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Retirement homes make good investments

By
Real Estate Broker/Owner with Tranio

New research by Tranio shows that retirement homes in Europe and the US are profitable investments. This report explores the real figures behind profit forecasts and advantages like demand growth, revenue guarantees, yields and financial incentives. This market, however, is not for every investor as it has a higher market entry threshold and can be strictly regulated by national legislation.

Benefits

Specific aspects of this market make it a lucrative investment vehicle:

  • steady demand and growth due to ageing nations
  • high occupancy rates at about 90%
  • 5-year-plus contracts with guaranteed revenue
  • high yields of 7% and over

Above average yields

Retirement home yields are approximately 7%, reaching 15–20% in certain countries depending on concessions, subsidies and grants. The latter is dependent on the duration of proprietorship and ownership of the management services.

With gross profit margins at about 30% of the total income, a retirement home with 60–80 beds in the UK generates an average annual profit of £650,000, or about £9,000 per bed.

Financial incentives

Some countries offer incentives to retirement home investors. These include simplified procedures of obtaining a residence permit, tax exemptions, special mortgage terms and state protection from the tenants’ inability to pay.

What to keep in mind

There are higher construction and maintenance costs. Building a retirement home is 50% more expensive than a “regular” building and takes up about half of the total investment budget. Remaining funds go into planning, land acquisition as well as additional and unforeseen expenditures. Maintenance (utilities, taxes and minor repairs) claims 5–6% of the income. A considerable fraction of the revenue is spent on the staff wages. Laws governing the running of retirement homes vary from country to country, making it more or less difficult to enter the market. Financial incentives are also often dependent on the length of ownership.


 

Get the full report here. It’s free to use and republish with a reference to Tranio.

Show All Comments Sort:
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

interesting investment strategy. What countries do you see as the most profitable.

Sep 02, 2015 07:50 PM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Colorado Broker / Referral Services

No doubt, that retirement communities and assisted living communities are great investments!  We have seen many of the assisted living types have popped up in the Colorado area of the last 20 yrs.

Sep 03, 2015 12:52 AM
Marina Filichkina
Tranio - San Diego, CA
Head of Sales at Tranio.com

Dear Lise, before advising any country for such investment we usually prefer to discuss an investor's aims and expectations from this investment. Only having these details we may offer the best solution. 

Thank you for your feedback!

 

 

Sep 03, 2015 02:45 AM