Senior living facilities have been sprouting everywhere. In almost every state, there are a couple of senior care communities or at least being constructed. One reason for this is that baby boomers are reaching retirement age every day in the thousands. We expect this trend to continue for the coming years, driving demand for senior living communities and specialized facilities.
Now with this unprecedented development, you might be thinking this presents a great real estate investing opportunity. You would not be wrong. As with any investment, however, it’s all about understanding the fundamentals and analyzing industry risks.
With more and more facilities being established, is joining the game worth the risk? Will it give you a good return on investment? Here’s what you need to know about investing in the senior living industry.
Before exploring ways to invest, the golden rule is to check out the market first. Regardless of the industry, every investor starts with a quick market analysis. Now, let’s start with the market driver. What drives the senior housing market?
A growing number of seniors! Their family members are also important considerations as they’re usually the ones that explore the idea of specialized senior care facilities in the first place.
However, on a deeper level, it’s the Baby Boomers (people born from 1946 to 1964) who are driving the market. Most people born in this generation are about to enter retirement age, and some of them will flock into retirement communities. And mind you, the demand will continue until 2035, when there’ll be about 79.2 million Baby Boomer Americans.
How about business longevity? What if an economic recession happens in the future? Always remember that the senior living industry takes its roots from necessity. Whether there’s an ongoing recession or not, people will still need senior facilities as much as health care.
Moreover, 2018 data from the National Council of Real Estate Investment Fiduciaries revealed that the ten-year return for senior housing facilities is at 10.2 percent, which is way ahead of the property index at 6.09 percent. Hence, there’s a historically high return in this prospect.
Now, let’s explore some ways to invest.
Starting From Scratch
Here’s a no-brainer. If you want a senior facility, build one from scratch. By far, this method is the hardest, but it can be the most fruitful towards the end. If you decide to choose this way, you’ll be actively involved in the facility’s planning and management. It means that you’ll see every step from paper to reality.
Perhaps, you might need to hire senior living management experts with experience in senior communities to guide you in organizing one. Moreover, you’ll be required to study the market on a deeper level and discover your unique selling point. In fact, most senior housing facilities today are old and outdated. You can start with modernization as a competitive offer.
Investing Through REITs
Real estate investment trusts (REITs) provide the easiest way to invest in senior living. There are REIT companies out there that support and finance senior facilities through the trust fund. Investing through REIT is a passive investment wherein you’ll not be required to participate in the facility’s management.
If you aim to put your money in a place where it can grow, going for REIT is by far the safest since it entails less risk. Most REIT companies offer a diversified portfolio wherein they mix high-return, high-risk, and low-return, low-risk investments that yield a net positive return.
Indirect Investing Through Leasing
Aside from REIT, you can venture into indirect investing. You can do this by leasing your property to interested private companies that’d like to start a senior care facility. On your end, you’ll be earning rental income, and you’ll also have no participation in the management. More so, it’s a wise investment if you have idle properties.
Want to learn more about the different types of senior living facilities? Read our blog.
Final Words: Should You Invest?
Only you can make that decision. At the end of the day, it comes down to your risk appetite and access to investing capital. Building your senior living facility does carry a higher risk exposure, but also promises high returns upon success.
REITs guarantee low risks but may not always yield high returns. Indirect investing through leasing is a fixed income investment wherein your income stays fixed over the period. Hence, there might not be much growth.
Every method has its risks and rewards. So think about each option carefully and invest wisely. Let our senior living experts help you decide where and how to invest. Schedule a FREE consultation now.