The aging Baby Boomer generation, also known as the "silver tsunami," is significantly transforming many industries, with real estate being no exception.
According to the World Health Organization, the number of people 60 years or older will double from 12% to 22% between 2015 and 2050. This massive shift suggests an increase in the demand for specialized housing for older adults. A large portion of this demographic prefers to 'age in place' – continuing to live in their homes. For some, moving into senior-living facilities that offer various levels of care ranging from independent living to nursing care is the preferred option.
As more seniors are opting to age in place or move into elder care facilities, the real estate industry is rapidly adapting to cater to this massive demographic shift.
Elder care-driven real estate opportunities
With great change comes great opportunity, and today’s market is no different. The growth of the U.S. senior demographic will translate into several emerging growth opportunities for the real estate industry. The key to success here is to understand both real estate and the elder care industry so you know what to expect and how to adapt as the market evolves.
Home modifications and universal design
With some seniors wanting to stay in their homes for as long as possible, the demand for home modifications has seen a substantial increase in demand.
The principles of "universal design," which focus on making environments as usable as possible by as many people as possible, have become increasingly relevant. These modifications can range from simple additions like grab bars and wheelchair ramps to more comprehensive renovations like installing stairlifts or even creating an entire ground-floor living suite.
Demand for this has grown so dramatically in recent years that services have popped up to specifically address it.
The role of real estate professionals is evolving, with many now offering consulting services on these modifications to make homes more "age-friendly." There's also a growing market for contractors, lenders, real estate developers, and investors to make this available for more seniors, which is creating unprecedented opportunities for those jumping in on the ground floor of this budding niche.
Senior living expert and co-founder of Mom’s House, Phillip Vincent, says, “The goal for many seniors is to stay in their home as long as possible, and this growing demand for the ability to sell without the hassles of getting the house ready for the retail market has been a primary driver for this segment of the industry. That’s because doing large scale clean out and rehab projects so they can sell a property at the same time they’re trying to find the best care for their aging parents is, to put it bluntly, a massive and excruciating undertaking. I have found that families that typically get along, don’t get along during this transition, and we got into this side of the industry to solve that. Most people underestimate just how difficult this process can be, and that often takes their focus away from where it should be, which is finding or creating the best possible living environment for their aging loved ones.”
Vincent says it’s important to make sure anyone you work with on this type of project truly understands the unique nuances faced in this niche, because that can make or break your investment.
Senior housing communities / Assisted living facilities
The market for assisted living, memory care and independent living communities is growing significantly and expected to continue in the coming years.
Real estate developers and investors who can capitalize on this demand by constructing or investing in these facilities stand to make substantial profits.
While investing in these properties requires a significant upfront investment and knowledge about health and safety regulations, the returns can be potentially rewarding given the consistent demand. Furthermore, this sector offers opportunities for public-private partnerships, as these facilities can help local governments meet their housing and care obligations for older residents.
But as both demand and competition in this space grows, it’s important that real estate professionals involved in this industry understand what their local markets need and how to clearly articulate the advantages of their facilities.
The first step is to conduct market research to identify the needs of seniors in their market, then research existing facilities in the area to identify gaps between what’s available and what consumers need.
I’ve found ElderGuide.com to be a great resource for this type of research because it compiles massive amounts of data from multiple sources and presents it in an easy to digest way. Networking with relevant medical professionals and industry can be another great source of local information, and trade publications can be valuable as well.
This research and planning is critical because when you look at the size of investment required for a typical assisted living facility, it’s easy to see how devastating a mistake here can be.
Real Estate Investment Trusts (REITs)
REITs specializing in senior housing are another attractive opportunity for investors. These trusts invest in a range of properties including senior living communities, skilled nursing facilities, and medical buildings.
The returns for this type of investing have historically been robust, with the demographic shift likely to support this trend well into the future. It’s also a lot easier and less costly to get involved in these REITs compared to direct investments, but there is a downside too—investors in REITs miss out on many of the tax advantages that come with direct investing.
Potential challenges in the elder care real estate niche
While the elder care real estate market holds immense potential, it's essential to be aware of potential challenges:
Health and safety regulations for senior living facilities are unbelievably stringent and vary from state to state.
It's essential for developers and investors to thoroughly understand these regulations before venturing into this segment of the market. Failure to do so can result in deals falling through and/or racking up costs through fines and penalties.
Running an elder care facility requires more than just real estate expertise. It involves a mix of hospitality, healthcare, and real estate management skills. Collaborating with experienced operators or hiring skilled professionals is a must for success.
Like any real estate investment, senior living facilities are not immune to market volatility. The recent COVID-19 pandemic has shown the potential for unexpected challenges, as many facilities faced high vacancy rates due to health concerns and social restrictions.
While the upside of getting into this niche can be massive, the downside can be as well. Market disruption is almost a certainty, so you need to be prepared for it so you can adapt quickly.
The aging population presents a significant opportunity for the real estate industry. Whether it's through modifying existing homes, building or investing in senior living communities, or investing in senior-focused REITs, the potential for growth is enormous.
However, like any other investment, these opportunities come with their unique challenges. Developers and investors willing to navigate these challenges and capitalize on the changing demographics stand to benefit significantly in the coming years. With the right approach, the elder care industry can indeed be the next big growth opportunity for the real estate sector.
Matthew Bell is a real estate investor and the CEO of Apollo Property Group, which provides struggling homeowners much needed relief and a fresh start, makes high quality homes available to renters, and offers an investing opportunity for others through the company’s fund.
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