Institutional money is being invested into care home rooms

by Property 118

13:51 PM, 27th August 2014
About 4 years ago

Institutional money is being invested into care home rooms

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Institutional money is being invested into care home rooms

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.

care home rooms



Comments

Ian Narbeth

10:07 AM, 28th August 2014
About 4 years ago

This is definitely not for widows and orphans. You write: "..selling, or realising the capital of that asset may be more difficult in 10 to 20 years time." In my view it may be difficult (or impossible) 10 or 20 minutes after you have completed and handed over the money!

How the deal is structured will affect the "owner's" rights and obligations. If you are paying £35K-£60K for a room it is unlikely you will want to pay for detailed due diligence on the property or on a complex suite of documents.

There are a whole host of issues to consider.Does the owner receive a percentage of the income generated by his room or is the income from all rooms aggregated and then split? If the former, the investor may have the least desirable room in the care home and suffer higher vacancy rates than average. Is the owner liable for Council Tax/business rates? What legally enforceable duty does the care home operator owe to the investor. (Let me hazard a guess that with "take or leave it" documents the operators will not assume any real responsibility.) What is the investor's liability if someone is injured in the room or if a resident's belongings are stolen? Is the owner adequately insured?

The investment may be difficult or impossible to fund as lenders will not understand it (and may be wary even if they do understand it).

The people who will do best out of this will be those who sell 12 rooms in a £400,000 house for £600,000.

Fractional ownership schemes can be made to sound sexy and to offer amazing yields. It is another matter to sell the investment and the "owner" may have little or no control over how the care home is run. Caveat emptor.

sally lloyd

10:07 AM, 28th August 2014
About 4 years ago

it would concern me that if the home wasn't managed to a high standard that it could be closed down (as a few have in the past) we have some empty ones here in hastings. What happens to your investment then? I feel it is a very risky business as there is alot of bad practise around. They pay peanuts and often get monkeys as staff. Some will employ anyone. A home here in hastings has offered a job to my spanish workaway he's from a banking background with no experience and hardly speaks english - worrying !! I have worked in the care industry myself and all I can say is I hope that I never end up in one.

Christopher Browne

1:27 AM, 31st August 2014
About 4 years ago

I definitely subscribe to Ian's thinking - 10 minutes after the purchase I think the re-sale will be difficult. High yields theoretically but zero control over the investment and it all seems very similar to investing in student pods or hotel room investments - both of which I would be very surprised if someone came on here to argue for them.

Anyone think student pods, hotel rooms or even the residential care home investments mentioned in the article are a good investment?

(I appreciate "good" can mean different things to different people and I have no experience in this field. Also I realise that it is property investment with a low entry level and so is appealing to those who perhaps can't / don't wish to stretch to a larger investment)

Michael Joseph

2:43 AM, 5th April 2015
About 4 years ago

Real interesting to read your guy's comments and as some of these types of investments should now be in full operation, I'm wondering if anyone who has purchased such units can give any feedback to a possible 'would be' investor here?


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