Investing in senior housing can be extremely profitable—but you need to know what you’re doing

Getting older is a fact of life, even for Keith Richards, although whether you’ll see the world-famous rock star or geriatric screen star in a residential assisted living (RAL) facility is a matter of course. One is skeptical, but for others they are the last stop before we take the elevator for the last time. That’s why senior housing communities are booming again after the pandemic pause.

“People have put off moving in for a long time during the pandemic,” said Lisa McCracken, research director at the National Investment Center for Seniors Housing and Care (NIC). wall street journal. “Now, because of this delay, those needs are amplified.”

High occupancy and rental rates

In addition to the fact that unlike regular apartment buildings, senior housing tenants often end their stays without warning, leasing business in this area has been strong. According to NIC, the average occupancy rate in the world’s 31 largest markets in the fourth quarter of 2023 was 85.1%. As of December, the average cost of first independent living was $4,126 per month, with intensive care unit costs as high as $6,422.

Baby boomer boom is coming

While technological advancements like telephysician visits and emergency call buttons allow adults ages 50 to 80 to stay in their homes longer and forego the added costs of senior living, changing demographics mean investors who own senior facilities can Looking forward to some financial golden years.

according to U.S. Census BureauStarting in 2030, when all baby boomers will be over 65, baby boomers will make up 21% of the population, up from 15% today

The Census predicts that by 2060, nearly a quarter of people will be over 65, while the number of people over 85 will triple, with 500,000 more centenarians across the country. The first thing these statistics consider is demographics—older people will outnumber children.

All of this means there will be a surge in demand for health care, home care and assisted living facilities/senior housing.

Investors make extra money from medical bills

Approximately 850,000 older Americans call assisted living facilities their home, and real estate investors of all stripes are trying to get a piece of the pie. These include regional companies and international trust companies.

Part of the appeal is the extra income they make from medical treatments such as blood pressure checks, injections, drug prescriptions, inhaler assistance, and more. New York Times Citing an industry survey, it is estimated that investors earn 20% of these fees, with rents far exceeding medical service fees.

With costs so high, it’s no wonder poorer populations are being left behind, and even those who can afford it worry about draining their life savings. However, not all senior housing is expensive and operated by for-profit companies. Most nursing homes differ from assisted living facilities because Medicaid, the federal-state program for the poor and disabled, typically pays for care. However, these facilities are significantly different from more upscale private facilities.

How to Invest in Senior Housing

There are many ways to get into the aged care industry. While some are hands-off, if you want to invest in real estate you need to roll up your sleeves and be prepared to understand the requirements.

Here are four strategies to consider.

Buying an Aged Care Home

First, you need to know which area of ​​aged care you will specialize in. Assisted living provides assistance to seniors activities of daily living (ADL), such as bathing and dressing, while independent living is for those who can complete daily tasks without assistance.

In terms of investments, the money is in ADL. this website The average cost of providing assisted living care nationwide.

As BiggerPockets readers at forum, buying a senior care home is only half the battle, especially if you plan to use it for RAL. There are many rules and regulations to follow. If you lack experience in the field, it is recommended that you hire or work with someone who has experience.

While there are many costs, permits, and barriers to entry, long-term senior housing can be lucrative, largely because of the influx of tenants.

The cost is high, but so is the income. Investing $1 million in a 10-bedroom, ADA-compliant (paying $6,000 per resident per month) single-family home in the right neighborhood (preferably an upscale suburb) could generate $12,000 to $18,000 in monthly cash flow, as shown below Show This episode of the BiggerPockets Podcast reveal.

You can invest in RAL in the following ways:

• passive: Purchase the property, make it ADA compliant (or comply with your state’s regulations) and obtain an occupancy permit, then turn the business over to an experienced operator who will pay you rent (or work with them in the company).
• Actively: Own real estate and run a business. This is where the most cash flows. This means getting educated and hiring an experienced manager to help you get started.
• As a silent partner, you can lend and deploy funds to RAL corporate joint ventures. it is Passive statusbut this can mean additional cash flow as you also benefit from the business side as well as the real estate income/depreciation/expenses.
• Interestingly, according to the BP Podcast, 31% of RAL owners do not live in the same state as their business, meaning they are in a passive position with someone else taking care of day-to-day operations.

Real Estate Investment Trust (REIT)

Some REIT Focus on senior living communities. They trade on public exchanges and anyone can invest in them, just like stocks. REITs are passive investments, but they do not have the tax advantages and cash flow of owning physical real estate.

private direct investment

This involves deploying your capital and assembling a team, which will consist of a capable and experienced operator and developer on the construction side, to convert an existing property or build a property from scratch, adhering to senior management’s Necessary provisions.

Invest in private equity funds

These are similar to real estate investment trusts or syndicate, an investor group that pools funds to fund senior housing communities. Diversification means lower risk but also less control than direct investment or joint venture owners. Additionally, investing in a fund that is not registered with the SEC means that it qualifies as accredited investor– This requires meeting certain income or net worth criteria.

final thoughts

Senior housing is more than just a real estate investment. It also invests in a business, similar to short-term rentals. For real estate to be successful, the business must be successful, which adds another element of risk. This means hiring the right staff and doing the right marketing to keep the building occupied and profitable.

Finding the right talent amid a hiring shortage has been a problem of late. However, the influx of baby boomer residents, often referred to as the “silver tsunami,” means that if a business is run correctly, its profitability could exceed that of other residential businesses in the coming decades.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.