Newsletter: Our Latest Findings – UK Care Investments
UK Care Investments…
We are always on the outlook for the right properties for you and your portfolio and July was no different as more and more of our clients sought advice on the various sectors in which they could invest their money…
UK care investments are a type of investment you may have heard of, but perhaps, know little about. Care homes are an alternative to those who would rather venture away from residential buy-to-let’s. In this newsletter, I will outline the following:
- Why there is an increasing demand for care homes in the UK
- Financial crisis in care homes
- What to look out for during the process of selecting a developer/ operator
- What the model is and how it differs from other care homes
- A tour of one of their successful, operational developments
- A carefully selected investment for you
The care sector has seen a massive influx of investment support from a variety of lending institutions over the last few years as well as pension funds and insurers such as Aviva and Legal & General who are also buying. Earlier last year, a US hedge fund bought 27 care homes.
Property group Knight Frank, have gone as far as to put care homes at the top of the list of high returns from property in the health sector, where yields of up to 10% are common. In contrast, GP’s surgeries – which are backed by the NHS and have long been attractive for their safe, steady rental flows – offer about 5% and are close to the bottom.
Care for the elderly generates in excess of £14.5 billion for the UK economy. The National Audit Office’s 2014 report into Adult Social Care stated that ‘Adults’ care needs are rising. The Office for National Statistics projects that by 2035, there will be 3.5m UK residents aged 85 plus. In just four years, this figure would have already grown by 300,000 according to (parliament.uk). Effectively, the government is forecasting that 1.7m more adults will require some form of care and support over the next 20 years.
Alongside an existing growing demand for good quality care homes, the UK care sector is particularly in dire need of dementia specific care facilities and nursing, with several being closed down due to an inability to meet, let alone exceed Care Quality Commission guidelines and regulations.
We visited this brand new, successfully running care home in Blackpool…
Therapeutic, tilted bathtub
Following the financial crises of 2008-2009, the care home sector needed to identify and attract fresh sources of capital to create business models which were ethical and sustainable…
We have been working for over four years with a developer that specialises in planning and implementing sustainable and ethical business models. We have chosen to work with this particular developer (who also happens to be an experienced care home operator) because of the resilience of the model. The developer targets areas of expansion in the UK where demand for beds is increasing and, as previously mentioned, are a highly experienced operator for each and every one of their properties.
They are also more resilient due to the sector they target – the various areas unlikely to have adequate care facilities present as well as selecting areas with more intensive care requirements – a sector that commands the highest fees. This developer has gained extensive knowledge within the field and has used this to stamp down on the deficiencies and sub-standard conditions seen throughout other establishments.
It is inevitable that good rents will flow from well run and managed facilities which, in time, becomes home to residents rather than just an institution. This rare type of dedication is one that is valued by the families of patients who generally, seek the best in class affordable care for their loved ones.
The developer has a two year rent free period following the acquisition of each care home which enables the company to affect the operational changes it needs to improve the performance of underperforming businesses without financial pressure. This provides a further advantage compared to the business models of other competitive developers who are reliant of bank borrowing.
Today, many care homes operators that funded their purchase by traditional borrowing from banks are now in a situation where the revenue they generate from the residents is less than their costs (both operational costs plus bank interest payments). Thus, many find themselves at the risk of having to close their doors.
Their offer is provided during a time of major reductions in nursing home numbers, totalling about 6,500 specialist care homes spread across the UK. The remaining 11,000 provide residential care alone, which differs from the developers offering. In their eyes, this part of the market is too fragile and carries too much competition. As well as this, pure residential care is currently at risk of being replaced by Care in the Community.
As the operator, they are poised for the future because the specialised care they offer can most often only be delivered from within a nursing environment. The fact is that these types of people are too unwell to be cared for in the community. They have to be cared for in a care home.
As a result, it is very quickly establishing itself as an enlightened provider of high quality care for people living with dementia and other related conditions, alongside those requiring end-of-life or specialist palliative care support.
They are resident focused, so it comes as no surprise that they were given the ‘Investors in People’ award – which is an internationally recognised accreditation – in March 2016. They specialise in care that can only be delivered in a nursing environment, which is too costly for governments to fund in communities. They are not in the general care home market (which carries competition and is at risk of becoming care in the community).
A carefully selected investment for you…
This development is an excellent example of a commercial buy-to-let purchase opportunity within the UK care sector. It is the latest offering in a series of facilities by care home specialist developers whom we work with. It is an open and operational nursing and care facility located in a historic town in the North East England. It will undergo a rolling schedule of refurbishment to bring it up to the standards of the developer’s other operational care homes. This is and will continue to be a nursing and dementia-specific care home.
- Rental income of 8% NET per annum
- Cash Input of £53,280
- ROI up to 225%
- Totally hands-off income generating asset
- No stamp duty
A keen emphasis is placed on enriching the lives of those living with dementia and providing a dignified closure to life in all their facilities. Their commitment to this can be seen throughout their existing care homes; specialist interior design choices, dementia specific garden designs and their end of life provision at each service.
More photos of the Blackpool care Home…
Lounge space beside garden
Pleasant, purpose-designed care rooms
This is an ethical return on investment made possible by a sustainable model. It is an excellent opportunity for you to invest in the future of UK Care.
Located in a beautiful town in the North East of England
Our clients love investing in care homes as they get an excellent and sustainable return; they know and like that their investment is making a difference in the future of UK Care; and is totally hands off with no hidden costs. All these attributes make for a highly appealing investment. They also love the developer’s meticulous attention to detail (such as the vintage style interior) not because it is fashionable, but because it is a style the residents are familiar with from their younger years.
“It is the key boxes by the bedroom doors that contain the picture of *Mr Smith and his wife *Barbara from when they got married in 1954; the purpose of these key boxes is that the resident recognises the picture as theirs, and outside their room, so they don’t have to remember the room number. No other care home group does this. It’s creating an atmosphere that makes the residents feel safe and at home.” Jean Liggett and Beverley Freer
UK Care is one industry available for investment that will never fall victim to economic fluctuations. Care homes and healthcare are both essential expenses that will always be budgeted for by both the British government and privately paying individuals.
The increasing demand for quality care with an ageing population will not be changed by fluctuating markets or the referendum result and therefore stand as a suitable investment for those seeking safer investments with high, long-term, fixed returns and low entry points. These types of investments provide a sense of security and reassurance as regardless of the state of the economy at any given time, your money will stay safe and continue working for you…
If you are interested in finding out more about this care home investment opportunity, e-mail me or call +44 (0)20 7624 5555. I am also available over the next couple of weeks to meet up for a coffee.