational care home investment opportunities.

We are not financial advisors; we are a property agency with a focus on investment property. We aim to visit each property and meet with the care home manager; we look at the recent profit & loss of that specific care home as well as comparative weekly rents in the local area.

In a care home investing; your tenant, on a long-term commercial lease, is the operator. We do not offer ongoing asset management services…so it would be important to keep an eye on the company performance and future CQC reports throughout the investment term. When you feel it is the right time to sell, get back in contact and we can assist you with property resales as we have helped several other investors.

If you are still curious about how to invest in a nursing home, why not get in contact and one of our investment consultants will happily provide more information.