The U.S population is getting older, with an estimated 20% of the population expected to be over the age of 65 by 2030. Break that down and it comes out to 10,000 Baby Boomers hitting 65 every day.
For commercial real estate investors with an eye on emerging markets, senior housing is clearly an opportunity for serious investors interested in hopping on a trend expected to last for a minimum of 30 more years.
But before you get started, you need to educate yourself on the pros and cons of senior housing. Because although it is certainly an industry with a high potential for growth, there are also strict regulations and licensing requirements, as well as high staff turnover. In fact, owning a senior housing complex is less like owning real estate and more like running a very demanding full-time business, unless you hire an experienced management company.
If you are interested in opening your own senior housing facility, there are several critical factors you’ll need to take into consideration even before you take a look at your first property.
Decide how the facility will be run
There are smaller types of facilities that are known as Assisted Living facilities, and Community-Based Residential Facilities, or CBRF’s which allow a higher number of residents. The former generally allow you to have between four to eight beds, and are less strict in terms of regulations. CBDR facilities, on the other hand, not only have stricter licensing rules, but due to the low wages, they also struggle with high turnover.
Regardless of which type of facility you choose, you’ll most likely need to open more than one in order to ensure a profit. Opening up a chain of senior homes allows you to use leverage to even out the high start-up costs.
Also, ensure that no more than 50% of residents are on Medicaid, lest you struggle with overdue payment and low profit margins. Ideally the ratio should be 65% private pay residents and 35% Medicaid.
Line up private lenders
Because senior housing is a unique asset class, it is termed “special use” by lenders. This means that there are fewer lenders available to help you use leverage to finance several properties.
This doesn’t mean there are no lenders; senior housing is popular and can offer the same profits to lenders as other income properties. You’ll simply have to work harder to secure a loan. Having said that, there are several lenders that either have special programs for investors who’d like to purchase senior housing, or that deal exclusively with financing senior housing properties.
Decide what type of residents you’d like to serve
Senior housing is a broad term that includes a wide variety of options.
Independent Living (IL) – These are also known as senior retirement communities designed for those over the age of 55.
Assisted Living (AL) – These are communities designed for seniors who don’t need the level of care provided by a nursing home, but still need help daily with medications, meals, housekeeping, and other daily living skills.
Memory Care (MC) – As facilities designed for those with memory loss, these communities cater especially to seniors suffering from dementia, Alzheimer’s, and other diseases affecting memory. Due to the level of care required for these residents, the cost and number of specialized staff to run this type of center is higher.
Skilled Nursing (SN) – Skilled nursing facilities are intended for temporary stays only. Residents receive specialized care from nurses who focus on providing rehabilitative services that will allow them to return to independent living. These are commonly used after hospitalization or a significant decline in health.
Skilled Nursing and Memory Care Facilities while in demand, are subject to extensive regulations, security measures, and specially trained staff. Most investors choose to invest in Independent Living communities or Assisted Living Centers, as the barriers to entry are lower.
Ideally a wise investor should team up with a seasoned manager who can help get the facility up and running as quickly as possible. The manager will not only be knowledgeable in all aspects of housing and care, but will also know how to minimize the intrinsic risks in this sector by utilizing the appropriate legal structures.
Despite the risks and intensive preparation necessary for ensuring a well-run facility, senior housing offers considerable opportunity for investors willing to tackle this type of investment asset.
Interested in selling or purchasing a commercial real estate property?
Click here to schedule a free 15-minute strategy session to discover how to create wealth through low-risk property investments.