Investing In Senior Housing 101

Understanding Asset Types

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Senior Living Facilities

Senior housing properties are an investment that some investors choose as a replacement property for a 1031 exchange. As the baby boomer generation transitions to senior living facilities, the demand for senior housing continues to increase. This expanding and under-served market has become a growing area for investment, attracting the attention of many investors.

Before investing in senior living facilities, it's important to understand your options and what possibilities may suit your financial and investment goals.

Senior Housing: Levels of Care

The term ‘senior housing’ is a broad classification for housing communities that cater to long-term residents over the age 65. Skilled nursing facilities, which although occasionally will get grouped with senior housing, are actually defined as senior care. Before you invest in one of these types of facilities, you should understand their specialties and how they differ from one another.

Independent Living

Independent living communities are designed with multiple units meant to provide residence and amenities for senior adults. The units are often one to two-bedroom apartments, complete with kitchens and laundry facilities. Residents have the ability to come and go as they please, cook their own meals, and care for themselves while receiving the social benefits of living in community with other senior adults. Supportive services are typically available to residents upon request. These services can include: meals, housekeeping, laundry, fitness classes, social activities, and transportation. These services are usually offered to the residents for an additional cost to their monthly housing fee. Some independent living facilities are strictly residential units where senior adults live without the options of additional supportive services. These types of facilities are more often referred to as senior apartments.

Assisted Living

Assisted living facilities are designed with multiple private units meant to house residents who are disabled or unable to live independently. In addition to coordinating services of outside healthcare providers, assisted living programs provide supportive services to residents. These services can include: meals, laundry, housekeeping, medication reminders, and assistance with activities of daily living such as bathing, grooming, eating, dressing, toileting, shopping, and managing money. Because assisted living facilities are regulated on a state level rather than a federal level, differences exist between the services and level of care offered from one assisted living facility to the next.

Memory Care

Memory care facilities are licensed healthcare facilities that specialize in caring for senior adults living with Alzheimer’s Disease, Dementia, and other cognitive impairments. These facilities exist to provide an assisted living environment for their residents to continue to live engaged, social, and active lifestyles while their physical and emotional needs are met by an onsite nursing staff. Residents typically receive services that include: activity planning to stimulate cognitive abilities, meals, assistance with personal care and medications, housekeeping, laundry, exercise programs, and transportation. Additionally, these facilities are highly secured to protect residents prone to wander. While many memory care units operate independently, others are a special care unit within a general assisted living facility.

Skilled Nursing

Skilled nursing facilities have a licensed nursing staff 24 hours a day for patients requiring care and supervision. Often times these facilities offer rehabilitation and other specialized services to those recovering from an accident, surgery, or other health issues. These services could include physical therapy, speech therapy, occupational therapy, social services, medications, and other services necessary to the health and wellness of the patient. These facilities are more appropriately defined as senior care rather than senior housing. The patients stay is usually shorter-term and they are able to receive a higher level of treatment than the other previously mentioned facility types.

As you can see, these facilities can differ greatly in the acuity or level of care they offer. This completely changes how the property is valued. Since the operations are tied directly to the underlying real estate, it’s important to have an acquisition team highly experienced in the senior housing real estate space. Understanding the operating business is crucial to making a smart investment.

Benefits and Risks of Investing in Senior Housing

When you invest in senior living facilities, you get involved in a market that can offer many growth opportunities and benefits, including:

Rising demand: According to the 2020 U.S. Census, the population over 65 has grown by over a third in the past decade and continues to expand. It seems that the demand for senior housing will only continue to increase.

Resilient investment: Senior housing is in a position to be resilient because there is a demand for senior health care even in a changing economy.

Diverse investment options: Many different properties within the senior living industry are eligible to meet 1031 exchange criteria.

On the other hand, senior living facilities have some unique challenges that can impact the actual return on investment, such as:

Unavoidable turnover: When a facility has an opening, it can occasionally take a while to find a new tenant, as most communities have age and financial requirements. This delay can lead to shortfalls in occupancy that can reduce the actual net operating income of the facility.

Regulatory uncertainty: As we have unfortunately seen with the COVID-19 crisis, there are flaws in the country’s senior care programs. This situation may lead to legislation requiring updates to the facilities or additional expenditures which could negatively impact net income.

As with any real estate syndication, such as a DST, an experienced operating company specializing in the sector can help mitigate these risks.

How to Invest in Senior Housing

As an investment in both a property and a business, senior housing encompasses several benefits and risks. Make sure that you understand the risk and that you choose eligible properties that can mitigate those risks. Lawsuits, staff turnover and heightened regulations are important to consider. These potential risks are not a reason to not invest, but they illustrate the importance of strategic investments.

An experienced operator is critical to a potential investment. The operator is responsible for maintaining regulation compliance, bringing in staff and attracting customers. With a strategic and knowledgeable operator, you have a key indicator of the potential investment quality. It's also important that an expert team does the research and acquires the facility. Overall, you want to make sure a prospective investment has management you can trust on an operational and investment acquisition level.

If you intend to use senior living facilities as part of a 1031 exchange, ensure that you meet the criteria for a successful exchange, including selling your property and getting a replacement property that fits the similar type designation. You'll also need to identify your property in 45 days and close in 180 days to qualify for tax deferment.

Why Partner With 1031 Crowdfunding?

At 1031 Crowdfunding, we make acquiring real estate that adheres to 1031 exchange criteria more accessible and convenient. Investors work with us because they get personalized support through every step of the exchange process. Our expert team has over 60 years of combined experience in securities, and we offer comprehensive assistance for every client.

From our innovative online DST marketplace to guidance for filing paperwork efficiently and accurately, we make real estate exchanges fast and straightforward. While the law stipulates that investors must close on a replacement property in 180 days, many of our clients close on their 1031 exchange properties in just 3-5 days.

Call us today at (844) 533.1031 to learn more about these asset types and how they may fit into your real estate portfolio, or Join the Crowd today to start your investment process.

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.