Investing in senior housing is different than other types of real estate investment, such as single or multi-family properties. It has its own risks and rewards. Read about the pros and cons of senior housing investments, and why you should work with an experienced real estate professional when investing.
The graying of America is no secret. Baby Boomers are aging, but are more active and in better health than previous generations. While they may accept that they need to move to senior housing, they don’t want to be stuck in an old folks’ home.
Purchasing properties for investment can yield great returns, but it can also yield a lot of headaches. It’s important to research and educate yourself about the market, to pick a well-managed investment, and to evaluate its pros and cons against what you want to get out of your investment.
Pros of Investing in Senior Housing
Like any investment opportunity, there are pros and cons to investing in senior housing. Real estate is unique among investment opportunities, however, because you can sometimes invest without using any of your own capital. This makes it an attractive choice for those who are risk-averse and no more so than in senior housing.
Invest Before it becomes the Next Big Thing
Senior living communities, or cohousing, have only just begun to sprout up around the country. Today’s seniors want to live cheaply but in a supportive, social environment, and these communities fill those needs. If you invest now, before the market is saturated with investors, you could make a significant profit.
Tenants are Stable
If you rent to college students, you can expect turnover every year. Young couples will eventually have children and move into a home. But, unless their health declines, seniors are stable tenants. Once they’ve moved in, they’re unlikely to move out for quite some time.
It’s a Recession-Resistant Investment
Other investments are impacted by the stock market, unemployment, and GDP. But seniors will always need long-term medical and care facilities. Tenant demand is based on needs, rather than the overall economy, which means that investors in senior housing suffer from fewer ups and downs than those who invest in other types of real estate.
Cons of Investing in Senior Housing
Investments offer returns which often reflect their risk. Keeping money in the bank may be safer, but it won’t grow much. But because of that risk, there are cons to investing in senior housing.
Turnover is Unavoidable
While you will have less turnover than in other property types, the unfortunate fact is that tenants in this demographic tend to have deteriorating health and may someday need more care.
The downside of turnover in senior housing is that it can take longer to find a new tenant. Because of the age and income restrictions in most communities, it can be harder to find someone who both fits the requirements and is ready to move in.
Tenant Conflicts can be Difficult to Manage
Tenants spend more time together than in a duplex or triplex. Social interaction is part of why they’ve chosen to live in senior housing. With closer contact, comes more conflict. You will want to make sure that your community is managed by a company experienced in senior care, particularly if you’re buying multiple units and don’t have time to manage them yourself.
Putting all Your Money in One Place
Diversification is the key to real estate investing success. Trends come and go, and that includes the hot retirement location. Buy a few units in multiple developments and states to spread your risk. Work with a real estate agent to find different opportunities.
Spiraling Development and Operating Costs
If you invest before the property is built, check on the builder’s reputation for on-time and on-budget completion. Spiraling costs can eat into profits. Once built, there will be operating costs. People to plan activities, maintain the grounds, perhaps cook meals will have to be paid. Carefully examine current or projected budgets, and inquire as to the management company’s experience, because a poorly-run community can quickly start to lose money.
If you’re considering investing in senior housing it’s a good idea to partner with an experienced, trustworthy real estate agent. The skillset you may have developed investing in single or multi-family properties might not be completely transferable. Working with a professional in the senior housing market, like one of Clever’s Partner Agents, increases your odds of success.