Investing in Senior Housing Can Be Extremely Profitable—But You Need To Know What You’re Doing

Growing old is a fact of life—even for Keith Richards—and while it’s doubtful you’ll see world-famous rock stars or aging screen stars in a residential assisted living (RAL) facility, for the rest of the population, they serve as the last stop before our final elevator ride. This is why, after a pandemic pause, senior housing communities are back to making a roaring trade. 

“People put off moving in for an extended period of time during the pandemic,” Lisa McCracken, head of research at the National Investment Center for Seniors Housing & Care (NIC), told the Wall Street Journal. “Now those needs have been amplified because of that delay.”

High Occupancy and Rents 

Aside from the fact that unlike in regular apartment buildings, tenants in senior housing often end their residencies without warning, this sector of the rental business has been robust. According to NIC, the average occupancy rate in the fourth quarter of 2023 was 85.1% in the 31 largest markets. Initial independent living costs an average of $4,126/month as of December, going up to $6,422 for more intensive care units.

A Boomer Boom Is Coming

Despite technological advances such as remote doctor visits and emergency call buttons that have allowed adults aged 50 to 80 to stay in their homes for longer and forgo the added expense of senior living, shifting demographics mean the investors who own senior facilities can look forward to some financial golden years.

According to the U.S. Census Bureau, starting in 2030, when all boomers will be over 65, the baby boomer generation will make up 21% of the population, up from 15% today

By 2060, the Census projects that almost one in four people will be 65-plus, and those 85-plus will triple, with the country adding half a million centenarians. The stats make for a demographic first—older adults will outnumber kids.

All this means demand for healthcare, in-home caregiving, and assisted living facilities/senior housing will spike.  

Investors Make Extra Money From Medical Expenses

Around 850,000 older Americans call an assisted-living facility home, and real estate investors of all stripes are trying to get a piece of the action. These include regional companies and international trusts. 

Part of the attraction is the additional income they make from medical treatments such as blood pressure checks, injections, medication orders, help with an inhaler, etc. The New York Times quotes an industry survey that estimates investors make 20% of these fees, with rents far exceeding medical service charges.

With such high costs, it’s little wonder that poorer sections of the population are getting left behind, and even those who can afford it are wary of draining their life savings. However, not all senior housing is exorbitant and run by for-profit companies. Most nursing homes differ from assisted-living facilities, as Medicaid generally pays for care, the federal-state program for the poor and disabled. These facilities, however, differ markedly from more upscale private facilities.

Ways to Invest in Senior Housing

There are many ways to get into the senior care business. While some are hands-off, if you want to invest in real estate, you’ll need to roll your sleeves up and prepare to educate yourself on the requirements. 

Here are four strategies to consider.

Buying a senior care residence

First, you need to know what senior care sector you will specialize in. The two main options are residential assisted living and independent living. Assisted living provides seniors help with activities of daily living (ADLs), like bathing and dressing, while independent living is for those who can complete daily tasks without assistance. 

Investment-wise, the money is in the ADLs. This website provides the average cost of assisted living care nationwide.

As BiggerPockets readers have stated on the forum, buying a senior care residence is only half the battle, especially if you intend to use it for RAL. There are many rules and regulations to adhere to. If you are inexperienced in this sector, it’s advisable that you either employ or team up with someone who is. 

While there are many costs, licenses, and barriers to entry, long-term senior housing can be a great moneymaker, mainly because such an influx of tenants is coming down the pike. 

There are high costs but also high revenue. An investment of $1 million for an ADA-compliant, 10-bedroom (each resident pays $6,000/month), single-family home in the right neighborhood (upscale suburbia is best) can cash flow $12,000-$18,000/month, as this episode of the BiggerPockets podcast reveals.

 These are the ways you can invest in RALs:

• Passively: Buy a property, get it ADA compliant (or compliant per your state’s regulations) and licensed for occupancy, and then turn over the business to an experienced operator who will pay you rent (or partner with them in the company).
• Actively: Own the real estate and operate the business. This is where the cash flow is the most. It means getting educated and employing an experienced manager to help you hit the ground running.
• As a silent partner, you can joint venture-lend and deploy capital to an RAL business. It’s a passive position, but it could mean extra cash flow, as you could also benefit from the business side of things, as well as real estate income/depreciation/expenses. 
• Interestingly, according to the BP podcast, 31% of RAL owners do not live in the same state as their business, meaning they have taken a passive position, with someone else running the day-to-day operations.

Real estate investment trusts (REITs)

Some REITs specialize in senior living communities. They are traded on the public exchange, and anyone can invest in them, just as you do with stocks. REITs are passive investing, but they do not have the tax advantages and cash flow of owning physical real estate.

Direct private investment

This involves deploying your capital and putting a team in place, which would consist of a capable and experienced operator and, on the construction side, a developer to either convert an existing property or build a property from scratch, adhering to the requisite regulations for senior housing (independent-living community, assisted-living facility, or nursing home).

Invest in private funds

These are similar to REITs or syndications, where groups of investors pool their money to fund a senior housing community. Diversifying the investment means less risk but less control than with direct investing or being a JV owner. Also, investing in a fund that is not registered with the SEC means being qualified as an accredited investor—which requires meeting certain income or net worth criteria. 

Final Thoughts

Senior housing is not just a real estate investment. It’s also investing in a business, similar to short-term rentals. For real estate to succeed, the business must succeed, which adds another element of risk. It means employing the right staff and undertaking the correct marketing for the building to remain occupied and profitable. 

Finding the right talent amid hiring shortages has been a recent issue. However, the “silver tsunami,” as the influx of boomer residents is often referred to, means that if the business is properly run, its profitability could outstrip that of other residential-type businesses for decades to come.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.