Smart ways to approach aged care facility purchase

Purchasing an aged care facility requires a different financing approach than buying residential property or standard commercial real estate.

The asset class combines property investment with business operations, which means lenders assess both the underlying land and buildings and the ongoing care service revenue. Most lenders offering commercial property finance for aged care facilities will require a detailed business case that demonstrates occupancy rates, staff-to-resident ratios, and revenue history alongside the standard property valuation. Loan structures typically range from 60% to 70% commercial LVR, with repayment terms extending up to 25 years depending on the borrower's experience in the sector and the facility's operational performance.

Why aged care facilities are assessed differently to other commercial property

Lenders treat aged care facilities as specialised assets because the property value is tied directly to the business licence and ongoing operations. A vacant aged care building without an operating licence holds significantly less value than one with stable occupancy and a clean regulatory record. This means the commercial property valuation will consider not just comparable sales but also the facility's bed licence, accreditation status, and historical occupancy levels. If you're looking at a facility in Malvern or nearby suburbs like Armadale or Toorak, the valuer will also factor in local demographics, including the proportion of residents aged over 75 and median household income in the catchment area.

Consider a buyer looking at a 60-bed facility operating at 85% occupancy with a mix of low-care and high-care residents. The lender will want to see at least 12 months of audited financials, evidence of government funding agreements, and confirmation that the facility meets current building and care standards. The loan structure might include a base facility of 65% LVR with additional funds released progressively if the buyer plans to refurbish or add beds. The interest rate on a secured commercial loan for this type of asset typically sits above standard office or retail property rates because of the operational risk, but borrowers with aged care management experience or partnering with an experienced operator can negotiate more competitive terms.

How loan structure affects your purchase capacity

The way your commercial loans are structured will determine how much you can borrow and how the repayments fit with the facility's cash flow. Most lenders offer principal and interest repayments over 15 to 25 years, with the option to fix a portion of the interest rate for up to five years. Some lenders will also offer interest-only periods of up to three years, which can help manage cash flow if you're planning capital works or building occupancy after purchase. Variable interest rate options provide flexibility if you plan to refinance or sell within a few years, while fixed terms offer certainty during the establishment phase.

Loan amount calculations are based on the facility's net operating income after deducting staff costs, utilities, maintenance, and a management fee. Lenders typically apply a debt service coverage ratio of at least 1.25, meaning the facility's income must exceed debt repayments by 25% or more. If the facility generates annual net income of $800,000, the maximum annual debt service would be around $640,000, which translates to a loan amount depending on the interest rate and term. Buyers often structure funding as a combination of a primary commercial property loan and a separate working capital facility to cover settlement costs, initial refurbishments, or bridging any occupancy gaps during transition.

What lenders look for in aged care facility applications

Lenders assess aged care acquisitions through both a property and a business lens. On the property side, they'll require a registered valuer with aged care experience to complete the commercial property valuation, which includes an assessment of the buildings, land title (whether freehold or long-term leasehold), and any encumbrances or planning overlays. On the business side, they'll review occupancy trends, care mix, staff turnover, incident reports, and compliance history with the Aged Care Quality and Safety Commission. Facilities with a history of serious non-compliance or financial penalties will face higher interest rates or be declined altogether.

Buyers entering the sector for the first time are generally required to demonstrate relevant qualifications in health or business management, or to partner with an experienced operator who will manage day-to-day care delivery. If you're buying an existing facility as a going concern, the lender will want to see a transition plan that addresses staff retention, resident communication, and continuity of care agreements. For facilities located in areas like Malvern, where the local population skews older and affluent, lenders may view the asset more favourably due to strong demand for premium care services and proximity to medical precincts such as those near Cabrini Hospital.

Structuring finance for refurbishment or expansion

Many aged care facilities require capital investment shortly after purchase to meet updated building standards or to increase bed numbers. If this applies to your purchase, you can structure the finance to include a construction loans component or a progressive drawdown facility. This allows you to draw down funds in stages as refurbishment work is completed, reducing interest costs and aligning loan drawdowns with actual expenditure. Lenders will require a quantity surveyor's report, builder contracts, and evidence of council approvals before releasing funds progressively.

In a scenario where a buyer acquires a 50-bed facility with plans to add a 20-bed dementia wing, the lender might approve a base loan for the purchase and a separate development finance line for the construction. The base loan would settle at purchase, while the construction component would be drawn as the builder meets milestones such as slab completion, frame and roof, lock-up, and practical completion. Once the new wing is operational and generating revenue, the buyer can refinance both facilities into a single commercial property loan with improved terms based on the increased income.

How collateral and personal guarantees apply

Most lenders require the aged care facility itself to serve as collateral for the loan, along with a registered first mortgage over the property title. If the loan amount exceeds 65% LVR or if the buyer has limited experience in the sector, lenders may also require additional security such as a second mortgage over other commercial or residential property, or a personal guarantee from the directors or shareholders. This means if the facility fails to generate sufficient income to service the debt, the lender can recover the shortfall from the guarantor's other assets.

For buyers using a corporate structure or purchasing through a self-managed super fund, lenders will assess the structure's suitability for aged care operations and may impose different lending criteria. SMSF purchases of aged care facilities are possible but require careful structuring to meet superannuation law, particularly around related-party leasing and arm's-length income rules. If you're considering an SMSF purchase, you'll need specialist advice on both the SMSF loans structure and the operational arrangements to avoid breaching super regulations.

When to consider refinancing an aged care facility

Refinancing an aged care facility makes sense when interest rates have declined, when the facility's performance has improved enough to support a lower rate, or when the existing loan structure no longer suits your operating model. If you've held the facility for three years, increased occupancy from 75% to 90%, and completed capital works that improve the building's compliance and appeal, you're in a position to negotiate better commercial interest rates and potentially access additional funds for further expansion.

Refinancing can also be used to consolidate multiple loans or to shift from a construction or bridging facility into a long-term commercial property loan with more suitable repayment terms. Lenders will reassess the facility based on current performance, updated valuation, and your track record as an operator. If you've successfully managed the facility through a transition period and demonstrated stable income and compliance, you'll have access to a wider range of lenders and more competitive loan terms than you did at the initial purchase.

Call one of our team or book an appointment at a time that works for you. We'll help you structure the right commercial finance solution for your aged care facility purchase, whether you're entering the sector for the first time or expanding an existing portfolio.

Frequently Asked Questions