A market worth around $250 billion may be enough of a reason for some investors to take on the senior housing market. With baby boomers already retiring and the oldest of that generation turning 75 by 2021, the influx of residents to retirement communities and senior housing is set to have a boom all its own. As Charles Bissell, Managing Director, JLL Valuation & Advisory Services, noted: “New investors are seeking to gain footholds in the sector now, and developers are beginning to think ahead about how new product will need to evolve to appeal to the boomers.”
Reported Senior Living ROI
The steady housing market and attractive borrowing rates continue to support the demand for senior housing. It can be a smart defensive investment during an economic slide, but also a great opportunity during favorable economic conditions.
According to a recent report from Jones Lang LaSalle Inc., “The seven-year total return on investment (ROI) for Senior Housing is 13.64% and the index for the prior four quarters is 12.16%.” For comparison, multi-family boasts a 6.28 prior-four-quarter index. This means senior housing produces a larger ROI than more traditional real estate investments, nearly double that of multifamily. Uninterrupted increases in rent, despite economic influence, may factor into the high performance.
Senior Housing Investment Choices and Cash Flow Goals
Gene Guarino, president of the Assisted Living Facility Training Academy in Phoenix, makes the numbers around senior housing investment easy to understand: “The acquisition cost is not as important as the cash flow. Most investment courses say you make your money when you buy. This is buy and hold with a business component that’s making me a lot more. It’s not how much it costs, but how much will it produce.”
There are a number of ways to invest in senior housing, from passive investment in a healthcare REIT to operating a facility. Each option represents a different level of service and healthcare available to a resident (see below). According to Guarino, you do not have to buy or build an entire nursing home to get into senior housing. He addresses it from the perspective of large, single-family homes in upscale neighborhoods.
With a resident’s average payment across the 50 states about $3,750 per month for assisted living, your cash flow greatly depends on the number of bedrooms in your housing. There are typically state regulations as to the number of units you can have per facility, with some states allowing up to 10.
Guarino explained, “If one house can only get me $3,000 per month, per bed, and another can get me $5,000 a month, per bed, the business is pretty much the same. If I can have a 10-bedroom house, I want the extra $20,000 a month.”
*From Senior Housing & Care Market Insight 2017 Q2 Review
Investor Outlook Changes
Senior housing that includes a continuum of care inclusive of independent and assisted living, but without nursing care, is the most sought-after investment within the industry right now. The first semiannual Seniors Housing Survey and Trends Report detailed this and a number of other revelations. The desired investment sentiments mirrored thoughts on revenue opportunities as well, saddling skilled nursing facilities with the least opportunity for growth.
Seniors-only apartments were identified by the group of operators, developers, lenders, and REITs surveyed to have the shortest amount of marketing time. They average 5 months, while independent and assisted living creep toward 7 months at 6.6 and 6.8 months, respectively, and skilled nursing is just over 7. The shorter time on market for seniors-only apartments may be spurred from a limited supply.
Survey respondents were also asked to weigh in on a number of industry trends. Most felt the shift to continuum of care was here to stay while dynamic pricing will likely subside.
With an eminent boom of the population reaching the age for senior housing, there are a number of opportunities for real estate investors to add this high-performing sector to their portfolio. Options investors need to consider are the range of services they want to provide as well as the level of skilled care. You could also decide on passive investment through an REIT. Do your research, including understanding risks and pitfalls, and you may be one of those investors reaping the high returns on your investment.
Receive thorough, objective, and reliable research and analysis from Platinum Commercial Holdings. We can help you with the extensive due diligence necessary to determine if a market is right for you.