Commercial property investment, like all businesses, is subject, at any time, to the whims of the market. And lately, the seas surrounding income property investment are even rougher. That is due to the expansion of commercial real estate investment into a global playing field.
Indeed, not only have wealthy investors overseas turned their attention to potential profit makers on this side of the ocean, but U.S. investors have also expanded their interests, purchasing distant properties with the assistance of local brokerages.
Despite this, there is a category of investment properties that is rapidly gaining the attention of serious investors. That’s because there are both political and demographic trends that make this income property one of the most lucrative investments ever.
Wondering Exactly What This Income Property Is?
I’ll tell you in a moment. But first, I’d like you to think back to the Starkist Tuna ads from the 60s and 70s. If you remember, Charlie the Tuna was intent on finding a job at Starkist. He believed that with his good taste, they would surely hire him.
However, no matter what Charlie did, it seemed he was doomed to failure. The tuna company simply didn’t show any interest in tuna with taste, but tasty tuna.
What could Charlie the Tuna possibly have to do with commercial real estate?
The answer is simple: in commercial real estate, there are two ways to make money:
- Either you can find a winning property, or
- Tap into the trend that is responsible for creating the properties that are destined to be winners.
If you’re smart enough to uncover a trend that promises a winning property type for the next several decades, then you’ve essentially hit the CRE jackpot.
The Demographics Don’t Lie
The Obamacare legislation is the most wide-reaching health care reforms put into effect since Medicaid and Medicare were created in 1965. It is estimated that the additional people who are expected to be served due to the reforms will necessitate a need for an additional 64 million square feet of commercial healthcare space.
At the same time, the U.S. Census Bureau reports that anywhere from 7,000 to 10,000 Baby Boomers will be turning 65 each and every day until the year 2030. By 2030, experts say, one in five people will be 65 or older. This means that there will be a record percentage of the population who will not just want but need assistance in order to maintain their independence.
The Business Of Growing Old Gracefully
The commercial property type that is expected to grow exponentially is assisted living facilities. They designed these supervised living arrangements to help elderly people who need help with daily living skills. These are activities that all of us need to take in order to make sure we eat and dress well, bathe properly, and so on. Facilities cater to what is termed the “frail elderly”. And they are typically smaller, with less than 250 units, and designed to be more residential in nature.
Residents rent each unit, which is typically a one-bedroom with a small kitchen equipped with safeguards. Here they offer meals 3 times a day in a communal dining room. There are also social and recreational programs, an exercise room, laundry, barber/beauty shop. And, there’s 24-hour emergency response system monitored by electronic security and/or guards.
Some centers have added additional services as requested, such as chapels, restaurants, or gift shops.
Typically, the average assisted living resident is a woman. She is in her early 80s with moderate ADL disabilities which prevent her from living on her own. With adult children working full-time and a yearly income of around $20,000, she cannot afford to hire a home aide. The assisted living facility then becomes the default choice.
The best location for an assisted living facility is in an area with a lot of foot traffic. For example, that would be an area above or near a mall, or a school. Since residents are active and consider themselves active and independent, and will want easy access to local stores and entertainment.
Pros And Cons Of Investing In Assisted Living Facility
There are several benefits to opening an assisted living facility. In addition to the obvious demographic shift which guarantees a certain number of prospects per year, there is also the advantage of the ability to open up a smaller assisted living facility that does not require professionally trained medical staff. This makes it easier to open and less expensive to run than traditional nursing homes. Government regulations are also less strict, allowing more freedom to design a facility that is attractive and “homey.”
The main disadvantage is the necessity of finding new residents. That is due to the average length of stay is about two and a half years. Owners and managers will need to ensure they have a comprehensive, ongoing campaign both towards the frail elderly and to their adult children, in order to attract new residents and prevent vacancies.
Memory Care Facilities
Memory care facilities are another property type that they expect to experience a rise in demand.
These specialized care centers are for those who suffer from memory loss due to Alzheimer’s disease or another form of dementia. They offer a secure environment for those whose memory loss present a danger to themselves. Wandering, forgetting to take medication, or daily living skills are the three most common reasons for admittance.
With an estimated 5.1 million Americans suffering from Alzheimer’s and one out of every three or four elderly expected to suffer from a form of dementia by 80, memory care facilities are both profitable and a needed service in a community. In fact, NIC data shows that the number of memory care units have increased by 8% within the last 12 months alone.
One option for investors to consider is to offer memory care facilities as a separate component to an assisted living facility. This allows a continuum of care that is attractive to spouses or adult children seeking a solution from parents suffering from light impairments but who are otherwise relatively independent.
This type of center is less expensive to run than typical memory centers, which, due to the heavier degree of impairment, must not only maintain more specialized staff but also require a facility which is subject to tighter government regulations.
In conclusion, if you’re an investor looking for a property type with great potential to expand, assisted living facilities and memory care centers offer an opportunity to grow your portfolio rapidly.
