How to buy a care home

Over the past decade there has been a shift in the care home industry towards tighter regulations. This has brought a large number of care homes to the market, presenting attractive opportunities for experienced managers and carers alike.

In 2011 alone, the Business Sale Report listed well over 100 care homes for sale in the UK. The majority of these offered strong business opportunities for buyers as the demand for care home beds is only set to grow given the ageing population.

Is buying a struggling care home suitable for anyone?

Anyone looking to buy a care home needs to have management experience as a minimum. The owner/manager role is an active one and anyone buying the home will be responsible for managing staff and ensuring regulations are adhered to.

Any prospective care home owner who is also hoping to act as care manager will need to have a minimum of a Level 4 qualification in care and management, as well as two years' experience or more in a similar role. Anyone without this experience will be expected to hire in an experienced care manager at a cost of up to £30,000 a year.

This is an area that demands careful consideration from potential buyers as smaller care homes may not be able to bring in enough profits after the care manager is paid for. As a result, buyers with no care management experience will benefit from focusing their search on larger premises with a larger number of beds.

What kinds of premises are coming onto the market?

The care homes that are being put up for sale should all have licenses already in place to operate a residential space for the care of elderly people. Some may also come with the added bonus of large freehold properties on sale below market rates, in the cases of distressed businesses.

This, along with the almost guaranteed demand for care home beds, is making care homes an extremely attractive option to buyers at the moment. However, it’s important to consider the regulatory requirements that were introduced in 2002 through the Care Standards Act, which set strict rules about room size and facilities.

Each care home must be able to offer at least 14.1 square metres of living space per resident. This is typically split between 10 square metres for each single bedroom and 4.1 square metres of communal living space.

There should also be an assisted bathroom for every eight residents and a care home should offer at least 80 per cent of its rooms as single occupation.

These requirements are often non-negotiable and some premises’ layouts could be inappropriate or not flexible enough, leading to rooms remaining unoccupied simply because they are slightly too small. When looking to buy a care home, it is vital that buyers take the time to check that the facilities are up to scratch, particularly for older care homes that may have been closed for some years after failing to adhere to the Care Standards Act at their launch.

Other regulations and red tape

Buying a care home comes with an enormous responsibility to provide care for vulnerable people. It is not surprising, then, that owners will need to accept regular inspections from the National Care Standards Institute. This body will also interview any potential buyers to ensure their motives are genuine and that they have the right aptitude for running a care facility.

As well as being able to fulfil the demands of officials who may conduct inspections without any notice, owner/managers need to adhere to the Food Safety Act and Health and Safety regulations.

In terms of staffing, at least 50 per cent of the staff buyers take on will need to be qualified to NVQ level two or above. This can make finding staff that fit the bill quite difficult in some areas and salaries may need to rise in order to attract the right calibre of carer.

How much to pay?

Analysts in the industry claim that the market for care homes is improving every day and that values are rising in response to this. While values used to be worked out on a per-bed basis, they are now more regularly calculated as a percentage of annual profit. Current multiples in the industry stand at around four or five times annual profit.

Staff costs typically absorb between 45 and 60 per cent of the fees taken by care homes. These fees are higher for private residents and are lower, but negotiable, for those being subsidised by local authorities.

Making the decision to buy a care home

Here at the Business Sale Report, we have already seen seven care homes placed into receivership this year. Last year Southern Cross, one of the largest operators of care homes, was closed down after its landlords decided to pull the plug due to the group’s inability to pay its large debts. Based in the North East it operated 752 care homes before it shut down mid-2011, with many landlords buying out properties to operate independently, while others homes were sold off to new owners.

Stephen Ideh of the Business Sale Report explained that the current market conditions and the high number of opportunities to buy create a very attractive prospect for those looking to purchase a care home.

He said: "Care homes can provide a steady stream of recurring income for their owners. Most of the profits made are derived from resident fees, either through health insurance, retirement savings or subsidised by the local authorities. "

Mr Ideh concluded that the high demand for care home beds, combined with the fact that a large number are closing down due to tough regulations, means that profit is relatively easy to come by for the right buyers. He added: “Care home businesses are often highly profitable and viewed as extremely stable in terms of long-term investment opportunities.

“The majority of well-run care homes in UK have yielded their owners very strong ROI figures much of this determined by the care home's ability to reach and sustain good levels of occupancy throughout the year.”

Also read: Care home sector ripe for consolidation

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