In preparing to buy skilled nursing facilities, assisted living facilities or other healthcare properties, there is great concern and thought invested in learning how to properly finance your purchase. Though many options are available, the most common and available method to successfully buy a skilled nursing, or assisted living facility comes in a two-part loan process.
If You Don’t Yet Have an Asset
First time buyers generally start off with a bridge loan or mezzanine loan, a method for acquisition financing. A bridge loan closes between 60-90 days and allows you to buy a skilled nursing facility and acquire debt. It is a short-term loan, between three to five years, that allows the initial purchase. Once that time is near expiration, many buyers then apply for a HUD loan, issued by the US Department of Housing and Urban Development.
Many buyers strategize to drive up the loan to value ratio during the bridge process. This raises the balance on the HUD loan when refinancing the bridge loan.
What is a HUD Loan?
The Department of Housing and Urban Development issues insurance to the loans in an effort to provide assurance to banks lending funds to those in the business of operating nursing homes and skilled nursing facilities.
Most buyers must go through a bridge loan before receiving a HUD loan because HUD loans take between 12 to 18 months to fund. HUD loans are also meant for those planning to hold their properties for a considerable amount of time, about five years or more and are available for holders who have already acquired one or more properties.
Because HUD loans come with long-term lock out periods, it is not encouraged for “Value Add” deals which are buyers looking to buy assisted living facilities, improve the financials, physical plant improvements and finally put those assisted living properties for sale.
What You Should Know About HUD Loans
- Extremely low interest rates – below 4 percent
- Come with 40 year amortization – keeps payments low
- Non-recourse consequences – if unable to pay loans, HUD keeps the property and does not hold you personally accountable for loss
- Does not actually provide loans – HUD acts as insurance for banks making the loans
- Those who have defaulted with HUD in the past will not be allowed second loan opportunities
- HUD loans come with hefty pre-payment penalties, between two years and up to 10
Make the Right Choices with The JCH Group
The JCH Group is a senior living brokerage committed to bringing the best buyers and sellers together to create excellent healthcare facilities. Our experience and research has created some of California’s most outstanding skilled nursing facilities, assisted living facilities, nursing homes and retirement homes to date.
If you are looking for a retirement facility for sale or searching for someone to buy healthcare properties belonging to you, our teams can orchestrate the perfect deal.
For more information on The JCH Group or for your complimentary assessment, contact one of our team members.