The Asset Class of Senior Housing

Despite the fact that the birth rate in the United States has fallen to its lowest level in more than a century, there are still many seniors in need of high-quality housing that meets their unique requirements. Just behind the millennial generation in terms of size, the baby boomer generation is the second-largest. Our civilization is aging as a whole, necessitating more senior housing in the years to come. Over the decade beginning in 2020, the number of persons who will be 75 years old will increase astonishingly by 48.1%, more than double the growth rate from the previous ten years (Source: U.S. Census Bureau projections). The best moment to invest in the asset class of senior housing may be right now.

Senior housing is an enterprise.

Every single day, around 10,000 baby boomers reach the traditional retirement age of 65 (Source: Sen. Rob Portman (R-Ohio), in The Wall Street Journal, July 22, 2014). The next golden years are short-lived. Senior living is a given for many as they approach or attain octogenarian status, despite the fact that some baby boomers are choosing to stay in the comfort of their homes due to the rising cost of home care.

The unpleasant loss of autonomy that comes with aging is also a possible investment opportunity for astute investors. But no two senior housing complexes are alike in terms of their size, style, or value proposition. This unique company's degree of attention and concern is what makes it special. Operators who have the right policies, procedures, and systems in place draw customers as well as devoted personnel. The finest senior living facilities have strong personnel retention rates, which draw more residents and boost revenue.

The average number of units in senior home complexes exceeded 100 as of the beginning of 2021. (106 to be exact). A $34,725,000 average development cost translates to a $269,400 average cost per unit. (Source: CBRE's December 2018 U.S. Seniors Housing Development Costs Report) If you do the math, you'll find that the average cost per square foot in this industry is an amazing $317. As more baby boomers move into senior homes, this number will probably rise much further.

The Advantages of Senior Housing as a Class of Assets

Although it makes sense that the typical investor would be focused on finding the next hot growth stock, senior housing actually has the potential to outperform other asset classes in both the short and long term. According to the research, senior housing has done pretty well as an asset class even throughout economic downturns. As they get older, people frequently look for a social setting with readily available care.

Since more people are living longer than ever, they will stay in senior home for longer than in the past, driving up costs for every level of care. The several degrees of senior living are as follows:

Age 55+
Senior living
dementia care
competent nursing
The words "Senior living" or "senior housing" frequently conjure images of expert nursing in the minds of many people. However, it's critical to thoroughly comprehend the differences because each level of care demands unique operational capabilities and shouldn't be grouped together when determining the return on an investment in senior housing.

There are no two identical senior housing communities.

In terms of care quality and investment appeal, senior home facilities within a single market may range greatly from one another. In other words, each form of senior living facility has unique characteristics and subtleties that should be thoroughly considered and grasped.

Although occupancy rates for senior living vary across the sector, rents are comparatively stable and could rise as the housing crisis plays out in the coming years. In contrast to other types of real estate, senior housing assets have historically offered consistent rates of return.

Invest in Senior Housing with Advice from a Sector Professional

There will likely be more than a 22% increase in the number of Americans over 75 between now and 2025, according to projections. By 2025, more than a million people will have reached that age. As the decade ahead takes shape, it is evident that senior housing will not only be in demand but also perhaps be quite challenging to find (Source: U.S. Census Bureau projections).

The time is now to think about making an investment in this expanding asset class. Get in touch with Perch Wealth right away and invest under the direction of a senior housing industry expert who has in-depth knowledge of this sector, including the advantages and disadvantages of particular operators, to acquire a complete grasp of the potential risks and benefits. Seize the chance to diversify your investment portfolio and benefit from the growing senior housing market.

References

Dale Watchowski, Is Now a Good Time to Invest in Senior Living? (February 9, 2021),

Ecofin, Senior Living - Investing in a growing population (April 9, 2021),

Blake Peeper and Vanessa Gil, Pensions & Investments, Commentary: Senior housing in the post-COVID-19 world (November 17, 2020)

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

* There is no guarantee that any strategy will be successful or achieve investment objectives;
* Potential for property value loss - All real estate investments have the potential to lose value during the life of the investments;
* Change of tax status - The income stream and depreciation schedule for any investment property may affect the property owner's income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
* Potential for foreclosure - All financed real estate investments have potential for foreclosure;
* Illiquidity - Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
* Reduction or Elimination of Monthly Cash Flow Distributions - Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
* Impact of fees/expenses - Costs associated with the transaction may impact investors' returns and may outweigh the tax benefits

Should I Invest in Housing and Elderly Care?

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.

What is the housing and elderly care industry?

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.

senior-care-housing-industry-assisted-living-1031-exchanges-Arizona-investment-strategies

What should people consider when investing in the housing and elderly care Industry?

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:

Medicare provides federal health insurance coverage to nearly all Americans 65 years of age or older. It often covers medical expenses in memory care facilities (excluding room and board) and short-term care in a qualified nursing facility.
Medicaid is a state and federal program designed to provide health coverage to vulnerable and uninsured populations. Individuals must qualify for coverage. Medicaid coverage varies by state; some states cover assisted living, memory care, and / or skilled nursing care.
Insurance coverage depends on what the property accepts and the resident's insurance. This varies greatly.

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.

Review of Demographics and Location

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.

Who is the operator?

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?

Those interested in investing in have more options

senior-housing-and-care-industry-AZ-investment-strategies — Group of business people discussing and working together during a meeting at outdoor cafe

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.