Three Ways To Invest In Senior Living

Founder and CEO of ERG Enterprises. Nationally recognized thought leader on entrepreneurship, investing and leadership.

As an industry, senior living is rife with challenges. It’s also ripe for disruption.

Consider the facts: By 2030, one in five Americans will be age 65 or older. Forecasts predict that nearly 881,000 new senior living units will need to be built then—a dramatic increase from the current housing supply. Add to that the significant demand for and shortage of healthcare services. Today, “nearly 95% have at least one chronic condition, and nearly 80% have two or more.” Meanwhile, whether through access or affordability, many seniors are unable to get the treatments they need.

All of this creates a scenario we desperately need to address. The good news is, it also creates incentive for entrepreneurs to do what they do best: transform the status quo. And it gives investors a meaningful and rewarding vehicle in which to inject capital.

But the senior living industry is vast, and the investment options many. So, how do you as an investor break in? Here are three common ways to invest.

1. Real Estate Investment Trusts (REITs)

REITs give investors an ownership stake in commercial real estate property via the public markets. While there are many types of these investments, you can fund those that own and operate senior living communities. REITs offer several advantages to investors: Because they’re traded on the public exchange, anyone can invest in them. They also don’t require you to possess institutional knowledge or qualifications, which other avenues typically do.

However, keep in mind that every investment vehicle comes with disadvantages. REITs often limit investors’ upside potential compared to direct or private investment. Since these investments are traded via the public markets, investors typically have less control over strategic decisions relative to the other options we’ll explore.

To invest in a REIT, simply open an online brokerage account. But do your homework first. These investments are like any other security traded on the public exchange and require thorough research.

2. Direct Private Investment

Let’s say you don’t have any operational experience in senior living but you have substantial capital you want to put to work. One option is direct private investment, a route which requires you to find an operator and a developer. On the operator side, you need a capable and expert management team—one with significant experience in senior living. For development, you need to find a partner with the talent and expertise to either convert an existing property or build a property from scratch, while ensuring it meets the unique regulatory requirements of a specific senior living community, such as an independent-living community, assisted-living facility or nursing home.

With a developer and operator, your role is to invest in whatever it takes to bring a product to market and begin generating cash flow. The end goal is either a successful exit or maintaining ownership and earning a percentage of its profitability—either of which can be highly lucrative.

The advantages are high upside potential, low-to-no need for operational experience in senior living, and more voice and control in strategic decisions than you would typically have in public investments. However, with higher reward comes higher risk. You will likely lack some control in everyday decision-making, and finding an experienced developer and operator isn’t easy. Based on my experience, I recommend considering your network and whether you know a capable operator and developer, or someone who does. If not, research potential partners in your region, and don’t be afraid to cold call.

3. Investing In Private Funds

Similar to the other investment vehicles, private funds afford you the chance to put your capital to work in senior living communities, organizations or both. Like REITs, private funds pool capital from a group of investors to maximize spending power compared to direct private investment from a single entity.

While investing in a fund can lead to high returns and less risk than direct private investment, the reverse is also true. To invest in a security traded by an entity that may not be registered with the U.S. Securities and Exchange Commission (SEC), you also need to qualify as an accredited investor. That requires you to meet certain thresholds for income or net worth.

Investing in a private fund often depends on your connections. General solicitation isn’t allowed, meaning investment opportunities depend on direct and targeted outreach from people you know. If you are an accredited investor, keep an eye on your network. Don’t be afraid to express your interest in investment opportunities in the senior living space. You may be surprised to learn of a new opportunity.

Senior Living: Redefining The Status Quo

The senior living industry directly provides an essential service to the second largest cohort of U.S. adults (Baby Boomers) while also indirectly serving the largest demographic (Millennials). Despite this importance, senior living is burdened by problems often seen in industries on the brink of disruption, including talent and hiring shortages, market inefficiencies, an abundance of demand and a dearth of supply. All these factors give entrepreneurs reason to seek investment capital.

For investors, that spells opportunity and meaningful change. To me, that is what investing is all about.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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