Assisted Living Investing: Your Guide to Passive and Active Strategies

What is Residential Assisted Living?

Residential Assisted Living, or "RAL," is an increasingly popular trend in recent years the United States where residential homes are transformed into or built as small-scale senior care facilities. 

These warm, homelike environments provide better, personalized care for older adults and offer peace of mind and a cost effective solution for their families.

Residential assisted living homes tend to be purposely retrofitted existing property or built to suit. The requirements vary greatly by state and locality, but typically these homes have features like residential fire suppression, additional bedrooms, roll-in showers, widened doorways, and more. The level of customization can be very extensive in some of the most well outfitted homes.

While sizes and requirements vary, the most successful residential assisted living homes across the senior housing market will typically house between 8 to 16 residents, and can have private rooms or shared bedrooms. 

The median rate for assisted living is around $4,500 per resident, per month and growing–but this too can vary greatly on factors such as location, finish of the home, higher levels of medical care and care services (like memory care), etc.

Clearly, when you look at the numbers, this is by far the highest and best use of a residential home when this business model is permitted there. That's just one reason why a residential assisted living facility can be a good investment for some.

Why is Assisted Living Investing Potentially the Opportunity of this Century?

As baby boomers age, growing demand for senior care is skyrocketing, creating a massive opportunity for assisted living investors. This wave of demand, often referred to as the "Silver Tsunami," means that millions of seniors will require care homes over the next few decades. 

This might be the most important demographic trends in real estate this century. According to market research, there is already a massive shortage (1 Million beds and growing) of senior housing and the gap between supply and demand is going to continue to grow rapidly over the next two decades.

For real estate investors, this presents a unique opportunity to tap into an asset class that blends real estate with healthcare, offering significant cash flow and long-term stability. 

Despite COVID complications–which residential homes were better suited to withstand than large facilities–assisted living has historically outperformed most other real estate sectors, had steady rent growth, and sustained incredibly high occupancy rates, even during economic downturns. 

Because of this, you're going to hear a lot more about senior housing investments and assisted living investment opportunities. With the right approach, residential assisted living properties can generate returns far beyond typical residential rentals, while also providing an essential service to our aging population.

Whether you’re looking for a passive, semi-passive, or active investment, the residential assisted living model has something for everyone. Let’s dive into the various ways you can get involved and what level of commitment each option requires.

Active Investing in Assisted Living: Maximize Your Involvement and Returns

If you're willing to be hands-on, active investing in assisted living can deliver the highest returns. In this model, you’ll have direct involvement in the business and potentially the property. 

Now before your eyeballs get too big, this is a very active and serious business. While you have the option to hire management levels into the business, frankly you should skip this section if you are not passionate about leading a team and caring for seniors. 

The most successful residential assisted living businesses prioritize senior care and their staff over everything else, and because of that, they are quite profitable. 

Here are the key options for active investors:

Own the Home and the Business

This is the most involved strategy, where you purchase the home, operate the assisted living business, and manage all day-to-day operations. The start-up costs can vary, based on whether you purchase an existing business, whether you are starting a new business, and whether you have to renovate the home for this purpose. 

While this requires significant time and effort, it also offers the highest potential for profit, with ideal earnings of $10,000-$20,000 a month in net cash flow per home. Yes, you can achieve typical "financial freedom" numbers from a single, residential property with a senior care business. 

Own the Business, Lease the Home

If you're not interested in buying the property but still want to run the assisted living business, which has a lower entry cost, you can lease a home from a real estate investor who owns a RAL-ready home. This reduces your upfront capital requirement and allows you to focus on operations and care management.

Build From the Ground Up

For investors with experience or vision, constructing a custom RAL home allows you to design the property for maximum efficiency and profitability. This approach requires more initial capital, a lot more lead time, and development know-how but can result in a purpose-built, high-performing asset.

Semi-Active/Semi-Passive: Own the Home, Lease to an Operator

If you prefer a more hands-off approach but still want strong returns, semi-passive investing in RAL might be your best option. This is how I personally got started in residential assisted living, before getting more involved in operations. 

Own the Home, Lease to Assisted Living Business Operator

In this model, you buy the home and lease it to an assisted living operator who handles the business side. Compared to traditional single-family rentals, leasing a home to an assisted living business operator offers several advantages similar to commercial real estate:

• Higher Rents: You can lease the home at significantly higher rates than a standard residential lease. It may be as high as 3 times the normal single family rental rate. This is because the home is retrofitted and can be licensed locally for this purpose.
• Cash Flow: We all know it is hard to find a cash flowing semi-passive asset in real estate right now, especially at higher interest rates. We typically see around $3,000 in monthly cash flow per home.
• Longer Lease Terms: Assisted living operators typically sign long-term commercial leases (3-5 years), making this investment more stable with less turnover than a typical residential property.
• Hands-Off Management: Since operators handle most maintenance and upkeep–yes you read that right–this is even less work than managing a typical single-family rental.

Joint Venture Partner

Another semi-passive option is to joint venture as a capital partner. In this case, you provide the financing for the project while the other partner handles day-to-day operations, allowing you to benefit from strong returns without the full burden of management. 

But to be clear, you must still be an active partner with an active role in the partnership, making this not truly passive.

Passive Investing: Let Your Money Work for You

For investors who prefer a completely hands-off approach while building wealth in this sector, there are several ways to invest passively in assisted living:

Private Lending

You can provide private money to operators who need capital to acquire or renovate homes for RAL use. This can be a great way to earn interest and steady cash flow with minimal involvement, though you may not see all the potential investment benefits.

Direct Investment With Operators

Many RAL operators seek private investors to help fund their operations. You can find these opportunities in Facebook groups, mastermind communities, or by networking within the senior housing space. For this to be passive, that operator must offer some sort of syndication vehicle.

Invest in an Assisted Living Fund

If you want broad exposure to RAL without managing any details, you can invest in senior living syndication funds like Open Range Capital Fund, an investment vehicle which focuses on investing in RAL homes. 

These funds offer a diversified way to invest in this growing sector for cash flow and equity without needing to be involved in the day-to-day management.

Conclusion: Find the RAL Investment Strategy That Fits You

Whether you want to dive in fully or take a more hands-off approach, residential assisted living offers a wealth of opportunities with great returns in a sector where demand will continue to outpace supply. Savvy real estate investors should strongly consider making senior housing a part of their investment portfolio.

Passive investors can enjoy stable, long-term income with minimal involvement, while active investors can achieve even higher returns by running the business themselves. However, with active investing comes the responsibility of managing a care business, which isn't for everyone.

No matter which path you choose, investing in assisted living is one of the best ways to capitalize on the massive demographic shift happening over the next few decades. By getting involved now, you can not only build wealth but also make a meaningful impact on the lives of seniors in need of great care.