Future of residential care homes
Discussion
Hello PHers,
I'm currently in the final stages of acquiring a small care home (22 residents), and am canvassing opinions on future viability.
I started this acquisition just over a year ago pre-covid, and am due to complete soon. However, Covid has steadily eroded profitability, to the point where now there are barely enough residents to break even. I'm wondering whether to pull out, or stick it out in the hope that Covid will stop scaring people away from care homes in the next 6 months and we can return to profitability.
Some other care home providers I've spoken with have found Covid has had negligible impact on their occupancy rates, where as others have had larger decreases. I'm personally hoping that within the next 6 months, the worst of Covid will be behind us.
I know PH has a wide variety of people on here, so if anyone has experience of the sector and can share their experiences, I'd love to hear them.
I'm currently in the final stages of acquiring a small care home (22 residents), and am canvassing opinions on future viability.
I started this acquisition just over a year ago pre-covid, and am due to complete soon. However, Covid has steadily eroded profitability, to the point where now there are barely enough residents to break even. I'm wondering whether to pull out, or stick it out in the hope that Covid will stop scaring people away from care homes in the next 6 months and we can return to profitability.
Some other care home providers I've spoken with have found Covid has had negligible impact on their occupancy rates, where as others have had larger decreases. I'm personally hoping that within the next 6 months, the worst of Covid will be behind us.
I know PH has a wide variety of people on here, so if anyone has experience of the sector and can share their experiences, I'd love to hear them.
My view having had two elderly relatives in them in the past is that long term they will go back to pre covid levels if not more demand. Short term to be brutally honest about it a significant number of their users have died probably largely due to covid, or at least that has accelerated it to residency levels have dropped but long term I can see that will bounce back because as a population we are living longer and unless a cure for dementia is found the demand will only increase.
I probably sound quite brutal in what I've put but having lived through it twice I have seen the sad reality first hand.
I probably sound quite brutal in what I've put but having lived through it twice I have seen the sad reality first hand.
Thanks for your first hand experience Jamescrs. I agree it's a necessary service for many.
Fortunately there have not been any Covid cases in the care home I'm looking at, though some residents left at the start of the pandemic out of concerns they/ their families had. New enquires are also down, hence the increased vacancies.
I do think the sector will recover, though the question is how soon and whether the intervening period can be managed financially.
Fortunately there have not been any Covid cases in the care home I'm looking at, though some residents left at the start of the pandemic out of concerns they/ their families had. New enquires are also down, hence the increased vacancies.
I do think the sector will recover, though the question is how soon and whether the intervening period can be managed financially.
My wife and her family had a few residential care homes. They sold up last year.
There is no shortage of clients, but funding has shrunk year on the year whilst the cost of regulatory compliance and care has escalated significantly.
Key reason for sale was it was becoming increasingly difficult to turn a profit and provide a very high standard of care... It's possible to do it on the cheap but do you really want to be that person?
Even the bigger providers are struggling and they can centralise overheads and care is often the bare minimum.
My advice would be do your homework. Across the family all of the regulatory aspects were covered by various members having jobs in the relevant areas so compliance advice and work was 'free'. There was always some emergency - it was a huge drain on the family.
As a business proposition it's one driven by morals not profit that's for sure... It's impossible to walk away on Friday evening and have a relaxing weekend.
There is no shortage of clients, but funding has shrunk year on the year whilst the cost of regulatory compliance and care has escalated significantly.
Key reason for sale was it was becoming increasingly difficult to turn a profit and provide a very high standard of care... It's possible to do it on the cheap but do you really want to be that person?
Even the bigger providers are struggling and they can centralise overheads and care is often the bare minimum.
My advice would be do your homework. Across the family all of the regulatory aspects were covered by various members having jobs in the relevant areas so compliance advice and work was 'free'. There was always some emergency - it was a huge drain on the family.
As a business proposition it's one driven by morals not profit that's for sure... It's impossible to walk away on Friday evening and have a relaxing weekend.
Thankfully, no experience of the sector personally.
On the assumption you agreed a price pre-COVID, and are sticking to it -why? You've said the business has seen profitability decline to practically zero, so unless the building has significant value, why on earth would you want to stick to the original price? It might all go back to normal, it might (ha!) generate a social change where folks would prefer to keep their oldies at home. You can't accurately predict which, and neither can the owners. You have, being hugely selfish, an opportunity to acquire the business at a much lower price, based on real world profitability and sectoral uncertainty. The current owners might choose to reject your lower offer, but c'est la vie.
On the assumption you agreed a price pre-COVID, and are sticking to it -why? You've said the business has seen profitability decline to practically zero, so unless the building has significant value, why on earth would you want to stick to the original price? It might all go back to normal, it might (ha!) generate a social change where folks would prefer to keep their oldies at home. You can't accurately predict which, and neither can the owners. You have, being hugely selfish, an opportunity to acquire the business at a much lower price, based on real world profitability and sectoral uncertainty. The current owners might choose to reject your lower offer, but c'est la vie.
Could you convert it i to specialised supported housing? Effectively providing accommodation to people who require minimal or few hours on-going support but living semi-independantly.
You could lease it on a long FRI lease to a care provider who typically pay £185p/w for. 1-bed flat. Or you could
Also provide the care and support but will need to be a registered provider. This type of accommodation is exempt from benefits cap and income effectively underwritten by Gov.
Edit to add, i don’t know the site or the deal, but consider the alternative use value, as this could be higher and still be profitable.
You could lease it on a long FRI lease to a care provider who typically pay £185p/w for. 1-bed flat. Or you could
Also provide the care and support but will need to be a registered provider. This type of accommodation is exempt from benefits cap and income effectively underwritten by Gov.
Edit to add, i don’t know the site or the deal, but consider the alternative use value, as this could be higher and still be profitable.
Edited by Freshprince on Wednesday 25th November 13:46
Freshprince said:
Could you convert it i to specialised supported housing? Effectively providing accommodation to people who require minimal or few hours on-going support but living semi-independantly.
You could lease it on a long FRI lease to a care provider who typically pay £185p/w for. 1-bed flat. Or you could
Also provide the care and support but will need to be a registered provider. This type of accommodation is exempt from benefits cap and income effectively underwritten by Gov.
It's about the only area of care which remains profitable. The problem is converting existing properties ranges from impossible to very very expensive. It's often better to just build a purpose built unit as you can future proof against likely regulatory changes. You could lease it on a long FRI lease to a care provider who typically pay £185p/w for. 1-bed flat. Or you could
Also provide the care and support but will need to be a registered provider. This type of accommodation is exempt from benefits cap and income effectively underwritten by Gov.
take-good-care-of-the-forest-dewey said:
As a business proposition it's one driven by morals not profit that's for sure... It's impossible to walk away on Friday evening and have a relaxing weekend.
I'm struggling to think of a business where that isn't the case! (I do know what you mean, though).iphonedyou said:
I'm struggling to think of a business where that isn't the case! (I do know what you mean, though).
I've come across many many to be fair - profit vs safety totally out of balance. The tension between care and profitability is not always managed very well. CQC flag many many substandard care homes per year where the owner's level of accepability may not align with that of a relative or the general population.
ETA... https://www.google.com/amp/s/www.bbc.co.uk/news/am...
Edited by take-good-care-of-the-forest-dewey on Wednesday 25th November 14:44
Codswallop said:
Hello PHers,
I'm currently in the final stages of acquiring a small care home (22 residents), and am canvassing opinions on future viability.
I started this acquisition just over a year ago pre-covid, and am due to complete soon. However, Covid has steadily eroded profitability, to the point where now there are barely enough residents to break even. I'm wondering whether to pull out, or stick it out in the hope that Covid will stop scaring people away from care homes in the next 6 months and we can return to profitability.
Some other care home providers I've spoken with have found Covid has had negligible impact on their occupancy rates, where as others have had larger decreases. I'm personally hoping that within the next 6 months, the worst of Covid will be behind us.
I know PH has a wide variety of people on here, so if anyone has experience of the sector and can share their experiences, I'd love to hear them.
Are the residents privately funded, local authority or a mixture? Personally I wouldnt want to be owning a heavily LA funded home nowadays (covid or not), with the funding budget cuts that are inevitable, and pressure on min and living wage for staff etc.I'm currently in the final stages of acquiring a small care home (22 residents), and am canvassing opinions on future viability.
I started this acquisition just over a year ago pre-covid, and am due to complete soon. However, Covid has steadily eroded profitability, to the point where now there are barely enough residents to break even. I'm wondering whether to pull out, or stick it out in the hope that Covid will stop scaring people away from care homes in the next 6 months and we can return to profitability.
Some other care home providers I've spoken with have found Covid has had negligible impact on their occupancy rates, where as others have had larger decreases. I'm personally hoping that within the next 6 months, the worst of Covid will be behind us.
I know PH has a wide variety of people on here, so if anyone has experience of the sector and can share their experiences, I'd love to hear them.
A medium size group (60 Homes) I sometimes work with (in finance) have seen occupancy drop by up to 7% during Covid. They are mainly privately funded and believe that it will return to pre Covid levels quickly enough.
Wealthy privately funded residents - go for it.
LA funded - I wouldnt.
Thanks for the feedback everyone. A mixed bag of responses! Pretty much sums up my thinking process right now.
In response to take-good-care-of-the-forest-dewey, funding in my area has increased a little in the past 2 years to cover some of the increased costs. Perhaps there are regional differences, but profitability was still good pre-covid ( and actually increased a little in the past 2 years). I'd like to think the residents are well looked after, and CQC reports are good at present.
I'm from an NHS background, as are my family, so we will definitely focus on care over outright profit.
To answer a few questions;
1) I have already re-negotiated the business price substantially to reflect the more uncertain outlook and lower profits
2) as mentioned, most businesses with numerous staff will mean work follows you home for the weekend. I prepared to work hard for this.
3) the residents are roughly an equal mix of private and LA, though both pay a similar rate.
4) I have read that smaller homes are closing in favour of larger, purpose built care homes. What I don't fully understand is why, given the previously good profits.
Overall, I'm leaning towards giving it a go. If the care home returns to pre-covid profitability, the business should pay back my investment within 7-10 years.
The worry is the short term, as at present it's breaking even. Bit of a gamble going into it now, hoping for profitability to return in 2021.
In response to take-good-care-of-the-forest-dewey, funding in my area has increased a little in the past 2 years to cover some of the increased costs. Perhaps there are regional differences, but profitability was still good pre-covid ( and actually increased a little in the past 2 years). I'd like to think the residents are well looked after, and CQC reports are good at present.
I'm from an NHS background, as are my family, so we will definitely focus on care over outright profit.
To answer a few questions;
1) I have already re-negotiated the business price substantially to reflect the more uncertain outlook and lower profits
2) as mentioned, most businesses with numerous staff will mean work follows you home for the weekend. I prepared to work hard for this.
3) the residents are roughly an equal mix of private and LA, though both pay a similar rate.
4) I have read that smaller homes are closing in favour of larger, purpose built care homes. What I don't fully understand is why, given the previously good profits.
Overall, I'm leaning towards giving it a go. If the care home returns to pre-covid profitability, the business should pay back my investment within 7-10 years.
The worry is the short term, as at present it's breaking even. Bit of a gamble going into it now, hoping for profitability to return in 2021.
Have done a big bit of work on this but looking at the big listed care home landlords.
Your right, preference is for bigger homes is purely down to economies of scale and efficiencies. Likewise things like en-suite bedrooms - higher spec = higher rates = higher profits, compounded by scale.
Your right, preference is for bigger homes is purely down to economies of scale and efficiencies. Likewise things like en-suite bedrooms - higher spec = higher rates = higher profits, compounded by scale.
Recently done some analysis for a client.
As recently said, the move towards larger, purpose-built facilities is to do with economies of scale in both capital and operational expenditure. There has also been a trend towards disintegration where operators lease facilities from specialist landlords/REITs rather than own their own property. And finally, multi-facility chains have arisen due to the lower costs of compliance.
Ultimately, whilst the hassle and therefore cost of compliance with regulatory standards are often cited as the main problem for care home operators (the dreaded "red tape"), it looks as though the Baumol cost-disease problem is the major problem with the sector.
You cannot increase the productivity of care homes over time, but wage costs are rising. On the other end, the rates paid for care are static or falling. Until we fix the funding of care (e.g. through an insurance-based system) I wouldn't want to be in the market.
On a purely investment basis, there are better ways (i.e. with higher ROI) to make money. Even as an owner-operator rather than a straight investor, there are more profitable sectors.
Before you pull out - does the property have any land around it that might be suitable for other planning uses? Maybe sell some of that (or the whole lot once you've flattened the care home) and put resi on there?
Or better yet - a unit suitable for a sunday-trading compliant sized Co Op or something?
Just a thought.....
Or better yet - a unit suitable for a sunday-trading compliant sized Co Op or something?
Just a thought.....
The main post here is the one from take-good-care-of-the-forest-dewey. He has family with real life exposure to the other side of the table. As do I…
My sister had the standard issue old folks home, started in 1988, for 5 years then sold it, just in time. Then she started another similar- I can’t tell you exactly – as it was rather niche and you could narrow it down very quickly - and ran it for 25 years, and sold it 3 years ago.
I cannot even begin to tell you how many times she was on the phone (sometimes in tears) asking for advice/sympathy on how to deal with the latest crisis. I’m a mechanical engineer, how am I supposed to know? - But I tried my best.
The standard issue business model of one home, say 15-30 beds owned by one person/family has been going in the bin for some time now and as alluded to above, purpose built facilities are now standard. The older places are being bought up by the much larger private healthcare lot that seem to want to run them run as a glorified property management business. This just isn’t possible in my opinion. The much larger business that bought my sister’s home/business hadn’t got a single medical person on the enormous board of directors they had, nor in the next layer of management below. They did have a website developer, so that's OK.
The private owner says to the council “please pay my fees of £750/week” for example. The council will eventually pay the fees, but only when your cash flow is being hammered to death, and you are at serious risk of going under. This may happen every 18 months or so, just to keep you chipper and on your toes....
The sole private owner can’t tell the council to get stuffed and take their residents back as they have no “clout” to do so. The business that owns 15 homes locally with 400 residents has serious clout if they decide to play hard ball with the council.
Everyone sees the £750/week or whatever, and thinks “£750/week? It doesn’t cost that to feed an old biddy” no it doesn’t, but 24/7 health care does. My sister’s business wasn’t quite the “old dear” market, they were younger than that, but she was still spending £50k a year on wear and tear on a 20 bed property. That’s right - fifty grand a year! £15k a year on carpets alone...
It is a very strange market, and is going through a real change COVID and non-COVID related.
“I'm from an NHS background, as are my family, so we will definitely focus on care over outright profit.”
So was my sister, she never had any CQC problems, only real pedant stuff – one inspector would say its fine, the next one wouldn’t, and vice versa, literally for 2 decades…she didn't have a high opinion of them - one of the best homes in the North West.
You are not dealing solely with the NHS, the funds probably come from a different budget, and you are dealing with the social workers, councils and the NHS. One can only imagine how often responsibility gets passed around that lot.
Then you may spend nearly a grand on people’s rates and expenses getting your accountant, your legal representation, the resident’s legal representation (which she had to pay for) and contract staff back up for the nursing staff that the council have DEMANDED is at a particular meeting.
You sit there for over an hour with your team costing you £500/hr. (no joke - 2 solicitors remember) waiting for the meeting to start, drinking your own coffee as there are no facilities given to visitors like YOU. Sit down at the huge conference table for another 30 minutes with nothing going on, and then some minion appears out of nowhere and says “Ms X can’t make the meeting now, so we’ve rescheduled it for next week- Sorry - Bye”. Goodbye another grand… this was not an isolated incident.
So after a full year of 70+ hour weeks - there may well not be any profit to have…
I wouldn’t go anywhere near it myself.
My sister had the standard issue old folks home, started in 1988, for 5 years then sold it, just in time. Then she started another similar- I can’t tell you exactly – as it was rather niche and you could narrow it down very quickly - and ran it for 25 years, and sold it 3 years ago.
I cannot even begin to tell you how many times she was on the phone (sometimes in tears) asking for advice/sympathy on how to deal with the latest crisis. I’m a mechanical engineer, how am I supposed to know? - But I tried my best.
The standard issue business model of one home, say 15-30 beds owned by one person/family has been going in the bin for some time now and as alluded to above, purpose built facilities are now standard. The older places are being bought up by the much larger private healthcare lot that seem to want to run them run as a glorified property management business. This just isn’t possible in my opinion. The much larger business that bought my sister’s home/business hadn’t got a single medical person on the enormous board of directors they had, nor in the next layer of management below. They did have a website developer, so that's OK.
The private owner says to the council “please pay my fees of £750/week” for example. The council will eventually pay the fees, but only when your cash flow is being hammered to death, and you are at serious risk of going under. This may happen every 18 months or so, just to keep you chipper and on your toes....
The sole private owner can’t tell the council to get stuffed and take their residents back as they have no “clout” to do so. The business that owns 15 homes locally with 400 residents has serious clout if they decide to play hard ball with the council.
Everyone sees the £750/week or whatever, and thinks “£750/week? It doesn’t cost that to feed an old biddy” no it doesn’t, but 24/7 health care does. My sister’s business wasn’t quite the “old dear” market, they were younger than that, but she was still spending £50k a year on wear and tear on a 20 bed property. That’s right - fifty grand a year! £15k a year on carpets alone...
It is a very strange market, and is going through a real change COVID and non-COVID related.
“I'm from an NHS background, as are my family, so we will definitely focus on care over outright profit.”
So was my sister, she never had any CQC problems, only real pedant stuff – one inspector would say its fine, the next one wouldn’t, and vice versa, literally for 2 decades…she didn't have a high opinion of them - one of the best homes in the North West.
You are not dealing solely with the NHS, the funds probably come from a different budget, and you are dealing with the social workers, councils and the NHS. One can only imagine how often responsibility gets passed around that lot.
Then you may spend nearly a grand on people’s rates and expenses getting your accountant, your legal representation, the resident’s legal representation (which she had to pay for) and contract staff back up for the nursing staff that the council have DEMANDED is at a particular meeting.
You sit there for over an hour with your team costing you £500/hr. (no joke - 2 solicitors remember) waiting for the meeting to start, drinking your own coffee as there are no facilities given to visitors like YOU. Sit down at the huge conference table for another 30 minutes with nothing going on, and then some minion appears out of nowhere and says “Ms X can’t make the meeting now, so we’ve rescheduled it for next week- Sorry - Bye”. Goodbye another grand… this was not an isolated incident.
So after a full year of 70+ hour weeks - there may well not be any profit to have…
I wouldn’t go anywhere near it myself.
Oi_Oi_Savaloy said:
Before you pull out - does the property have any land around it that might be suitable for other planning uses? Maybe sell some of that (or the whole lot once you've flattened the care home) and put resi on there?
Or better yet - a unit suitable for a sunday-trading compliant sized Co Op or something?
Just a thought.....
Unfortunately no spare land. Most of it is occupied by the grade 2 listed building itself. I know the listed status doesn't help matters either...Or better yet - a unit suitable for a sunday-trading compliant sized Co Op or something?
Just a thought.....
Thanks bucksmanuk for your comprehensive post.
I'm conflicted on this as several people have mentioned the lack of funds. Having seen the last six years of accounts, I have seen the business has had a fairly consistent upward trajectory in net profit, even allowing for wear and tear, updates etc.
Trouble is, I have no idea what else I could invest in. I have accumulated a fair amount to invest. ISAs are done, I have some shares but not keen on putting everything in that one basket.
I haven't got any knowledge of other industries and wouldn't feel confident investing large amounts in other areas
I'm conflicted on this as several people have mentioned the lack of funds. Having seen the last six years of accounts, I have seen the business has had a fairly consistent upward trajectory in net profit, even allowing for wear and tear, updates etc.
Trouble is, I have no idea what else I could invest in. I have accumulated a fair amount to invest. ISAs are done, I have some shares but not keen on putting everything in that one basket.
I haven't got any knowledge of other industries and wouldn't feel confident investing large amounts in other areas
zedstar said:
Our family were partners in 2 homes.
Both closed now as the LA funding in our area is terrible and impossible to provide a decent service for it, plus we had other issues so we called time.
I guess LA funding is the key issue, and probably completely impossible to predict.Both closed now as the LA funding in our area is terrible and impossible to provide a decent service for it, plus we had other issues so we called time.
The care home I'm looking at isn't charging at the max level the LA has set, so there is a little leeway there. Hopefully the fallout from Covid won't reduce funding, but impossible to predict.
Feels like the general consensus is to not bother though.
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