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Case Study

Securing £1.35 Million Refinancing For Care Home

Care home finance is one of our specialist areas. Discover how this client refinanced a care home they turned doubled in value in less than a year.

Buying a care home with low occupancy and poor CQC scores may have proved a profitable investment for this client, but when it came to refinancing, a specialist care home lender was needed.

A care home can be a very profitable venture for an experienced business owner. Many investors will purchase a care home when it is struggling, get a good deal for the property, and then invest in turning the business around. However, as with any project of this scale, there are significant risks to buying a care home, particularly if the establishment has poor reviews, is poorly rated by the CQC, lacks capable management and is under-occupied. 

The care sector is worth almost £16billion a year, with demand increasing for safe and comfortable housing for the elderly increasing year on year. However, not all care homes yield such successful results. As the cost of running a care home has increased over recent years, care home owners strive to achieve high occupancy rates and positive CQC scores to ensure maximum profitability.

Running a care home isn’t just about turning a profit, it's a significant investment of time and energy and requires compassion and a caring attitude at all times. Care homes aren’t just for the elderly, either. Many care institutions house palliative care facilities for people of all ages, while some are entire organisations dedicated to caring for people with disabilities. All care homes are subject to strict compliance and regulatory requirements, meaning that an inexperienced investor may struggle to meet the expectations of England’s independent regulator for the health and social care industry, CQC (Care Quality Commission). 

The CQC provides strict regulations for care home owners, such as requirements for suitably qualified and competent staff, as well as meeting health and safety standards. And, most importantly, the CQC lays out guidelines for the safeguarding and treatment of residents. By means of regular inspections, the CQC gives each care home a rating that signifies if the organisation is meeting the standards or whether it requires “special measures.” 

So, purchasing a care home with a poor CQC rating may prove risky, but it was the right decision for one Rangewell client.

Why was there a problem?

A client approached us with the need for finance to purchase an operating 56-bedroom care home for £850k based on a £400k deposit. The care home in question had poor occupancy (25-35%) and, therefore, it was not a profitable business at the time of purchase. However, as experienced care home developers, the client saw an opportunity with this care home, particularly as it is located in Portsmouth, where there is a significant demand for good quality care homes.

One year later, the client’s care home is now at 95% occupancy and received an improved CQC rating. Thanks to the owner’s hard work, the care home is now estimated to be worth £2.5 million - more than double what the investor paid. 

Now that the facility is in a stronger position, the owner is keen to refinance. However, the owner faced difficulties refinancing the care home as it was only purchased one year ago. Furthermore, many lenders provide finance on the basis of the property, rather than the value of the business as a whole. As a result, the client needed Rangewell’s unparalleled expertise and wide range of finance providers to really get the best deal for their situation 

When it comes to financing a care home, whether it’s for the first time or a refinance, we work with our client to provide a fully comprehensive application to the lender. This helps them to see the bigger picture, which in cases like this, is particularly important. 

Having handled many care home finance applications, we know what lenders want to see, the questions they will ask and the responses they are looking for. For example, this particular client was backed by multiple investors, mostly family members. In this instance, only two of the investors had care experience, while the other six acted as investors and shareholders. 

Why we were able to help

Taking the above into consideration, we produced a detailed application to handpicked lenders that we knew would be the most likely to provide our client with the finance they needed to take the care home to the next level. 

We were able to find a specialist lender who takes the whole business into consideration, both the property and the operations, providing £1.35 million against the current value of £2.5 million.

Now the care home owner is with a finance provider who recognises that the facility is on-the-up and, as a result, they are able to continue investing in the care home to create a safe and comfortable space for its residents.

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About care home finance

When you buy an existing care home, like this client did, you benefit from an established business with staff and residents. Even in this case, where the care home had a poor reputation and low occupancy rates, there is still a lot to gain from this purchase, such as equipment and staff. 

When you buy an existing care home, rather than setting up your own from scratch, it may reduce the cost of borrowing and allow you to access more finance. Lenders are more likely to lend to an established business that has accounts dating back several years. However, if the accounts are poor, then it might not work in your favour. That’s why you need care home finance experts Rangewell on your side, so you can navigate the market and find the best deal for you.

In addition, some care home owners may choose to refinance to free up cash, so they can reinvest in this facility or begin work on transforming another property. If you require investment to improve the facilities, purchase equipment, hire staff or carry out property development then cashflow support and working finance capital might be the right choice for you. This particular sort of care home finance is typically on a short or medium term contract and is expected to be paid back upon completion of the work. Find out more about Cashflow Finance for care homes.

Care home refinancing with Rangewell

Whether you are hoping to make improvements to your facility or looking to free up cash to invest in another, refinancing might be just the solution for you. Care home refinance varies greatly, and you’ll need an experienced team on your side to support you with finding the right lenders and writing an application that will yield the best results. Look no further because the Rangewell team is here to help. Get in touch today to start your care home refinancing journey. 

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