Middle-income senior housing strategies

[Jason Turgeon]

My wife and I have aging parents, so this is something that's been on our minds anyway. Now this article in today's Boston Globe discusses the huge need for affordable housing with resources for some sort of assisted living and it has me thinking. 

The wealthiest of seniors are well taken care of by the private sector in nursing homes and lesser forms of assisted living situations that start at $5000 per month and can rapidly escalate. I have a friend whose uncle is paying nearly $11k a month to a private nursing home. And the poorest seniors qualify for subsidized nursing homes.

But what about the middle income seniors? The "retired teachers, trade union members, first responders, [and] government workers" listed in the article?

Per the article, "the study projects that by 2029 about 14.4 million middle-income seniors — nearly double today’s number — will lack the financial resources for housing and personal care assistance.... [there needs to be] a national push to accelerate construction of assisted living units for middle-income residents...and spark new payment models for middle-income assisted living."

Obviously this will be a partnership enterprise. We here on these forums are interested in real estate, not providing nursing care services. But with the right strategies and partners, there could be a way to do some real good and capitalize on a huge market of underserved people.

What are some strategies you all have seen that work for middle-income senior housing? What new things could/should we (as real estate investors) try? What about these "new payment models?" How could partnerships with care providers be structured to benefit everyone?

[Gene Guarino]

It is a combo of real estate and business.  

The business is where the bigger opportunity is.  

There are 4,0000 people EVERY DAY turning 85 years in America.  

That is 1,400,000 a year.  And each year for the next 20 years, hundreds of thousands of them will need to move to assisted living facilities or homes like these.  The opportunity is that there are only about 1.6 million or so assisted living beds in the US right now.  That is a crisis for those that can not afford to pay for their own care or do not have families willing and able to stop or pause their lives so they can take care of them directly.

But, that is the opportunity for us.

Jason, I agree that, In Florida, the 6 bed model is common BUT it is harder to do a 6 bed profitably unless you are charging $6,000 or more per resident.  That is the average in some states but not in all states.  

The maximum number of people you can have in a Care Home in FL is 21.  Using a larger, nicer and well located home is important to reaching success there.  Having 10-12 or 15-16 beds is MUCH better.  Focusing on private pay residents vs medicare or lower paying residents is where you should focus if you are going to get into this industry.

We focus on "private pay" residents.  The National average is $4,000 per person per month.  If you have a very nice home in a better area and charge $5,000+ and then the numbers speak for themselves.

10 beds at $5,000 = $50,000 gross income.   

The expenses include: Rent or the debt service, Vacancy allowance, caregivers, manager, food, insurance, marketing and everything else that is required, would be in the $20,000 to $30,000 range.  Lets use $30,000. 

$50,000 - $30,000 = $20,000 per month.  

60% occupancy is required to "break even" the rest is your profit.

Some additional benefits:

The real estate is continuing to go up in value over time and the business of the care home is generating significant income.  In addition, if a family member ever needs that type of care, they could move into the home at no cost to you (its your own home) saving you $5,000 or more a month for years.  If they have a Long Term Care Insurance policy, you can collect on that as they are living in your care home... double dip.

And if you want to sell the real estate you can and then it can be leased to the company that is operating the care home business.  Many operators would be happy to pay a higher rent if you sign a longer lease... that is a great situation for those that just want to own the real estate any way.

In addition you've created a valuable asset, an income producing business, that can be sold as well.  There are people that would LOVE to purchase a well run, profitable assisted living business all cross the country.  I know because we train operators who are looking for them every day. 

Gene