People in the UK are now living longer than ever, but with older age comes more strain on public healthcare so let’s forget buy-to-let for a moment, could investing in care homes be your new ticket to an easier retirement?
As buy-to-let continues to look increasingly grim due to new landlord tax rules, you may be on the lookout for something a bit different. Today we explore the idea of care home investments as the latest alternative
What are care home room investments?
Similar to hotel room investments, care home investments offer a taste of care home profits, without the huge upfront cost or hassle of running such an operation on your own.
As care homes are commercial assets there’s also no stamp duty tax to pay below £150,000 and the returns can be as high as 10% per year.
They could also be purchased under a pension such as a SIPP or a SSAS, see our article property investing with your pension to learn more about that.
Sound interesting? Here’s how a typical investment might work:
- Buy a room in a care home for about £60,000 with title deeds
- The room is leased back to the care home, who rent it out to their residents and manage it for you
- You get a fixed rent from the room minus expenses, which is usually paid monthly or quarterly
- The deal may also offer an option to buy your room back at a date in the future providing an exit strategy – more on this later
Do care home rooms make a good investment?
I’ve seen many care home investments around over the last year – in 2017 alone investors put £1.32 billion into UK healthcare real estate reported Knight Frank
But how do you know which ones are worth looking at?
According to Savills, good quality care homes with modern facilities are likely to have full or near full occupancy
What I personally like about the care home industry though is how it’s regulated by the Care Quality Commission, which means you can check the quality of a care home very easily online.
While some care home investments specialise in niche areas of care, such as those with Alzheimers, they all have a few perks over buy-to-let.
Why? Apart from the higher returns and tax savings, care for many residents is funded by the government. This can be very attractive if you’re looking for stable a source of income.
What is the outlook for care home investments in the UK?
In the early 1900’s you’d be considered above average if you made it past 48 years old.
Today with advances in medicine, we’re living longer than ever – in fact that number has nearly doubled to 82 years old for a women, and 79 for a man.
Sadly the older we get, the more care we need to deal with…well old age
As a result the UK is suffering from a social housing crisis – there just aren’t enough rooms to fill demand.
According to analysis by LEK, the UK needs 200,000 care home beds over the next 10 years which is 45% of current capacity.
It’s a serious issue with the UK government committing £3.8 billion, so it’s no wonder private operators are moving in to fill the gap.
Private care homes also charge higher fees, often seeing increases of 5-6% per year in order to cover rising costs and wages which could offer you great protection against rising inflation.
How safe are care home investments?
If you’re buying new then checking out the builder and what protection is in place to cover deposits would be high up on the agenda.
However some companies buy up existing care homes that are underperforming due to poor management, or lack of modern facilities.
By refurbishing and installing better management these can in theory be obtained at low prices and turned around to make higher profits.
That said, checking the valuation, track history of management and investigating local demand for care will be key to success.
What about an exit strategy?
Although online resales of care home investments are rising, a care home room is considered a long term investment and not something you can sell at a moment’s notice.
A lot of deals may offer buy backs, but this offer is only as good as the business behind it.
Therefore a good analysis of the business is crucial, as you’d not only be buying a piece of real estate, but also into the underlying business model too.
Overall if chosen well, care home investments can offer another string to the property investors bow.
The stability of income paid by government funding is hard to turn your nose up at, and you could also be helping to supply care to the many who need it.
Plus, unless we all turn into robots in the near future, the demand can only continue to rise…
If you’re a director of a UK limited company and like to have control over your financial future then you could be missing out on significant tax advantages by not considering SSAS property investments
Today we take a look at types of SSAS property investments and how a SSAS could also protect your wealth and allow you to invest into property virtually tax free.
What is a self-invested pension plan?
Have you ever heard of a SIPP? They’re aimed at the self-employed and allow you to make your own investment decisions for your pension, rather than a pension provider making the decisions for you.
Just like a work place pension a SIPP provides numerous advantages over cash investments, such as income tax relief and the ability to draw down a tax free lump sum at age 55.
However one of the possible disadvantages of a SIPP is the limitations on what you can do with the funds and the types of investments you can make.
Although you can use a SIPP to invest into property, it can be quite difficult and you’ll often be tied into a selection of investments that are pre-approved by your SIPP provider.
How is a SSAS pension different?
SSAS stands for ‘small self-administered pension plan’. They’re designed for individual or small groups of directors to self-direct their own pension plans.
You can set up a SSAS as an individual director and include family members, or as a group with other directors and employees.
Unlike a SIPP though each member of the SSAS actually becomes a trustee. This means you and any other members get complete control to invest into anything you want
Sounds great, right? It can be, but there are still HMRC guidelines into what investments qualify for tax relief and which ones don’t.
Therefore it’s important to get this right on any SSAS property investments you make, so remember to get professional advice before making any investments.
What are the benefits of a SSAS?
Setting up a SSAS can provide many advantages such as:
- Tax relief on your personal and business income
- No income tax on investments
- No capital gains tax when selling investments
- A tax free lump sum from the age of 55
- The ability to loan funds out from the SSAS
- The ability to transfer other work place pensions or assets into your SSAS
- A way to shelter your wealth from the tax man for your family and future generations
Now we understand some of the advantages of running a SSAS, how could you use one to invest in property?
How to invest in property with a SSAS
Although you cannot DIRECTLY buy residential property with a SSAS, there are multiple indirect ways you can.
Let’s a take a look at some SSAS property investments you could consider…
Convert a commercial property into residential property
Hands on investor? With relaxed permitted development rights in the UK there’s never been a better time to buy old commercial buildings such as pubs, restaurants, factories and warehouses.
Guess what? Commercial property like this can be directly purchased into a SSAS, and could then be converted into residential by using permitted development right laws.
The development could then be sold on providing a tax efficient return back into the SSAS.
Because this strategy is repeatable, it can be a great way to grow a pension pot and it’s probably one of the easiest SSAS property investments available.
Prefer something a little less hands on? You might instead consider a hotel room investment, care home investment or serviced accommodation.
Provide bridging finance to developers or property professionals
Picture this: a property developer has found an exciting opportunity to build some housing…but they need a little help with the funding
You know your SSAS allows you to issue loans, so being the savvy investor you are you see an opportunity to strike a deal.
In return for the loan you agree a fixed share in the profits and also take security over the property until the development completes.
If you’re looking for something passive then SSAS property investments like this can show high digit annual returns without the hassle of construction, solicitors, or tenants.
Interested in these kind of investments on a smaller scale? Be sure to take a look at our article on property investment bonds
Borrow money from your SSAS to invest in property
One of the secret weapons only available to SSAS is the ability for you to lend money from it at very low rates.
You can currently lend up to 50% of the value of your SSAS, so a pot of £300,000 could mean gaining access to up to £150,000 of your pension. You could even use those funds as a deposit towards a mortgage.
Combined with the ability to draw down a tax free lump sum at aged 55, this can be one of the most attractive SSAS property investments available to access your pension funds for property investing.