13:51 PM, 27th August 2014, About 7 years ago 4
It is no surprise to anyone that has looked into the cost of residential care homes recently that investing in rooms has become attractive for institutional investors.
The average yield on care home rooms is over 10% and the prospects for capital appreciation look good. Aviva and Legal & General for example are investing in British care homes and this year a US hedge fund bought 27 with further institutions also funding new developments.
Purchase prices for rooms can start at £35,000, but the individual investor needs to remember that traditional Buy to Let financing will not be available. However there has still been an increase in new developments chasing the average property investor.
What needs to be considered is whether as an individual you would be sufficiently ahead of the curve to compete with the big players. While prices are high for care homes, and demand is still increasing, logic would suggest that as the population age is also increasing it would take some time for supply to be sufficient to cause a drop in prices.
There has been the usual hysteria and controversy that surrounds any form of private sector property investment, with some groups finding it distasteful that people should profit from the needs of the elderly. However, as in any economic market, demand for shelter needs to be met by supply to stop it becoming unobtainable by all but the few.
If the government cannot afford the investment surely it is better for the private sector to step in to fill the gap even at a profit than leave the elderly without care.
Problems for the individual investor may come further down the line with this type of non-traditional investment. The secondary market for care room purchases is untested in the long term compared to residential Buy to Let, so selling, or realising the capital of that asset may be more difficult in 10 to 20 years time.
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