Investing in Healthcare REITs

Real estate investment trusts (REITs) are a great way for investors to enjoy the benefits of investing in commercial real estate without the headaches and capital requirements that are normally required. 

What’s even better -- is that investors can choose any type of real estate asset class to invest in with REITs. Investing in healthcare REITs can give investors the chance to invest in real estate assets like hospitals, senior housing, skilled nursing, and other types of health care related properties. 

What are healthcare REITs

A healthcare REIT is a real estate investment trust that makes its money by investing in real estate within the healthcare sector. Types of real estate that healthcare REITs invest in include:

  • Senior housing
  • Assisted living
  • Independent living
  • Nursing homes / Skilled nursing facility
  • Medical office buildings
  • Hospitals
  • Surgical centers
  • Rehabilitation centers

Healthcare REITs all have their own operating model. Some REITs use a triple-net lease (NNN lease) model where they lease the properties to providers for a specified lease rate. Some REITs that own senior housing and skilled nursing facilities partner with operators that receive a percentage of the revenue. Many healthcare REITs have a mix of both of these types of setups in their portfolios. 

Both of these models have advantages and disadvantages. Healthcare REITs that partner with providers have more control over the operation and can receive higher income from each property when it’s full. On the other hand, they can also lose money if vacancy is high, or expenses are higher than anticipated. 

A medical REIT that uses the NNN model can count on receiving a set amount of revenue regardless of occupancy or operating expenses within each property. However, they’re overall earning potential is limited.

The NNN model proved to be beneficial for many healthcare REITs that owned senior housing and skilled nursing properties during the COVID 19 pandemic. While dropped significantly with higher vacancy and expenses, they were still able to collect the majority of their contracted rent. 

Types of healthcare REITs

The main differences between most healthcare REITs are the types of healthcare real estate assets they invest in. Some companies focus on investing in properties like medical office buildings, life science properties, and other properties leased to healthcare providers.

Others primarily invest in senior living, skilled nursing, and other types of assisted living facilities. These companies are often simply referred to as senior housing REITs.

Some healthcare REITs are more diversified and have a portfolio with a mix of healthcare property types.

WELL

Welltower Inc. (NYSE:WELL), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and …

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