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Senior Living – The Next Big Trend in Alternative Real Estate Investments

Senior Living - The Next Big Trend in Alternative Real Estate Investments

The real estate market in 2021 is shaping up to be quite competitive for buyers and investors. However, that does not mean investors should shy away from taking advantage of near record-low rates while they last. That said, it does imply that you might have to get a little creative with where and what that investment opportunity looks like. Join us below as we discuss assisted and senior living facilities and why these alternative real estate investments are an attractive option for investors.

What is the Difference Between Assisted and Senior Living?

According to the US Census, the population of individuals over 65 is expanding and rapidly. In the past decade alone, the over 65 population has grown by 34% and over 3% from 2018 to 2019 alone. What does this mean for real estate investors? The demand for affordable housing across this generation is on the rise. As individuals age, their needs change. Over the past 10 years, the market has seen a 43% increase in renters over 60. Besides traditional single apartment units, let’s examine some community-based housing options for seniors below.

Independent Senior Living Facilities

Just because a senior can afford to live in their own individual home does not mean they want to. In fact, seniors able to independently care for themselves still choose community living for various reasons. Senior living facilities offer the best of both worlds. There is a personal living space, community activities, and common areas. Traditionally, they also include services such as meal preparation, laundry, and housekeeping services. These facilities allow individuals to have private time and active social opportunities without the upkeep responsibilities they would have in their own home.

Assisted Senior Living Facilities

Assisted Senior Living Facilities

Unlike independent senior living, assisted living facilities have more extensive hands-on care. They cater to a wide range of individuals in need of physical, medical, or rehabilitation therapy, along with those with physical or mental disabilities. Many care facilities are privately owned and partner with local hospitals to provide continued staff training and support. The staff consists of licensed medical professionals as well as skilled nurses who provide residents assistance with personal care, medications, and dietary needs.

3 Ways to Invest in Senior Living

As with any investment, one must consider how much money and how much time you are willing to commit. Owning and operating a senior living facility does not come without its challenges. However, without risk, there is no reward. Follow along below as we examine three ways to benefit from these alternative real estate investments. Note that each will come with varying degrees of time and capital requirements.

  1. Investor-Owned and Operated
  2. Purchase a Leased Facility with Professional Management
  3. Passively Invest in a Real Estate Investment Trust (REIT)

Investor-Owned and Operated

Requiring the most time and capital investment, running your own facility also comes with the largest potential reward. This option involves purchasing or developing a senior living community that you will also manage. This is only advisable for those that already have some experience in facility management.

Owner operated communities appeal to investors that wish to keep all of their profits. However, this also means you alone will carry the weight of any expenses, losses, liability, and daily management tasks. To successfully attempt to operate this type of facility, investors must be thinking long term. Start with a solid business plan and review your financials carefully before opting to go it alone.

Purchase a Leased Facility with Professional Management

Building from scratch or running a facility on your own is not for every investor. Therefore, purchasing an existing facility is the next best option for those looking for alternative real estate investments. The best scenario is when a third party manages a facility with tenants already in place. This allows the investor to earn passive profits at a drastically reduced risk of exposure and liability. Additionally, the management company will handle any day-to-day issues that arise, therefore freeing up valuable time for the owner.

Purchase a Leased Facility with Professional Management

That said, senior care facilities require additional considerations that a typical multi-family building does not. So, this is not the time for an inexperienced property management company; stick to the experts! While investors own the real estate, most management companies lease the properties they operate in order to maximize capital.

Passively Invest in a Real Estate Investment Trust (REIT)

A REIT is the simplest way to take advantage of alternative real estate investments. These investment ventures specifically specialize in senior housing and senior care facilities. Therefore, allowing investors to diversify their portfolio with one of the most stable and fastest-growing asset classes.

This type of investment does not require investors to have the skill, capital, or knowledge to operate a facility independently, making it a great long-term investment. That said, those who do have some experience can achieve profitability through owning, operating, or renting their own senior housing facility.

Why is Senior Housing a Good Choice for Alternative Real Estate Investments?

When evaluating options for alternative real estate investments, investors look at several angles. The stability, profit potential, and historical performance of any asset group are essential to making an informed opinion. Check out these reasons below for why senior housing offers individuals growth through alternative real estate investments.

Why is Senior Housing a Good Choice for Alternative Real Estate Investments?

  • Positive Investment Performance – Historical trends of investment aid in an individual’s decision to invest their own funds.  Historically, senior housing has seen higher returns than other real estate assets. Additionally, this type of alternative real estate investment has outpaced other aspects of the housing market in potential income streams, appreciation value, and ROI.
  • Stable Increased Demand – The portion of individuals over 65 are estimated to make up nearly 20% of the US population by 2029. In fact, despite economic ups and downs, the demand for senior living facilities remains strong. Investing in this type of asset class with solid long-term goals could prove lucrative for investors. With demand expected to continue growing, now is the perfect time to get in on the action.
  • Low Supply – New construction of senior facilities has thus far not kept up with the high demand. As the need is projected to increase over the coming decade, supply is more limited than ever. Low supply and high demand are great for investors looking to keep occupancy rates low.
  • High Returns Compared to Other Sectors – Based on the index results of the NCREIF or National Council of Real Estate Investment Fiduciaries, the return for senior housing investments was more than 10% over a ten-year period. Thus, far outpacing other types of real estate asset classes. Additionally, appreciation values for senior living facilities are generally higher than other types of housing. This means that these alternative real estate investments are a solid choice heading into 2021.


Final Thoughts

The real estate market in 2021 will be competitive. So, investors need to step up their efforts to seek out the most profitable properties of any type. Senior housing options may not be your first thought regarding alternative real estate investments, but it is a missed opportunity. Offering increased demand, stable growth, and higher potential revenue, these facilities can prove profitable for those interested in stable long-term investment.

If you seek help managing your current portfolio or are interested in building a team to help with future investment, professional property management is the answer. Bay Property Management Group is the area’s leading third-party property management experts. Give us a call, and a dedicated staff member will walk you through all aspects of the full-service approach Bay Property Management Group can offer.