If you are interested in investing in senior housing, you may have heard of REITs. But what are they, and how can they help you invest in this growing sector of real estate? This article will explain what REITs are, how they can help you invest in senior housing without buying or managing property, and what factors to consider before investing.
What are REITs?
REITs stands for real estate investment trusts. These are companies that own and operate income-producing real estate, such as senior housing. REITs are similar to mutual funds, as they provide everyday investors with dividend-based income and long-term capital appreciation. Also, REITs are traded like stocks on an exchange, which makes them liquid and easy to buy and sell.
REITs must pay more than 90% of their taxable income as dividends to shareholders, who then pay income taxes on those dividends. This allows them to avoid corporate income taxes, which benefits both the REITs and their investors.
REITs allow investors to target industry trends and diversify their portfolios. For example, if you want to invest in senior housing, you can buy shares of a REIT that specializes in this sector rather than buying or managing individual properties.
This way, you can benefit from the growing demand for senior housing from the aging baby boomer population.
Senior housing is a broad term that covers different types of properties that cater to older adults, such as independent living communities, assisted living facilities, skilled nursing facilities, and medical office buildings. There are currently 15 senior housing REITs, some of which operate in the U.S. and abroad.
Senior housing REITs can help you invest in this sector without buying or managing property. You can simply buy shares of a senior housing REIT and receive regular dividends from their income. You can also benefit from the potential appreciation of their property value over time.
Some of the advantages of investing in senior housing REITs are:
- Recession-resistance: Senior housing is considered a needs-based investment, meaning that the demand for it is driven by older adults’ health and lifestyle needs rather than the overall economy. This makes senior housing REITs more stable and resilient during economic downturns.
- Demographic tailwinds: The U.S. population is aging rapidly, with about 10,000 baby boomers turning 65 every day. By 2030, all baby boomers will be older than 65; by 2034, older people will outnumber children for the first time in U.S. history. As more people age, they will need more senior housing options that fit their needs and preferences. This creates a strong and growing demand for senior housing REITs.
- Diversification: Senior housing REITs offer diversification benefits for investors who want to reduce their exposure to other sectors of real estate or the stock market. Senior housing REITs have a low correlation with other asset classes, meaning that they tend to perform differently under different market conditions. This can help reduce the overall risk and volatility of your portfolio.
While senior housing REITs offer many advantages for investors who want to invest in this sector, they also come with some risks and challenges that you should be aware of before investing. Some of these factors are:
- Regulatory changes: Senior housing is subject to various federal, state, and local regulations that affect its operations, costs, and revenues. For example, changes in Medicare and Medicaid reimbursement rates can impact the profitability of skilled nursing facilities or medical office buildings. Changes in licensing requirements or quality standards can also affect the performance of senior housing properties.
- Operational challenges: Senior housing is a service-intensive business that requires skilled staff, high-quality care, and customer satisfaction. Senior housing REITs rely on third-party operators to manage their properties and provide these services. However, finding and retaining qualified operators can be challenging, especially in a competitive and labor-intensive market. Moreover, senior housing operators face risks such as lawsuits, liability claims, or regulatory violations that can affect their reputation and financial results.
- Market competition: Senior housing is a fragmented and competitive market, with many players vying for the same customers. Senior housing REITs face competition from other REITs and private equity firms, developers, and operators who own or develop senior housing properties. Additionally, senior housing REITs compete with other housing options for older adults, such as staying at home, moving in with relatives, or choosing non-traditional forms of senior living, such as co-housing or intergenerational communities.
Senior housing REITs are a great way to invest in senior housing without buying or managing property. They offer dividend income, capital appreciation, recession resistance, demographic tailwinds, and diversification benefits for investors who want to tap into this growing sector of real estate. However, investors should also be aware of the risks and challenges involved, such as regulatory changes, operational challenges, and market competition. Therefore, before investing in senior housing REITs, you should research, compare different options, and consult a financial professional.