Approximately 17% of the UK’s population are over 65. It will rise even more in the years to come. This means that there is a great demand for care homes in the UK. Since there is a great demand, many investors put their money in care homes without taking into consideration the hassles and pitfalls along the way. How can one avoid these care home investment pitfalls?
On a global scale, the median age of populations is rising thanks to a large number of baby boomers approaching retirement age. Economically, this presents a problem, particularly when the number of retirees exceeds that of the number of working people. Who will then generate the income tax needed to care for the elderly to think that only around 5% of retirees are financially independent? In the UK, about 14% of retirees live in poverty.
Some of the considerations when investing in a care home includes location, construction issues, purchase model available, healthcare services provided, levy costs, and developer’s reliability and credibility. Investors sometimes fail to see to it that all of these issues affect the investment as a whole, which is often detrimental.
Experienced investors, who want to secure their interests often put their money in companies that use Special Purpose Vehicles.
What is a Special Purpose Vehicle (SPV)?
A Special Purpose Vehicle is a separate legal entity created by a company for a specific lawful purpose. It acts as a bankruptcy tool for the parent company. Since the operations are limited to buying specific projects and assets an SPV is usable in case of a bankruptcy. Private companies often get quicker access to capital markets when they create SPVs.
Uses of SPVs
Mitigation of Risks
Companies, no matter what entity, always comes with a risk. With the help of SPVs, parent companies can isolate risks in operations and projects legally.
Securitisation of Loans
One of the main reasons why companies use SPVs is to securitise loans. By creating an SPV, investors can receive monetary benefits first before any stakeholders or debtors, particularly for mortgage-backed securities. Compared with the parent company’s corporate bonds, securitised loans have lower interest rates.
Transferability of Assets
Oftentimes, transferring company assets is difficult or impossible. SPVs helps companies transfer their assets without any issues. For instance, in UK care homes investments, the company can simply sell off their SPVs to interested parties as a package rather than splitting it.
Support Company Property
SPVs are as means to support company property. In instances when property sales are higher than the company’s capital gains, they would rather sell SPVs instead of the properties allowing them to pay the taxes through capital gains than from the sale proceeds.
Many investors would best put their money in a company with an established SPV. Since company assets are within an SPV, they can get assurance that their investment is safe and secure. This is even the company gets into any financial troubles. Investing in a UK care home through a company with SPVs would offer great financial success without having to deal with nuances. SPVs will help investors avoid care home investment pitfalls.