How to Finance an Aged Care Facility Purchase

Aged care facilities sit at the intersection of commercial property finance and health sector investment, which means they attract more scrutiny than standard retail or office property acquisitions.

Lenders assess these properties differently because the revenue model relies heavily on government regulation, occupancy rates, accreditation status, and operational complexity. A traditional commercial property loan structure may not suit an aged care facility purchase, particularly when the property includes both real estate and an ongoing business operation. Whether you're acquiring a freehold going concern or a leased facility with redevelopment potential, the loan structure needs to reflect both the property value and the business income supporting it.

Why Aged Care Facilities Require Specialist Commercial Finance

Aged care properties combine real estate security with operational risk, and lenders treat them as such. The property itself may have strong underlying value, but the income depends on resident numbers, government funding arrangements, and compliance with aged care standards. In Carnegie and surrounding areas, where residential property values are well established, aged care facilities may occupy large parcels with redevelopment potential, which adds another layer to the valuation and financing discussion.

Consider a buyer looking to acquire a 60-bed facility in the Bayside region. The property is valued on both its existing use as an aged care facility and its potential for conversion or redevelopment if the buyer chooses to exit the aged care sector. A lender will assess the current income from aged care operations, the likelihood of maintaining occupancy, and the residual value of the land if the facility ceases operation. The loan structure might include a commercial property loan for the real estate component and an assessment of business cashflow to determine serviceability.

How Lenders Assess Aged Care Facility Purchases

Lenders begin with the property valuation, which is typically conducted by a valuer with experience in aged care or health sector properties. The valuation considers the facility's current use, its condition, the local demand for aged care places, and any restrictions on the title or planning overlay that affect future use. If the facility is part of a strata title commercial arrangement, the lender will also review the body corporate structure and shared facility agreements.

Serviceability is assessed based on the income generated by the facility, not the buyer's other business activities. Lenders will request detailed financial statements, occupancy data, resident fee structures, and information about government subsidies. If the facility has vacancies or is underperforming, the lender may apply a discount to the income or require a larger deposit to offset the risk. The loan amount is influenced by the commercial LVR, which for aged care facilities typically sits between 60% and 70%, depending on the lender's appetite for health sector property.

Structuring Commercial Finance for a Going Concern

When the purchase includes both the property and the business, the finance structure must account for both elements. A secured commercial loan may cover the real estate, while additional funding for working capital, equipment upgrades, or settlement costs might be structured as business property finance or a revolving line of credit. Some buyers prefer to separate the property acquisition from the business purchase to maintain flexibility, particularly if they plan to lease the property to an operator rather than run the facility themselves.

In a scenario where a buyer is purchasing a facility with an existing operator in place, the loan might be structured around the rental income from the lease rather than the aged care income itself. This shifts the risk profile and may open up additional lending options. The buyer's experience in property investment or health sector operations will also influence how lenders view the application. A buyer with no background in aged care but a strong commercial property portfolio may be assessed differently than a buyer who operates other facilities.

Interest Rates and Loan Terms for Aged Care Property Finance

Commercial interest rates for aged care facilities depend on the perceived risk, the LVR, and the buyer's financial position. Variable interest rate options offer flexibility for buyers who expect to refinance or sell within a few years, while fixed interest rate options provide certainty for those planning to hold the property long term. Some lenders offer flexible loan terms that allow for interest-only periods during the initial years, which can assist with cashflow while the buyer stabilises occupancy or completes refurbishments.

Redraw facilities and flexible repayment options are less common in commercial property finance than in residential lending, but some lenders will include them if the loan structure supports it. Pre-settlement finance may also be relevant if the buyer needs to act quickly on an off-market opportunity or requires bridging finance while selling another asset.

Deposit Requirements and Collateral Considerations

The deposit required for an aged care facility purchase typically ranges from 30% to 40% of the purchase price, depending on the lender's assessment of the property and the buyer's financials. If the buyer is providing additional collateral, such as other commercial or residential property, the LVR may be adjusted accordingly. Cross-collateralisation can reduce the upfront cash requirement but increases the risk if the aged care facility underperforms.

Some buyers in the Carnegie area who already own investment properties or commercial assets choose to use equity in those properties to fund the deposit rather than liquidating other investments. This approach requires a lender who can assess multiple securities and structure the loan across different assets, which is where access to commercial loan options from banks and lenders across Australia becomes important. Not all lenders will accept aged care facilities as security, and those that do may have specific criteria around location, bed numbers, and accreditation status.

Refinancing and Exit Strategy Planning

Aged care facility owners often refinance after the first few years to access equity for expansion, consolidate debt, or move to a lender with better terms. Commercial refinance options depend on the facility's performance since acquisition, any improvements made to the property, and changes in the broader lending market. If occupancy has increased or the facility has undergone refurbishment, the revaluation may support a larger loan or lower interest rate.

Buyers should also consider their exit strategy before finalising the loan structure. If the plan is to sell the facility within five to seven years, a loan with minimal break costs or prepayment penalties makes sense. If the intention is to hold the property long term and eventually transition it to another use, the loan should allow for variations or top-ups to fund future development.

Aged care facility purchases in areas like Carnegie benefit from proximity to hospitals, medical precincts, and established residential communities, all of which support demand for aged care places. The Nepean Highway corridor and surrounding suburbs have a high proportion of older residents, and local planning policies have historically supported aged care and retirement living developments. These factors can work in favour of buyers when presenting the investment case to lenders, particularly if the facility serves a specific demographic or offers specialised care services.

Call one of our team or book an appointment at a time that works for you. We'll review your aged care facility purchase, discuss commercial loan structures, and connect you with lenders who understand health sector property finance.

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