Senior Housing: Mutual Funds For Aging Population Investments

Senior housing is a growing market, with an ever-increasing demand for senior living facilities. With the aging population, the need for senior housing is only going to increase, making it an attractive investment option. There are several ways to invest in senior housing, including through mutual funds, real estate investment trusts (REITs), or private equity companies. Senior housing investments offer stable and high returns, and are considered recession-proof due to their consistent demand. This article will explore the different investment options available in the senior housing market and provide an overview of their potential benefits and risks.

Senior cohousing communities

Senior cohousing offers accessibility, safety, and social connection. Units are designed with accessibility features, such as elevator buildings or ground-level units, to accommodate seniors as they age. The close-knit community provides a sense of safety, with neighbours looking out for each other and the option for daily check-ins. Social connection is fostered through common meals, community spaces, and various activities, helping to combat loneliness, which research suggests is detrimental to health.

As of 2019, there were around 45 senior cohousing communities established or in development in the United States, with more popping up every year. Examples include Glacier Circle in Davis, CA, the first senior cohousing community in the nation; Silver Sage Village in Boulder, CO, with its green spaces and mountain views; and Village Hearth Cohousing in Durham, NC, an LGBT-friendly community with 28 single-story homes.

Senior cohousing offers a unique lifestyle choice for older adults, providing a close-knit community that improves health, reduces the need for senior services, fosters rewarding relationships, and makes life more affordable and enjoyable.

Senior housing real estate investment trusts (REITs)

Senior housing REITs specifically invest in properties such as independent living facilities, assisted living communities, and skilled nursing facilities. These REITs cater to the growing demand for senior housing, driven by the ageing population and the increasing life expectancy. The demand for senior housing is expected to increase further, with the number of Americans aged 65 and older projected to rise from 56 million in 2020 to 79.2 million by 2035.

When considering investing in senior housing REITs, it is important to evaluate the management, business strategy, and track record of the company. Additionally, investors should assess the sustainability of dividend payments, the overall health of the real estate market, and the impact of interest rate changes on the REIT's performance.

Senior housing REITs offer diversification benefits within a real estate investment portfolio. They are also less volatile than traditional stocks due to their larger dividends. However, it is crucial to monitor the supply of senior housing and potential demand to make informed investment decisions.

Some popular senior housing REITs include Senior Housing Properties Trust (SNH) and Ventas (VTR). These REITs have offered attractive yields and stable returns, making them a viable option for investors seeking exposure to the senior housing market.

Investing in senior housing during economic downturns

Economic downturns can be challenging for investors, but senior housing can be a resilient asset class during such periods. Here are some reasons why investing in senior housing can be a strategic move during economic downturns:

Growing Demand and Longevity

The world is ageing. The number of Americans aged 65 and above is projected to increase significantly in the coming years. By 2035, the number of Americans in this age group is expected to reach 79.2 million, up from 56 million in 2020. This demographic shift is driven by the emergence of Baby Boomers into retirement age. As life expectancies increase, seniors aged 65 can expect to live an additional 20 years, further boosting the demand for senior housing.

Recession Resistance

Senior housing is a needs-based investment, and its demand is relatively independent of economic conditions. During economic downturns, senior housing provides a more affordable and convenient option for seniors, making it recession-resistant. This was evident during the Great Recession, when senior housing was the only commercial real estate asset class that experienced positive asking rent growth, according to the National Investment Center.

Stable Investment with Attractive Returns

The demand for senior housing is driven by essential needs, ensuring stable investment prospects. The average annual return on senior housing investments over the past decade was 11.4%, according to the National Investment Center for Seniors Housing & Care. This stability is further reinforced by the continuous demand for senior housing due to the ageing population and the current shortage in supply.

Opportunities for Investors

Breaking into the senior housing sector can be challenging for individual investors. However, vehicles like Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs) provide more accessible paths. DSTs allow a group of investors to purchase a fraction of a property, while REITs enable investors to pool their money to buy a property passively. These options offer investors the benefits of real estate ownership without the challenges of being a landlord.

Due Diligence and Long-Term View

Investing in senior housing, particularly in cohousing communities, requires a long-term perspective. While it offers stable rental income, investors must consider the unique management dynamics of these communities. It is essential to understand the culture and the specific needs of older adults, such as wider sidewalks and outdoor seating areas. Additionally, a conflict resolution process is crucial for addressing potential privacy issues in communal living arrangements.

In conclusion, investing in senior housing during economic downturns can be a strategic move due to its recession-resistant nature, driven by the growing demand for affordable options among seniors. With the ageing population and the shortage in supply, senior housing presents a stable investment opportunity with attractive returns. However, investors should approach this sector with a long-term view and a thorough understanding of the unique dynamics of the senior housing market.

Senior housing as a niche market

Senior housing is a niche market with a lot of potential for investors. With the aging population and the increasing demand for senior living facilities, this market is expected to grow significantly in the coming years.

Growing Demand

The number of Americans aged 65 and above is projected to increase from 56 million in 2020 to 79.2 million by 2035. This is due to the emergence of Baby Boomers into retirement age. The 80-plus age group is expected to grow annually by 700,000 to 800,000 individuals by 2030, representing a growth rate of more than 24%. This growing demographic will create a greater demand for senior living facilities and communities.

Longevity

Seniors aged 65 are expected to live an additional 20 years, further increasing the demand for senior housing. A 2023 study by Harvard University's Joint Center for Housing Studies found that almost 70% of those reaching age 65 will require long-term care services for an average of three years, and 20% will need it for five years or more. This highlights the need for specialized housing options, such as senior cohousing communities, which offer a combination of private homes and shared living spaces.

Shortage of Supply

Despite the growing demand, there is a shortage of supply in the senior housing market. Construction of senior housing units has been declining since 2008, with only modest growth through 2014. The COVID-19 pandemic further exacerbated this issue, as new construction significantly slowed while the older population continued to age. This disparity between demand and supply is expected to be greatly amplified by 2026 when the 80+ population will begin to vastly outpace the current senior housing supply trend.

Recession Resilience

Senior housing has proven to be a resilient asset class during economic downturns. It provides a more affordable and convenient option for seniors, making it recession-resistant. The demand for senior housing is independent of economic conditions, ensuring stable investment opportunities. Additionally, senior housing has been a top-performing commercial real estate sector for the past 10 years, including during the 2007 capital market collapse.

Attractive Returns

Senior housing investments offer attractive returns. According to the National Investment Center for Seniors Housing & Care, the average annual return on senior housing investments over the past 10 years was 11.4%. This is higher than the average dividend yield of 3.21% offered by real estate mutual funds.

In conclusion, senior housing as a niche market presents a unique opportunity for investors. With the aging population and increasing demand for senior living options, this market is expected to flourish. The shortage of supply and the recession-resilient nature of the industry further enhance its potential. Investors can benefit from stable and attractive returns while also supporting the growing needs of the senior community.

Senior housing funds

Mutual Funds

Mutual funds are a popular investment choice as they provide investors with a diversified portfolio of stocks, bonds, or other assets. While there are no specific mutual funds dedicated solely to senior housing, some mutual funds invest in real estate investment trusts (REITs) that focus on senior housing and related industries. These funds offer stable returns and regular dividend payments, making them attractive for investors seeking consistent income.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate income-producing real estate, such as senior housing complexes. Senior housing REITs can offer attractive yields, but it's important to consider the sustainability of those yields and the performance of the underlying assets. Factors such as interest rate changes and oversupply in the senior housing market can impact the profitability of senior housing REITs. However, long-term demographic trends suggest a growing demand for senior housing, which could benefit senior housing REITs in the long term.

Private Equity Companies

Private equity companies, such as the Senior Living Fund, focus on investing in senior housing communities. These companies often seek out underperforming or financially distressed senior housing communities and work to improve their operational and financial performance. By making necessary modifications and renovations, they aim to increase the overall community sales values before exiting the investment, providing returns to the fund and investors.

In conclusion, senior housing funds offer a unique investment opportunity driven by the growing demand for senior living facilities. With the aging population and the emergence of Baby Boomers into retirement, the demand for senior housing is expected to increase, making it a stable and potentially lucrative investment option. Investors can choose from various investment vehicles, including mutual funds, REITs, and private equity companies, each offering its own set of benefits and considerations.

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