Recent data from the US Census Bureau reveals that all baby boomers will be 65 by 2030, bringing the number of seniors in the country from 56 million to over 73 million. With a 30% increase in this population, we face an unexpected housing challenge: the demand for senior housing will far outstrip supply.
As a result, the sector is expected to grow over the next decade, creating an opportunity for investors. However, not all investments in the sector are created equal. In this article, we look at various aspects of housing and elderly care and identify the critical characteristics that investors should consider when investing in this asset.
Investments in senior housing vary according to the level of care the facility provides to its residents. Here is a quick snapshot of the various types of investments:
Independent living is generally for healthy and active people. Most communities offer private homes with additional services such as personal and community social activities and 24-hour security. Residents can enjoy the feeling of traditional independent living without worrying about home ownership responsibilities such as maintaining the property or paying bills.
Assisted living, also known as residential care or personal care, is designed for patients who are generally healthy and independent, but who may need help with activities of daily living (ADL). On-site staff are available to assist with activities such as bathing, dressing, and administering medications. Additionally, the staff generally help with laundry, cleaning, meals, and transportation. Many of these facilities also offer social activities. Memory care centers serve patients with cognitive disabilities. Staff are generally available 24/7 to assist residents in their daily lives, including those provided in assisted living facilities. Additionally, memory care centers can provide certain activities and therapies to improve memory and offer supervision to prevent residents from wandering.
Specialized nursing homes offer the most in-depth care, including residential medical treatment for the elderly. These communities are designed to provide 24/7 medical care to those who may have a chronic illness or need ongoing care from a healthcare provider. Skilled nursing home staff includes skilled nurses, most of whom provide care similar to that found in a hospital setting.
It is important to note that this is a general scheme of the differences between the structures. However, the exact services and care provided vary from facility to facility and may overlap in some cases.
Investments in senior housing and care facilities have increased over the years, attracting more attention from institutional and accredited investors. However, being a relatively less popular asset class, many investors today are unsure what to consider when evaluating an investment opportunity. To help provide guidance, here are some characteristics, in addition to the type of assistance a property provides, to consider when looking at an investment overview.
1- How is the investment income supported?
Residents seeking senior housing must pay for their level of care. In some cases, insurance, Medicare, or Medicaid will cover associated expenses; however, most properties require a private payment. Here's what might be covered:
For those facilities that require private payment, residents have to pay out of their own pockets. For long-term care, some facilities may also review prospective residents' finances to determine if they can afford the facility.
Identifying which one is accepted in a facility can help provide guidance on an investment opportunity. While Medicare and Medicaid can guarantee a higher employment rate; meanwhile, private payment structures are generally better maintained. Although this is a hypothesis, it can give an idea of the investment.
Real estate is all about location, and investors need to consider how a property's location and demographics will affect its ability to attract and retain residents. For long-term stable investments, investors should identify a location that is experiencing positive population growth, particularly among the population over 50. They should also identify a place that has the right demographics to support the facility and has surrounding services that can help residents.
The assessment of these factors is also related to the mix of taxpayers. Facilities in vulnerable communities may have less favorable demographics; however, they tend to accept Medicaid, which provides a supported income stream. Meanwhile, communities in high demand, such as coastal California, tend to rely on private pay. While they offer goods they value highly, keeping residents can be more difficult during an economic downturn.
In determining whether an investment is good, investors should consider who manages the property. Performing proper due diligence on a trader's experience and finances can offer insight into an asset's long-term potential. For example, today's major carriers include Genesis HealthCare and HCR Manor, along with the largest national carrier, Brookdale Senior Living, which will provide more security to an investor than a single carrier.
Ultimately, investors must take a data-driven approach to determining whether a specific investment in housing and aged care is the right investment for them. Understanding the pros and cons of each investment opportunity, as well as how these above characteristics can affect performance, can provide insight into whether or not to consider an investment. How can I invest in the housing and aged care sector?
Investors can invest directly in a new or existing development through direct acquisitions. Like other investments, this option requires the largest share of an investor. Unless they identify a property that is an absolute triple network, they will need to consider the management involved in the investment. There are also passive investment opportunities. Non-accredited investors can invest directly via shares. For example, they could buy stock in an existing aged care and housing company, such as Ensign Group, or invest money in a real estate investment trust (REIT). Meanwhile, accredited investors have the option of investing in a Delaware Statutory Trust.
Are you interested in learning more? Contact our team to discuss how to invest in the aged care and housing sector today.
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