Smart ways to approach aged care facility purchases

Aged care facilities sit in a distinct category within commercial property finance.

Lenders treat these assets differently from standard office buildings or retail spaces because the business operating within the property is inseparable from the property's value. The bricks and mortar matter, but what happens inside those walls matters more. A commercial property loan for an aged care facility needs to account for occupancy rates, accreditation status, staffing models, and whether the operation holds the licences required to generate income. Without a viable aged care business attached, the property itself has limited use.

Why aged care facilities require specialised commercial finance

Most lenders require evidence that the aged care operation is both compliant and financially sustainable. The facility must hold current accreditation from the Aged Care Quality and Safety Commission, maintain a stable occupancy rate, and demonstrate that revenue from government subsidies and resident contributions can service the loan. A lender will want to see at least 12 months of audited financials for the existing operation, along with projections that account for staffing costs, maintenance obligations, and regulatory compliance.

Consider a buyer looking at a 60-bed facility in Templestowe. The property is valued at the higher end of the local commercial market, but the lender's primary concern is whether the business generates sufficient cash flow to cover loan repayments. If occupancy sits at 85% and the operator has a clean compliance record, the lending structure becomes more straightforward. If occupancy has dropped below 70% or there are unresolved accreditation issues, the lender may decline or require a larger deposit to offset the risk.

How lenders assess loan applications for aged care properties

A lender starts by evaluating the property and the business as a single entity. The commercial property valuation will consider the replacement cost of the building, the condition of infrastructure such as hoists and accessibility features, and the zoning status. But the valuation alone does not determine the loan amount. Cash flow from the business operation determines serviceability, and that requires a detailed review of how the facility earns revenue.

Government subsidies make up the majority of income for most aged care operators, and these are tied to the number of residents and their care classification. A facility with a high proportion of residents requiring clinical care may generate more revenue per bed than one focused on lower-dependency residents. Lenders also want to see diversified income streams, such as respite care or day programs, that reduce reliance on a single funding model.

In a scenario where a buyer is acquiring a facility in Bulleen with an established operator staying on under a lease arrangement, the lending structure shifts. The buyer becomes a commercial landlord rather than an aged care operator, and the lender assesses the lease terms, the operator's financial strength, and whether the lease income covers the debt. This structure can simplify the application process because the buyer does not need to demonstrate operational expertise in aged care, but it also limits the buyer's control over how the facility is managed.

Structuring the loan and understanding flexible repayment options

Aged care facility loans typically require a deposit of at least 30% to 40% of the purchase price, though this varies depending on the lender and the strength of the business operation. Some lenders offer interest-only periods during the first few years to improve cash flow while the buyer stabilises or transitions the operation. Variable interest rates are more common in this sector because fixed terms limit flexibility, and aged care operators often need the option to make additional repayments as cash flow improves.

Loan terms generally range from five to 15 years, with the option to refinance once the business has demonstrated consistent performance under the new ownership. Lenders may also require personal guarantees from the buyer, particularly if the facility is part of a broader business structure involving multiple entities. Collateral beyond the facility itself can strengthen the application, especially if the buyer has equity in other commercial or residential property.

Regulatory and compliance considerations that affect lending

The Aged Care Act governs how facilities operate, and lenders need assurance that the facility meets all requirements under this legislation. Any unresolved compliance issues, such as failures identified during audits or complaints lodged with the Quality and Safety Commission, can delay or derail a loan application. Buyers should request a full compliance history before making an offer, including records of accreditation reviews and any improvement notices issued in the past three years.

Zoning is another factor. Not all commercial properties can be converted to aged care use, and some existing facilities operate under grandfathered planning permits that may not transfer to a new owner. A buyer in Doncaster looking at a facility near the CBD might find that the current use is permitted, but expansion or significant renovation would trigger a new planning assessment. Lenders need confirmation that the property can continue operating as an aged care facility under current ownership before they commit to financing the purchase.

What happens during the settlement period

Settlement for an aged care facility purchase involves more than transferring title. The buyer must ensure that all licences, accreditations, and contracts with residents are properly assigned or renewed. Some lenders offer pre-settlement finance to bridge the gap if there is a delay in finalising regulatory approvals, but this adds cost and complexity. The buyer should work with both legal advisors familiar with aged care transactions and a commercial finance broker who understands the timing and documentation required by lenders in this sector.

If the facility includes staff employment contracts or supplier agreements, these need to be reviewed and factored into the purchase agreement. Lenders want to see that key staff, particularly registered nurses and care coordinators, are staying on after settlement. High staff turnover immediately after a sale raises concerns about operational stability and can affect the lender's willingness to proceed.

Making a decision that accounts for both property and business risk

Buying an aged care facility is not a passive property investment. The business operating inside the building determines whether the loan can be serviced and whether the asset appreciates or declines in value. Buyers need to understand occupancy trends in the local area, the competitive landscape, and whether the facility's physical layout meets current standards for accessibility and care delivery. Facilities built more than 20 years ago may require upgrades to shared spaces, ensuites, or clinical areas to remain competitive, and these costs should be factored into the purchase decision and the loan structure.

If you are considering an aged care facility purchase and need to understand how lenders assess these applications, call one of our team or book an appointment at a time that works for you.

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