Are care homes a good investment for your pension?
The social and economic implications of the UK’s ageing population are many and complex. When looked at dispassionately and purely through an investor’s eyes, however, it is a situation that is doing much to create opportunities, write Hopwood House.
With more and more people choosing to put some of their pension pot into an income-generating property, care homes could be the perfect home for your retirement fund.
It has now been roughly two years since new freedoms gave retirees more choice than ever before in how they invest their pension savings. Ever since those freedoms came into effect, investment properties have been one of the most popular alternatives to buying an annuity. These retirement landlords see a number of advantages in property over more traditional pension routes. Many review their options and come to the conclusion that they can get a similar or better income from a buy-to-let investment than an annuity. On top of this, money invested into a property will, in a sense, remain in their possession, albeit tied up in that property. This gives greater flexibility, with the option to sell the property and re-evaluate the situation at a future point, and if this happens then many hope their money will actually have continued to grow thanks to the UK’s rising house prices.
Care homes are suited to this kind of investor in several ways, making them an excellent prospect for retirement income. With a larger percentage of the UK’s population fitting into older age brackets than ever before, there are more people needing specialist care and supported living than ever before.
While care home construction can seem like a booming industry, that boom is not enough to seriously dampen the high levels of demand that this creates. The result is a class of properties that carries strong yields – stronger, on average, than most other property classes – and tends to be easily filled, in an industry where property investments also tend to come fully-managed with little need for investor input after purchase. This aligns very closely with the kind of thing that most retirees are looking for when they become landlords – a good return on investment, and a relatively stable income stream that will not stop them taking the time to enjoy their retirement.
Of course, any investment carries a level of risk, and generally the greater the reward the greater that risk level. Most alternative uses of pension funds carry a greater risk than an annuity, and this does include care homes. They do have a lower risk profile on average than most other assets, thanks to growing demand and a reliance on factors that are relatively independent of those which underpin most property markets, but there is no such thing as a zero-risk investment.
Mitigating this risk is partly a matter of choosing the right investment. Even with a shortage of units, nobody wants to put their beloved relatives into a sub-standard care home so picking a good-quality, well-located development is key to ensuring your investment gets a share of the demand. This is also where another of the attractions of care home investment comes into its own – relatively low unit prices. This makes it a good choice for retirees who want to have funds left over for a diverse portfolio of investments, or to have a property alongside an annuity for added security
Source: whatinvestment.co.uk | Originally published on: 12/04/2017 | See the original post on whatinvestment.co.uk