As Baby Boomers approach retirement, the demand for senior housing will continue to increase. While real estate has traditionally been a solid investment, housing for retirees and senior citizens is bound to experience a rapid increase in demand. Investment property may be purchased by individuals or through groups who pool their resources. Financing for investment properties is tighter and is one of many factors to consider before pursuing an investment in senior housing properties.
What Types of Senior Housing Are Available for Investing?
Investors have various options for investing in senior housing. As with any kind of real estate, the local market is key in determining the quality of the investment. Some niches like memory care could be lacking facilities in some markets, while some types of senior housing could be overbuilt.
Assisted living facilities primarily serve senior citizens but may provide daily living help to people of different ages who have mental or physical disabilities. Services provided include assistance with dressing, bathing, medication, and meals. Assisted living facilities provide care 24 hours a day and are generally privately operated.
Some senior housing facilities are geared for active, independent adults, commonly known as 55+ communities, while others are dedicated to memory care or assisted living. Many communities offer various types of housing based on the resident’s needs, allowing them to remain in the same housing community as their circumstances change.
How Can I Invest in Assisted Living Properties?
Investing in senior living properties can be done in several ways. Investors may choose to invest actively, leasing property to a facility operator or operating the facility themselves. More passive options are available as well, such as real estate investment trusts that offer another option for putting dollars in the assisted living industry without the risk of investing in a single property.
Real estate investment trusts manage their own properties. Equity REITs that invest in commercial properties have at least 75% of their real estate assets and give at least 90% of their taxable income back to investors. Exempt from corporate income tax, the taxes are paid on the dividends after they’re distributed. REITs grow by purchasing more properties as well as improving new and existing properties. Some REITs may focus on growing through improving properties, such as a REIT that converts commercial properties to senior housing facilities.
Active investors may defer the specialized skills for managing a senior housing facility by buying an existing property or converting a property and leasing it to a third party that will manage day-to-day operations. Rental income provides a return while reducing the risk of operating and managing it.
Active investors who choose to be more involved and increase their income potential may operate the facility in addition to owning it. While owning and operating a senior housing facility can be lucrative, it also requires intricate knowledge of managing such a facility — following applicable laws and regulations, meeting the care needs of residents, and adequately staffing it.
What Are Some of the Key Considerations of Investing in Senior Housing?
Investors considering senior housing have many options, from being very actively involved in owning and operating property to investing in diversified REITs and handling property management. While senior housing, in general, is growing to meet the increasing demands of an aging population, some markets and types of housing could be saturated while others have unmet needs.
Investing directly in senior housing properties can provide income through rent and appreciation of value; those who actively manage their own properties as senior housing communities have further opportunities for profitability. Commercial property financing has stricter rules for credit, financial stability, and down payments than buying a primary residence for those seeking to purchase a property.
There are three main options for securing financing for property investors:
- Conventional loans. Conventional bank loans are like regular mortgages for primary residences but may require a 30% down payment instead of the standard 20% down. Borrowers undergo the standard credit checks and need to demonstrate they can pay for their primary home’s mortgage plus the mortgage on the investment property.
- Hard money loans. Hard money loans, sometimes called fix-and-flip loans, are short-term in nature and could provide financing for commercial properties that need to be converted to senior housing or undergo other improvements. Such loans are easier to obtain since the property secures them, but they often are a more costly finance option. Hard money loans are as little as one year in length and may have higher closing costs and origination fees.
- Home equity line of credit. Investors can also tap into the equity of their primary residences through a home equity loan, home equity line of credit, or refinancing.
Investors need to weigh the various financing options, ensuring the terms meet their need for income and profit while managing risks.
What Are the Next Steps?
Senior housing properties, like other investments, have diverse investment options ranging from hands-off and diversified options like REITs to investments in individual properties either alone or with partners. Credit, income, and experience in business management are the foundation for direct senior housing investing. Once investors can acquire properties successfully, there are several other considerations.
Senior housing market conditions vary across cities and states, with some areas hotter than others for commercial properties. Research current and predicted future demand for properties in the area you’re considering and the area’s demographics. Peers — other investors and investment groups — can be a valuable source of insight and advice.
Investing with a partner or partners allows combining skill sets, saving money on management, and increasing cash available for investing. While pooling resources has advantages, it may lead to lost profits and increased exposure to risks. Senior housing properties can offer a solid investment in a growing sector of real estate. Investing can be simply placing money in a REIT or by purchasing and leasing or managing a senior housing facility. Senior housing can be an excellent investment for a solid future.If you’re interested in learning more about investing in senior housing or are looking for financing options, such as a hard money loan, reach out to the experienced team at Titan Funding. You can reach us at 855-928-0737 or via our secure online messaging system.