Rangewell

How to Buy a Care Home

By Rose Brown
Content writer
Published: 19 January 2022 | Last update: 25 May 20221 minute read
Rangewell

Looking to buy a care home business? Read the full guide to buying a care home at Rangewell and start your purchase journey today.

Care home properties can be fantastic investment opportunities that also contribute to social good. The care home sector continues to attract significant interest due to its reliability. As a care home owner, you'll benefit from a relatively safe means of investment due to Britain's ageing population and a distinct need for quality care in all regions.

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However, deciding whether care homes are good investments is not black and white: it depends on how well you know the sector. Most buyers are ex care-home managers looking to take their first steps into ownership, but some are investment-led with no prior care experience and instead supplement their lack of insight by hiring the best employees they can find.

Whichever route you come to consider a care home purchase from, you'll still need to understand the ins and outs of the process to identify the right opportunities, understand financing options and buy the right care home for your goals.

Remember: throughout the process, you can benefit directly from the support we offer here at Rangewell. Not only do we help you broker the right finance deal to suit your specific circumstances, but we'll also help guide you through the buying process and assist with things like your business plan.

Get in touch today for a free, no-obligation chat about care home finance or read on to find out more about the buying process.

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What is the difference between a care home and a nursing home?

Before we get started, let's discuss a key difference in types of property. The word 'care home' is a catch-all term for residential care generally dealing with elderly residents. A nursing home, however, is a distinct entity where a nurse is always present to provide medical care. Essentially, while a residential care home provides 24/7 care and support, nursing homes provide an added level of care.

That means that for residents, costs are higher when staying in a nursing home. The NHS can supplement the added cost of care for residents if they have certain nursing needs. Some homes are built specifically to cater to needs such as mental illness or physical disabilities.

As a buyer, it's more likely you'll be buying a care home than a nursing home, but it's always good to know and understand the difference.

How to buy a care home/nursing home in the UK

The first step in buying a care home is to browse the available businesses for sale on the market. This requires special attention as they aren't listed on typical property sites. As a business investment, care homes can be lucrative but also require a different level of compliance to strict regulatory standards and you'll need to understand this before you make a decision. 

After finding businesses for sale, you'll want to do research based on the following criteria: 

1. Location

Do some research on the listing's location to find out more about the area. Does it have a higher percentage demographic of elderly people? Does it have good local transport links for visitors? What about income levels in the area to afford fees? These factors are an indicator of the demand for care homes in that region. 

2. Beds

Care homes are typically advertised via bed amounts rather than physical size. The number of beds in the property indicates its earning potential. Some lenders will only finance care home purchases of a certain bed size, often with a minimum of 15 rooms. 

3. Flexibility

Care sector standards can change over time, so it's important that any care home you consider purchasing has the flexibility to adapt. This means a home that can be upgraded or adapted to meet specific regulations around equipment, space, access etc. Some older properties that have already been heavily converted may not be financially viable to convert again. 

It's worth considering which care services, care staff and care training are in practice at the business as you may have to either continue that level of care or improve it, which may also directly impact the care staff and change their employment conditions (more on this later in our TUPE section). 

4. Occupancy 

The current occupancy of the care home will be included in any advertisements and is indicative of its current performance. The higher the occupancy rate, the stronger its profits will be. However, there's always room to improve this if you can secure a good deal on a property that's struggling to increase occupancy. 

5. CQC scores

Care properties are given CQC (Care quality commission) scores that indicate how well the home provides care. All scoring is ranked against the following key questions: 

  • Are they safe?
  • Are they effective?
  • Are they caring?
  • Are they responsive to a person's needs?
  • Are they well-led? 

A home that is given a sub-standard CQC rating might aim to sell rather than make the effort to transform its services. In these instances, the right person with experience can buy the property, transform the ratings and generate a more profitable business. 

What to know before you purchase

When you've decided on the properties you're most interested in, you'll also need to consider your own approach. Most care homes are operated by owners in limited companies, so you'll need to decide whether you want to buy via an asset or share purchase. 

In addition, all care homeowners must be registered as a 'care provider' with the CQC, which means you must demonstrate the experience and skills required to run a care home. If you lack these, you may need a partner who has them and you'll take a more 'silent' investment role. Care providers can be an individual, partnerships or an organisation - so you can simply nominate the person with experience to be the care provider in a partnership or organisation when you apply to the CQC. 

Every care home must also have a care manager registered with the CQC. This requires two years of experience in senior care management as well as a qualification in NVQ Level 4 Care and Management. If you don't hold these qualifications, you'll need to employ someone. Remember that you'll also need 50% of staff trained to NVQ level 2 in care - which isn't necessarily a rare qualification to source but is complicated by the fluidity of the care worker sector, where retention can be a real challenge. 

As part of your purchase, you'll need to understand CQC requirements. There are minimum standards set for care homeowners which are upheld via twice-yearly inspections. These inspections are unannounced and can occur at any time of day. A home that does not meet CQC standards will be fined or warned. Repeat offenders will either be barred from accepting new residents or struck from the register entirely. 

How much profit do care homes make? 

Specific profits vary based on a large number of factors such as occupancy, location, beds etc - but care homes remain a lucrative option if you can maintain a good level of care and avoid any CQC penalties. A well-performing care home can return anywhere from 20-40% profit margin from bed fees, though this can grow higher in some circumstances. 

Can I convert a care home? 

Rather than buying an operational care home, there is always the possibility that you might choose to convert an existing property into a care facility. However, there are strict regulations around minimum floor space, private rooms, communal areas and safe access and egress points to make this a challenging task. You'll need to consider everything from these minimum size standards through to safety features like handrails, catering facilities, storage and even laundry. 

That said, if you're purchasing a freehold property and have done the prior research to ensure that conversion work is viable, it can be a great way to maximise the value of the care home. Where a standard residential unit might earn good rental income, care properties typically provide higher value as long as you can fit the right number of beds into the property. Do not buy a leasehold property for a care home as you're beholden to the landlord, who can increase your rental premiums or cause other uncertainties you cannot afford when planning a business. 

Even when buying an existing care home, you need to ensure that due diligence assesses the property's suitability in the terms we just talked about (room sizes, safety features etc) - just because the listing claims it has them, you simply cannot afford to trust their word. In fact, no lender will finance your venture without due diligence because it protects their investment. 

Buying a care home

When looking to finance a care home you'll need a higher deposit amount than you'd expect as lenders are hesitant about care investment. Not only do you need to show them you have the competency to run care facilities, but you'll also have to offer a fairly substantial amount of capital based on your target property. Care homes are typically valued at around 4-5 times their yearly income rates so even the smallest homes are usually £500,000 or more. 

If you're lacking capital, you'll need advice from a team like Rangewell. Our brokers can help you identify other ways to finance the venture that you may not have considered, such as leveraging any of your own existing buy-to-let properties. Much of the difficulty in securing finance is about having the right relationship with lenders and being able to negotiate in this way - making it even more important that you have a broker on your side who will help you get the best deal.  

With all of that in mind, these are the things you'll need to know when deciding to buy: 

Asset vs share purchase

Depending on the seller's own expectations, you can purchase via an asset or share purchase. In an asset sale, you buy the business and its assets. In a share sale, you purchase the legal entity that owns the business and take over majority ownership. 

We've already written at length about the differences between assets and share purchases in our Pharmacy buyers section. Much of that information is still relevant so click the link if you'd like to find out more.

Essentially, an asset sale helps avoid hidden liabilities while a share purchase involves purchasing the complete business and all associated disputes or liabilities - which is why due diligence is so vital. 

Business plan

You'll need to write a business plan when you're applying for care home funding - but having one, in general, is a good way to help plan your future, forecast your profits and establish how you'll grow your care home business. Your lender will look at your business plan as a way to gauge the value of the investment and to ensure you're competent - so if you've got any doubts about it, have it worked on by a seasoned business plan expert and double-checked by your finance team or accountant. 

Due diligence for care homes

When you're securing finance for your care home, your lender will want to perform due diligence. This involves instructing specialist legal professionals who will submit due diligence requests to the seller's solicitor and check for a wide range of things including property history, equipment, legal cases, employment status, pensions etc. 

Essentially, due diligence is what helps you to avoid making a bad investment. It is meant to unearth any problematic history or dishonesty in the seller's listing and is critical for a lender because while you might be willing to take a risk with your investment, they are not. 

Sales agreements and TUPE

When you've decided on the property you want and you've been approved for funding, you can progress with the sale. You may already have been in talks with the seller and had an agreement in principle, but until you have funding approved you can't really progress. 

Your solicitors will create a sales agreement, which is a document that outlines the sale criteria and also includes certain warranties from the seller to the buyer. These are statements such as 'there is no outstanding finance on the property' and other guarantees. They protect you in the future so are worth checking and agreeing to before you complete the sale. 

Part of the conditions of sale includes TUPE, which stands for Transfer of Undertakings (Protection of Employment) Regulations 2006. These are designed to protect existing employees, so you'll need to discuss the arrangement of any existing worker's hours, rights and remuneration and agree on it before you complete the purchase. If you intend to change the business in a way that will affect their working lives (such as changing visitor hours, mandatory working hours etc) you'll need to have the seller inform the team and allow them to discuss it before they agree. 

As a buyer, TUPE is a good thing as it generally means you'll inherit the business' team and be able to carry on with 'business as usual' until you begin to make improvements. That means you'll have a level of forward-planning and be able to identify well-performing members of staff or those underperforming who may need to be managed more closely. 

TUPE issues can be complicated by NHS employment contracts so it's worth consulting with a solicitor in advance. In some instances, TUPE may not apply to private care owners taking over an NHS care facility.

Care home staff are incredibly important to the overall standard of care - and in some cases can also impact your actual CQC status. They can refuse to work for a new employer if they do not agree with changes you make to the terms of their employment - which could leave you in difficulty if you're relying on the existing registered care manager to be the one CQC has on file.

Conversely, you might find you have to take on staff through TUPE that don't have the level of qualification you need to meet new targets and increase the overall standards of the care home. You can also end up inheriting staff members on maternity leave or sick pay.   

Is Stamp Duty payable on Care Homes?

Yes, stamp duty applies to the majority of care home purchases. How much you pay depends on the size and structure of the property and is best identified by a property solicitor. Stamp Duty Land Tax is calculated differently from the older system that was in place before 2014, so be sure to check with a solicitor before you finish the purchase.   

Registering with CQC

Provided due diligence comes back in a satisfactory manner, your lender issues funds and you want to go through with the sale, you'll be able to 'complete'. This is something your solicitor will handle and is largely based on signing paperwork and handing over ownership. 

However, you must also register with the CQC as a provider of regulated activity. This is a legal requirement and you may be committing an offence if you fail to register. You can register as an individual, partnership or organisation but remember that earlier we mentioned you'll need the person who has the care sector experience to be the one registered with the commission. 

When you register, you're essentially agreeing to certain conditions set out by the CQC which in turn allows you to perform the regulated activity. You can register online as a new provider or as a registered manager, but if you have any questions just call the CQC and discuss the application.

Buy your care home with Rangewell

Ultimately, buying a care home is a process that's better done with expert assistance. Whether you're a practising care worker looking to step up to ownership or an investor wanting to get involved in the sector, you'll need the advice to help guide you through the buying process and help arrange funding. 

Where some mainstream banks may refuse finance entirely or offer poor terms, Rangewell talks to the whole market of lenders to find financing options that make sense for our clients.  We don't just present deals to you - we look into the full landscape of lenders and how certain rates may be more cost-effective for your goals. This could mean we work with you to identify capital you weren't aware you could leverage (such as buy-to-lets) in order to secure better rates, or get a lender to agree to financing by improving elements of your business plan. 

If you'd like to buy a care home, get in touch with Rangewell today. We're happy to chat through your options in a no-obligation consultation. We're a finance broker, not a lender, so there's no pressure from us other than the support we'll give you if you want to work with us. 

If you'd like some examples of how we can help you, take a look at our case studies. We've worked with first-time buyers of care homes who didn't think they could afford the step up to ownership as well as large corporations who have renovated disused property and created thriving new care homes. Whatever your situation is, we'll help guide you to the best financing options available. 

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