How to buy a care home: the process, due diligence and funding

Two homes with the same number of beds can be completely different businesses. Before looking at listings, be clear about:

• Residential or nursing. A nursing home needs registered nurses on every shift and a clinical lead, which raises costs and makes recruitment harder, but earns higher fees and NHS-funded nursing care contributions for eligible residents.
• Who pays the fees. Private self-funders generally pay more than local authority placements. A home reliant on one council's fee rates carries a different risk from one with a strong private mix, and lenders price that in.
• Specialism. Dementia, learning disability or mental health services need specific skills and are often commissioned differently; see specialist care finance.
• The building. Purpose-built homes with en-suite single rooms are easier to fill and fund than older converted houses with shared rooms, stairs and small bedrooms.

Most purchases combine several sources. A care home mortgage secured on the property provides the long-term senior debt, lent against the trading valuation. The buyer's equity makes up the balance, and lenders generally want a meaningful cash contribution, particularly from first-time owners. Other layers that sometimes appear:

• Deferred consideration from the seller, paid over time or linked to performance, which reduces the cash needed at completion. See vendor finance and deferred consideration.
• A secured loan on other property you own to fund part of the deposit.
• Working capital for the first months, when council payments can lag and new contracts need setting up in your name.
• Equipment finance for profiling beds, hoists, call systems and minibuses, which keeps them outside the property borrowing.

For how acquisition funding works more generally, including buyouts by existing managers, see our acquisition finance section.

Illustration, with hypothetical round figures and no rates: a registered manager with fifteen years in residential care agrees to buy a 30-bed residential home for £1.5 million as a going concern. The trading valuation supports the price. A lender offers senior debt for part of the price, conditional on a cash contribution and on the current deputy manager staying in post. The seller agrees to defer a slice of the price for two years, and the buyer funds the rest from savings and a secured loan against a small commercial unit she owns. Because it is an asset purchase, completion waits for her new company's CQC registration, so exclusivity in the heads of terms is set long enough to allow for it.

A care home carries fixed staffing costs and variable income, so a fall in occupancy after purchase hits profit hard and quickly. Lenders usually ask for personal guarantees from buyers, and borrowing secured on the home means the building is at risk if repayments fail. A poor inspection after completion can slow referrals. Buying a home that is too large for your first acquisition, or too dependent on one commissioner, magnifies each of these. Some buyers begin by managing or leasing a home, or buying a smaller one, before taking on a larger freehold purchase.