Residents of assisted living facilities (ALFs) and nursing homes receive 24-hour care that includes meals, exercise, medication, and social activities. If needed, staff members assist the residents with activities of daily living, such as bathing and dressing.
ALFs are attractive options for individuals interested in investing in the healthcare sector. Statistics show that the elderly population of the United States is increasing. Since 2010, the American population aged 65 years and older has grown by more than a third, a faster increase than all other age groups. Projected numbers indicate that this group will reach 80 million by 2040.
Such trends in the American age demographics influence the demand for healthcare services. To serve the increasingly aging population, ALFs are bound to become a booming industry that attracts real estate investors.
Investing in ALFs can take many forms. After purchasing an ALF, an investor may privately operate it or rent it to a third-party management company. Alternatively, investors can opt for a simpler but profitable opportunity: investing in a real estate investment trust (REIT).
REITs are property-owning companies that help investors allocate their funds in real estate assets. Healthcare REITs own facilities such as hospitals, wellness centers, and ALFs. Investors buy shares in healthcare REITs to earn dividends generated by the REIT-owned property. Evaluating the benefits and risks of investing in healthcare REITs, specifically, those in charge of elderly care facilities such as ALFs, is an important step for investors.
Investors with little to no experience in medical care management can bypass this obstacle by investing in REITs. By investing in REITs, investors can reap financial benefits without active involvement in the leasing or operational procedures.
Investing in healthcare REITs is a particularly low-risk but high-reward opportunity. Due to the rise in demand, investing in ALFs is not a risky choice because reliable statistics show that the industry is booming. Along with ALFs, senior housing facilities and nursing homes constitute the bulk of REIT-owned healthcare properties. For example, the three largest healthcare REITs - Welltower, HCP, and Ventas - specialize in senior housing. Their total market capital exceeds 65 billion dollars.
Additionally, REIT-owned medical facilities amount to less than 15 percent of all healthcare properties in the United States. Therefore, healthcare REITs are still in their early stages, allowing for market growth over the next decades.
In economic recessions, health care is among the most resilient industries, making REIT investments low-risk opportunities. Regardless of the state of the economy, healthcare facilities will continue to operate because demand for medical care is unaffected by financial fluctuations.
Another advantage of investing in healthcare REITs is their leasing terms. Typically, leasing a REIT-owned property is a long-term commitment that spans 10 years or more. Clinics, doctor’s offices, and ALFs do not change locations easily, so this long-term leasing opportunity is a stable, reliable source of income.
However, investing in healthcare REITs is not completely risk-free. An increase in interest rates can lower REIT stock prices, threatening the security of investments. Another potential risk is oversupply. Despite the high demand for elder care services, a matching supply increase can create an oversupply. Fast ALF construction that meets and exceeds the demand may result in vacant ALFs that yield no returns.
