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Case Study

£1.4m Refinance Package Enables Transformation of Underperforming Care Home

With the right investment, finance and experience, developers can transform underperforming care homes into profitable businesses.

While care homes can be highly profitable ventures, it takes a specific kind of business person to take on a struggling care home and transform it into a successful business.

Care homes can be a profitable property venture, but they can also be a liability if they are not managed correctly. Care homes may underperform due to a number of reasons, including low occupancy rates or poor Care Quality Commission (CQC) ratings. As a result, many owners must turn the care home’s fortunes around by either working to improve the property itself, selling to a different care group or redeveloping it as another venture entirely. 

Fortunately, many successful care companies across the UK are started by passionate individuals who can provide care facilities with the quality and safety required by the CQC and by concerned families. Some of these organisations begin with a single care home purchase before expanding their portfolio and using past examples and experience as a way to secure new purchases and confidence in the eyes of the lender.

However, to access the best types of finance for care homes, a client needs to have evidence of long-term success across a care home portfolio, which may not always be possible for those trying to grow rapidly. In instances like this, Rangewell can help a client put their best case forward by assessing your situation and then dealing directly with a network of lenders with whom we can work to ensure we meet your funding requirements. 

Let’s take a look at this in action when a client of ours who had already turned around a previous failing care home in less than one year wanted to expand to a second property...

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Why was there a problem? 

When a client who had a great track record in turning around failing care homes approached Rangewell about the prospect of purchasing a new care home that was losing money, we were excited to help them. 

Despite the client’s prior success, the issue was that they had limited trading history and that lenders typically favour lending on the actual bricks and mortar value of a property as opposed to its financial potential when fully realised as a business. Of the eight shareholders in the company, only 2 had evidence of prior success in a care environment. 

For a lender, this adds a layer of uncertainty that can make funding decisions more difficult. They are weighing the risk of a second care property against a client who has short-term success with no guarantee of the future. 

Why we were able to help

Rangewell thrives in exactly these types of situations. Our team can help you make the best of any funding application and do all of the hard work for you by talking to lenders and working out those who give you the best chance at successful funding packages. 

In this case, we were only able to approach lenders who were prepared to offer to fund based on business value - so the client could use their successful care home’s profitable business income as leverage. 

In this example, the client had bought a care home which was valued at £850,000. This was under-occupancy and losing money, with just 35 beds of a total 56 full. The client purchased the property on a bridge loan with 50% cash and transformed its occupancy rate - achieving 96% occupancy in one year. This meant the property surged in value from £1.1m to £2.5m.

We were able to direct lender attention to this success and to the 2 people who had prior care home experience, rather than allowing them to focus on the relatively short timeframe and the other, less experienced shareholders. 

The client’s ambition was to buy a second care property which had a value of £2.5m. They needed £1.35m to make this a reality, but lenders only offer 50-60% on the bricks and mortar value of a property as opposed to its business value. We identified that refinancing their successful first care home could unlock a lot of equity - with their original £850,000 purchase refinancing for approximately £1.4m. 

This is the biggest benefit of working with experts in the sector. We can help you unlock the value of your own success by securing rapid funding options that allow you to expand from your first care home and then refinance the property once you’ve turned it around. 

About care home finance

Care home finance is a specialist subject that lenders typically treat in a fashion designed to minimise risk. This means they tend to favour large care homes with multiple beds, demand higher deposit rates and are inclined to turn down lenders who do not have a strong history in care home ownership.

As we mentioned earlier, care home finance is typically offered solely on bricks and mortar value which is generally far less than the actual value of the business. However, a care home with high occupancy rates generates greater return than many other competing property investments and as such, you need to find a partner who can leverage this fact with lenders to secure more favourable terms.

Care home finance costs less with Rangewell

Rangewell has a team of specialists in care home finance, especially when considered against the factors we’ve just explained around expanding your care properties into a portfolio. The first step of buying your first care home can be difficult enough - so why allow the second stage to be as challenging? 

Talk to the experts here at Rangewell and we’ll guide you through your funding options, discussing your current assets and how they can be leveraged against a better finance package so that you can focus on the hard work of turning around the care property and securing higher occupancy rates. 

Once successful, we can also help you negotiate refinancing options to unlock the value of your investment and use it to leverage another purchase or similar venture. Whatever your goals are when it comes to care home investment, we can help. Even properties with smaller bed numbers or poor CQC ratings can benefit from our assistance as we have a network of lenders on-hand who can consider the property’s full value as opposed to the sole bricks and mortar estimate. 

Whether you’re looking for your second care home or are already an experienced group with multiple successes, talk to Rangewell about funding options for your next purchase to see how we can save you time and, through refinancing at the right time, actually make you money. 

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