Invest in Senior Housing for Higher Returns

Invest in Senior Housing for Higher Returns

With a whopping 10,000 baby boomers turning 65 daily, the elderly population is increasing quickly. Seniors are looking for housing that is suitable and attractive for their needs. Living conditions with ease and comfort, along with activities and assistance is becoming more desirable.

As they begin looking to alternative housing, investors should get ready. With the many options that the real estate industry offers, it’s important to keep an open mind about investing in senior housing.

Demand for senior housing

Baby boomers are out there, and many are looking for long term care. There is no shortage of seniors that are aging and need help with day to day activities.

According to the U.S. Census Bureau’s “middle series” projections, the elderly population will more than double between now and the year 2050. Upwards of 80 million seniors will be living here in the United States. The majority of this growth is expected to occur within the next 15 years, as baby boomers reach their golden years.

As these citizens grow older, they are thinking about how they can strive in their environments. They are considering new housing options for their physical and medical needs. Accessibility and safety are of the utmost importance at this precious stage of life.

The location of their home may not be suitable anymore if they are unable to drive. Home and yard maintenance becomes impossible to take care of, and the accessibility of the home itself comes into play.

With large homes and many stairs, it’s just not feasible to continue to manage alone for an elderly person. Taxes on a large home as well as heating and cooling are cause enough for downsizing.

While the oldest baby boomers are turning 73 in 2020, the demand for senior housing will continue to rise. The U.S. population that is currently 80 years and older is around 15 million people. Before you know it, there will be millions more as the baby boomers age.

There is projected to be 79.2 million people aged 65 and over by 2035. Millions of seniors will need a place to call home with minimal stress and less maintenance. They don’t want to burden a family member with their care, and would like to stay as independent as possible.

Also, most households now require a two person income. This seriously decreases the amount of people who are available and able to care for their needy parents. These individuals just need a place to live out their years in peace and get the help that they need and deserve.

Investing in the senior living sector, you are realizing the need for senior housing. The occupancy trends are going up each year. According to CBRE’s U.S. Seniors Housing & Care Investor Survey done early this year, 52.6% of respondents expect an increase in occupancy over the next year.

People are also living longer now, thanks to advancements in medicine and technology. Seniors desire to be more active, looking for ways to learn new skills and make new friends. Whether a senior is looking for major long-term care, or an independent living situation, there are now more opportunities than ever. And they are loving the possibilities.

Types of senior living facilities

Senior living facilities are where seniors can live and get help when required. The level of care varies greatly depending on each living situation.

The main types of senior living facilities are:

  • Independent living
  • Assisted living
  • Skilled nursing
  • Memory care

Independent Living Facility

Also known as senior apartments, retirement communities, active adult communities, 55+ communities, etc. These types of homes can be apartments or detached homes. Designed with the elderly in mind, they are thoroughly thought out with easy navigation and free of maintenance.

Easy navigation includes one floor living, walk – in tubs and easy access to everyday things. Maintenance free yards and driveways are appealing, as well as many activities in the community.

Amenities like pools, tennis courts, gyms, and recreation halls with bingo nights and day trips drive active seniors to housing like this. It’s a great way to keep their brain and body working, while also socializing with their peers.

In independent living, residents need little to no assistance. If desired, they can hire their own in-home help if the necessity arises.

Most independent living communities do not offer medical care or nursing staff, however. This type of living is perfect for seniors who want to keep a healthy lifestyle and live independently, while enjoying an easier way of life.

Assisted Living Facility

In assisted living facilities there are multiple levels of care given, as needed. Generally these facilities are ideal for people that need some help with daily activities. Some help cooking, cleaning, driving, remembering medications, etc.

The seniors are offered 24 hour support and access to care as they need it. While independence is promoted and encouraged, residents can rest easy knowing that help is just a quick call away.

Assisted living can take on many forms. Living arrangements can be in shared quarters, apartments, or individual rooms. Again, it depends on the level of care needed. Social activities are offered, as well as housekeeping and laundry, meals, and personal care. Some medical services are also provided.

Skilled Nursing Facility

In a skilled nursing facility, all major care is provided. This kind of living is for individuals in need of feeding, bathing, dressing, and medical care. They are unable to take care of themselves and need constant supervision and assistance.

Arrangements in these facilities are more of a hospital-like set up, with shared rooms. Usually each room offers 2 beds and a bathroom. Some have private rooms available.

Skilled nursing facilities (often compared to nursing homes) cater to seniors recovering from a recent hospitalization, a chronic or worsening illness, or who suffer from serious and persistent health issues. They are usually suffering from something that is too difficult to maintain at home or at an assisted living facility.

In addition to 24/7 skilled nursing care, pharmaceutical and laboratory services are available. Social activities as well as transportation may be provided.

Memory Care Facility

The main focus in a memory care facility is on creating a sense of safety and security to confused residents. Suffering from Alzheimer’s or dementia, it can be a very scary time for these patients.

Maintaining their quality of life while living with one of these conditions is complicated. These facilities offer not only meals, housekeeping, and activities, but specialized activities for engaging memory and stress relief.

Some retirement communities have a section for Alzheimer’s. However, this section is kept separate from the independent and assisted living areas. Alzheimer’s communities are built with extra things in mind, such as extra natural light (to relieve stress), security alarms (for those that wander), and a secured courtyard (for safe gatherings outside).

The rooms are kept minimal, to reduce stress and for safety concerns. Eating is generally in a family-style, cafeteria like setting as there are no kitchenettes in the rooms. This also promotes social interaction and gathering for meal times.

Senior Housing Returns

Senior housing returns are among the highest in commercial real estate. Being a mixture of hospitality, real estate, and health services, this is a recipe for growth and investment success. But, how does senior housing perform against other real estate sectors?

When taking a look at the National Council of Real Estate Investment Fiduciaries (NCREIF) returns, senior housing comes out on top. The NCREIF Property Index (NPI) covers a 10 year period. Returns on both income and appreciation were higher overall for senior housing. Higher than apartment buildings, hotels, offices, and even retail.

The NPI also had an overall investment return at 8.5% over that 10 year period. When compared, senior housing returns had an 11.7% annualized investment return during this same time. The returns are favorable and support investors.

While comparing returns on senior housing and other types of real estate, the trends run similar to multifamily residential and 3 star hotels. According to Real Capital Analytics, investing in senior housing and care jumped up 14.2% from 2018.

Other commercial real estate was up only 1.4% in the same time frame. Even multi-family investments were only up 6.8% in that time. Senior housing is a fast growing, profitable investment to get into right now.

10 year average returns

  • NPI: 8.5%
  • Senior housing: 11.7%

Increase in investments since 2018

  • Commercial real estate: 1.4%
  • Multifamily: 6.8%
  • Senior housing: 14.2%

As found by CBRE’s U.S. Seniors Housing & Care Investor Survey from earlier this year; active adult, independent living, and assisted living are to be among the best opportunities for investing in senior housing in 2020.

However, after the Covid-19 outbreak, we may also see a rise in the need for nursing care facilities as more seniors need care after being ill. 25.4% are also projecting an increase in rental rates.

After the Great Recession in the early 2000’s, senior housing was the only commercial real estate sector that experienced a steady growth in rent. It surpassed all other real estate property types and continues to grow. With all of these aspects combined, investing in the senior housing sector seems like a no brainer.

While the presence of Covid-19 may bring some different types of obstacles in the coming months, one thing remains true. The elderly need to be cared for. After many seniors have been quarantined in their homes, scared to venture out and unable to accept help from well meaning visitors, living in a senior community is an idea they are leaning towards.

These seniors don’t want to be put in this situation again, where they can’t get out to the grocery store or pick up needed medication without the looming uncertainty of contracting this deadly virus.

Living in a senior community, their needs will be taken care of. Healthcare can come to them. The staff can disinfect and clean. They no longer have to worry about doing everything on their own and figuring out how to get it all done.

How to Invest in Senior Housing

When considering making an investment in senior housing, there are a few routes to be taken. With your main end goal and financial ability in mind, explore the options you have.

Purchasing Real Estate

The need for more senior housing in the coming decades and updating of current housing is in demand. HUD financing and commercial bank financing are among the most popular and consistent forms of financing.

Owning a piece of real estate that has a growing need and population is a more resilient and less volatile move than many other investments right now. With multifamily housing and hotels down, there is less risk and much more room for reward.

As interest rates remain low in the real estate market, investing could be the answer for your financial needs. Thinking about what kind of real estate to invest in, keep in mind the pros of purchasing senior housing.

A growing market with mature people, no kids running around or young people throwing parties. Less wear and tear, and less upkeep. Workers can be hired to maintain everything.

REITS – Real Estate Investment Trusts

Another popular way to invest is through REIT. There are a few different ways to invest in REITS. A popular one is publicly traded trusts.This is similar to owning a stock. According to the National Association of Real Estate Investment Trusts, a company owns and operates the housing, while financing and building an income-generating property.

Similar to a mutual fund, the capital from investors is pooled. Investors are then able to see a return and earn money, never having to set foot in the development. No need to finance, manage, or buy any property.

Taxable income is distributed as dividends to the shareholders, while shareholders pay the taxes on those dividends. Also, as these types of investments are very liquid, it’s very easy to buy and sell. Less of a commitment, with all the workings of a great investment opportunity.

Other common sources are public non-traded REITS and private ones. Public non-traded can be more stable, as they are not affected by market fluctuations. They are less liquid though, which is important to remember.

Equity crowdfunding

Real estate equity crowdfunding involves multiple investors pooling their money to purchase a real estate asset. Crowdfunding has the potential for higher returns, but also carries more risk.

Most real estate crowdfunding campaigns are offered under Regulation D, so they are only available to accredited investors.

Non-accredited investors may find crowdfunding opportunities with Regulation A offerings for senior housing.

The bottom line

While the options for investing in senior housing are great, one must consider their best course of action for their situation. As the aftermath of Covid-19 hits, things may slow down a bit. With a recession hitting, but numbers projected to upsurge greatly in the following years, this may be the best time to purchase senior housing and commercial real estate at more affordable prices.

It’s your chance to invest in senior housing at a decent price. Use this time to get the facts and make your best decision for your financial future. As the baby boomers keep aging and needing care, the results will speak for themselves.

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