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Case Study

Transforming a Vacant Property Into a Care Home with £3.3 Million Funding

Purchasing a vacant lot and turning it into a care home takes time and investment. Learn more about care home finance and how this client built a profitable business.

Vacant properties present valuable opportunities for care home developers, particularly in areas where demand for good facilities is high. In Portsmouth, for example, there are over 30,000 people aged 65, and above, that’s 15% of the city’s entire population. Therefore, there is a significant need for care homes that can cater to the area’s elderly demographic. 

In the wake of the coronavirus pandemic, few industries have suffered as much as hospitality and leisure. In fact, almost 10,000 venues closed their doors for the last time during the pandemic. Many of this disused property has now remained vacant, presenting opportunities for keen-eyed investors who can convert the property to suit market needs. 

So, are vacant hospitality venues the answer to the UK’s care home shortage? One developer’s investment in an empty hotel in Portsmouth has proven profitable, but they couldn’t have gotten to where they are without finance from Rangewell.

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Converting a vacant property into a care home

While some developers choose to buy a care home that is already in operation. As a result, they benefit from an existing team of qualified staff, the necessary equipment and maybe even an established reputation in the local area. However, we know that we need more care homes, and some developers have identified the growing number of vacant hotels as the solution to this problem. 

This increasing demand is proving profitable for many care home groups. In fact, a successful care home can be worth £16billion a year. However, the profit margins in the care industry are very slim, meaning that high occupancy rates and strong CQC (Care Quality Commission) scores are vital for turning a profit.

When you purchase a vacant property with the hope of turning it into a care home, you are starting from a blank slate, which might be preferable to buying a care home that’s making a loss, but also present a number of its own unique challenges. For example, the property requires significant investment to meet CQC standards, including the redevelopment of the exterior and interior as well as the purchase of vital equipment and recruitment of qualified and caring staff. Until the development is complete, there will be no income. Therefore, it’s vital that the finance reflects this investment and considers the potential value upon completion.

Why was there a problem? 

As we’ve discussed, there were several issues with this particular instance of buying a vacant property to convert into a care home. Firstly, the project would not be turning over any revenue until it is complete. Therefore, the owner required a finance agreement that gave them the breathing space needed to complete the project and start filling up the beds to turn a profit. 

The client purchased the 60-bed vacant hotel with support from a number of family members, who were shareholders in the company. Only two out of the eight shareholders had care home experience, while the others acted as financial support for the project. The client required finance for the redevelopment of the project - that’s where Rangewell comes in.

Often, lenders will ask about the experience of the owners in order to weigh up the risks of the project failing so, and it was critical that the finance application highlighted the positive areas while reassuring the lenders of any risks they might be looking for.

Furthermore, while two of the new owners did have care home experience, this would be their first conversion project. Therefore, they needed to be absolutely sure of budgets, timeframes and projected results. Lenders know that first-time developers are more likely to overspend and miss deadlines, so this client had to provide more information to reassure the lenders that the project would succeed. 

Why we were able to help

When you come to Rangewell, our expert advisors spend the time to understand your circumstances and your goals so that you can get the very best finance for your project. For this client, we identified a few key problem areas that we knew from experience that lenders are looking out for. 

Firstly, we put together a very detailed application highlighting the experience of the two key shareholders so that the lenders knew that while they had not developed a property into a care home before, they did have a strong background in the care industry. 

The finance would be based on the value of the existing property as well as the GDV (Gross Development Value), which was set at £6.5million. The lenders gave us a choice of surveyors to carry out the valuation and, because of our experience in this area, we knew which surveyor would be the best for the job. 

While the development work was set to be complete in 12 months, we gathered finance options covering 18 months, so the client would have a comfortable grace period to achieve high occupancy and, ultimately, turn a profit on their investment. 

And finally, we went the extra mile to present all of this information and more to the lenders so that they had a clear picture of the client’s intentions. As experienced finance brokers for care home owners, we know the lenders’ questions and the answers they are looking for. So, we work with our clients to identify any issues or risks before submitting the application and assemble fully comprehensive applications that tell a story of what the client is looking to achieve. 

Thanks to Rangewell’s unparalleled experience in care home finance, we secured finance for £3.3million for the client covering the full cost of conversion. 

About care home finance

There are many different types of finance available to care home owners. For example, a care home manager may be branching out on their own and require finance to purchase their first property. Or, an established care group may require a cash injection to buy their next development. 

In the case of our client in Portsmouth, the finance was not to cover the purchase of the property, but rather to support the redevelopment of the vacant hotel into a profitable care home in an area with high demand for quality care facilities.

Like the client above, if you need investment to improve the facilities, purchase equipment, hire staff, or carry out property development, then cashflow support and working finance capital might be right for you. Depending on the scale of your project and the goals you have in mind, you may qualify for short, medium or long term investment, which is typically expected to be paid back upon completion of the work. However, in cases like this client’s conversion, Rangewell can help you gain a longer repayment period, giving you the breathing room you need to make money back on your investment. Find out more about Cashflow Finance for care homes.

Care home conversion finance with Rangewell

Whether you are purchasing a vacant hotel like the client above or exploring opportunities within established care homes, Rangewell can help you secure the funding you need to transform your plans into reality. A care home conversion can be an expensive project, but when done right, you can create a very profitable business that provides significant employment for the local opportunity and high-quality care for the elderly in your area. So, if you have the compassionate and business-savvy demeanour necessary for a care home conversion, get in touch with Rangewell to get started with your care home finance application. 

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