Senior Housing Real Estate

Senior housing has become an appealing investment in recent years. Investors are taking interest in senior housing for three main reasons. First, as baby boomers age, the demand for senior housing will steadily increase. Second, senior housing tends to be more resilient to economic downturns, as occupancy rates are often more stable than other types of real estate. Finally, investors are looking for investment options outside of the competitive market of multifamily housing. Current demographic trends are an especially convincing reason to invest in senior housing. By 2030, about a fifth of the US population (74 million people) will be over the age of 65. While the majority of this population won’t need assisted living care until they’re over 80, they’re already influencing the demand for these facilities, as they choose care for their parents. Furthermore, baby boomers are now actively moving into independent living communities. While they don’t need extra assistance for health reasons, baby boomers are attracted to the convenience and social benefits of living in a 55+ community. For this reason, the market for independent living communities is growing.

Baby boomers are also increasing the demand for facilities with memory care. These specialized, long-term care facilities cater to seniors with memory impairment, such as Alzheimer's disease. Since Alzheimer’s can affect seniors at a younger age, baby boomers are already becoming residents of memory care facilities.

This strong, growing demand for senior care can lead to a profitable return on investment, as long as the senior housing investment is selected carefully. When choosing senior living communities to invest in, smart investors consider five questions:

  1. Is there a strong market demand?
    Although the overall market trend is favorable to investing in senior housing, there are still varying levels of demand throughout the country. Areas with a large population of seniors, such as Florida and California, have a higher demand for senior housing than areas with small or young populations. This of course is balanced with the current supply in the area to ensure they are not overbuilt.
  2. How does the facility make money?
    Residents can pay for their care through private funds, long-term care insurance, or public programs, such as Medicare and Medicaid. Generally, properties that rely on private funds rather than public programs are less vulnerable to payment risks and bureaucratic red tape. After all, new legislature can suddenly change billing processes or limit reimbursement.
  3. Is the facility’s manager or operator skilled and experienced?
    Unlike multifamily housing, senior housing is attached to an operating business. The success of the real estate investment depends partly on the success of this business. In other words, investors should examine the management of the business as much as the quality of the real estate.
  4. Is the business strategy modern and relevant?
    Besides investigating the facility’s manager or operator, investors should look into the facility’s overall operating strategy, asking the same questions as they would for any other company. What is the facility’s track record? Is the facility on top of the latest developments in senior care? Does the business strategy include clear goals for the future?
  5. Is the facility attractive for today’s residents?
    While strategies and statistics are valuable, it’s equally important to talk with current and potential residents and family members. What do they think of the facility? Is the care exceptional? Is the interior appealing? A business plan can seem solid, but how does it come to life in practice?

If the answers to these questions are all favorable, the investment is more likely to yield a profit. However, even the best facilities may still pose some risks. A stable market or solid business plan may change in the future as markets shift. In addition, investors should keep in mind that senior housing is currently a booming market. The demand for senior housing, along with its relative reliability as an asset, are encouraging many companies to invest in new facilities. It’s possible that this boom could lead to an oversupply, cutting down the profitability of senior housing investments. While this risk is still in the future, it’s worth considering now while estimating cash flows from senior housing investments.