Investing in Care Homes: A Plan for Retirement?

carehome

Investing in care home units can be a very effective way to prepare for your retirement. This might sound pessimistic, but what you are looking for in this case is not a place to live but a sustainable source of income. More and more people are choosing to put a portion of their life savings or pension pots into property, and care homes are a sound choice for a steady income stream.

Demand

Britain is aging. The age distribution of the UK population is more heavily weighted towards higher brackets than ever before, and the result of people living longer is heavy demand for care home units. The aging of the UK population, which is very much an ongoing trend, has created something of a booming industry in the form of care home investments. New care homes are springing up all the time, but just as quickly their units are being filled. From an investor point of view, this has created a class of high-yielding, easily tenanted properties where demand is driven by trends that are relatively well-separated from the wider economy.

Costs and Yields

Rents on care home investments tend to be stronger than those offered by the mainstream property market. Care home units command lower prices than many alternative assets, thanks both to the small scale of individual units and the large, economical scale of the developments in terms of overall unit numbers. On that investment, rental yields of 7%, 8%, or even up to 10% are achievable. These are attractive figures, and relatively stable ones in good-quality developments thanks to the continued growth of demand. The fact that this is also a very hands-off stream of income, as the great majority of investments are fully managed by the company managing the care home, makes it a good fit for funding retirement.

Risks and Exit Strategies

Although a steady demand base and a fair amount of insulation from wider economic trends have a positive impact on the safety of investing in care homes, there are risks involved in any investment. Anybody who tries to sell you a risk-free investment is either lying or massively oversimplifying, and care homes are no exception. There is a chance, for example, that profits on the care home fail to live up to expectations or rents end up being lower, and there is of course always some possibility that some unforeseen change will take place in the market.

This is why it is never wise to put all your eggs in one basket, and it is certainly not wise to rely on care home investments alone to fund your retirement. If you should wish to part with your investment, either because risks start to increase or you have other plans for your funds, care homes have a less well-established resale market than other, less niche property assets, but there is definitely a market there. This is helped by the fact that many care home operators are happy to assist investors with the sale process.

For more information about care home investments, please contact Hopwood House.

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