Why investing in care homes makes sense.
Michael Reilly, Sales and Marketing Director of Select Portfolio, give his views on why buying rooms in care is not exploting elderly people but rather provides a long term and sustainable solution to the uk care home sector.
The UK Care sector is a curious property market. The print media and the political chattering classes use it as a political point scoring exercise, keen to highlight the failings in the sector, the costs associated with care delivery, all the time pointing at the demographics and screaming "we need a solution to the care timebomb".
So what is the solution.... well very clearly investment is the solution. The nature of the investment however is often the cause of further political wrangling and salacious headlines. The debt ridden care sector has been tarnished by the failure of many large hedge fund backed companies who have over leveraged and then failed to adapt quickly enough to changing market conditions. Furthermore, small providers have failed to invest in their properties, or indeed realise that the building they operate from are not going to be able to meet the future requirements of clients.
So the solution has to be sustainable investment, which provides a good return for investors, but also operates in a manner which does not provide stress on the operations. Bank funding and institutional investment funding have been found to create huge strains on the sector, lacking the flexibility to reflect the needs of the business.
Select Portfolio have offered an attractive investment model for those looking to invest in care. The model provides certainty to the operations with investors signing up to 25 years investment levels (with exit options at year 10 and 15) . The rental return is an attractive 8% but for the operator the rental commitment is actually less than 6% due to a blend of rooms held by the operator and those on the lease.
In my eyes this type of care home investment is both ethical and rewarding, it meets a real societal need and also meets the needs of investors. For those who argue that care should not be profit lead, then I can only say that without private provision in UK care, the sector would collapse. Sensible returns on investment, sensible capital gains and avoidance of over leveraging and asset stripping are the future of care delivery. I am very comfortable that our investors are part of the solution, and will bring a real benefit to those who require care.
When purchasing a care home room - my number one piece of advise - examine the operator, look at their track record. Understand how many beds they have under operation, how many homes are rated good and above. If they do not have the track record walk away. I have looked at every care home room purchase scheme available, and for varuous reason I have rejected them, even where it was very profitable to take them on. My number one criteria is to judge whether the needs of future residents are central to the propostion, if the developer or the operator is promising too much to me, to investors or to themselves, then the person who will suffer will be the resident. This is not something anyone should feel comfortable with.
View our Care Home Investment Opportunities where you can earn up to 8% rental return for 25 years.