Real estate investing is a popular alternative income stream for physicians. Doctors are no strangers to the aging population in America, but they may not know much about opportunities to invest in senior housing real estate. Below, we cover trends in senior living, how they’ve evolved over time, the forecast for future development, and investment opportunities, including senior living REITs and syndications, available for physicians.
*The content below was written by a sponsor of our real estate education series, Sovereign Properties. They offer investment opportunities for development deals for active adult living and multifamily apartment buildings via private syndication.
Disclosure/Disclaimer: The team at Physician Side Gigs did not write this content and the views expressed here are written by and that of the team at Sovereign Properties - the decision to contact Sovereign Properties for more information about investment opportunities is your own, and mention of Sovereign Properties should be viewed as an introduction rather than a recommendation. We do not make specific investment recommendations or endorsements, and are not qualified to do so, as we are not formal financial, legal, or otherwise licensed investment professionals. You should consult these as appropriate before making any decisions based on what you read here. Please do your own due diligence before making decisions based on this website. The use of this website constitutes understanding of these terms. To learn more, visit our disclaimers and disclosures.
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Pairing demographic trends with the next real estate cycle
Demographic trends play a key role in any real estate cycle. Demographic data influences household trends and informs which property types and locations are most in demand. The key to utilizing demographics to guide any real estate investing strategy is to focus not on “the now” but on “the next”.
Historically, we’ve witnessed momentous demographic shifts that influenced housing supply and demand. In the 1940s and 1950s, we saw a dramatic increase in population growth (the “baby boom”) and a release of pent-up consumer spending post-WWII that influenced suburbanization. New families sought housing, and significant federal investments in housing and a highway system meant those families could move out of the city.
Almost six decades later, we saw the Great Recession and a housing market crisis that profoundly impacted the economy. With fewer employment opportunities, we saw a decline in household formations. Millions of households lost their homes due to foreclosure. Fewer young adults were getting married and moving out of their parents’ home, while those that did often chose to rent an apartment with one or more roommates. These factors fueled demand for rental housing and single-family rentals (SFR), and luxury, amenitized multifamily properties grew in popularity as a result.
The next decade of housing will need to evolve to meet the demands of the two largest demographic groups in the U.S. – Millennials (72.1 million) and Baby Boomers (71.6 Million). Millennials are aging out of apartments and seeking homeownership but face significant affordability challenges that will limit their ability to purchase homes en masse.
An aging population of Americans will increase the need for housing for seniors
However, the aging Baby Boomer population is the wealthiest generation to have ever lived, according to a 2024 global wealth report from Allianz. According to the U.S. Department of Health and Human Services, more than 10,000 Americans turn 65 every day. Growth in the 70-to-85-year-old age group of Americans will accelerate over the next decade. The same generation that accumulated tremendous home equity over the past decade is now struggling to find accessible housing as Baby Boomers retire and seek to downsize.
According to recent census data, on average, a 65-year-old U.S. woman can expect to live an additional 19.7 years, and a 65-year-old U.S. man can expect to live an additional 17 years. This cohort is expected to live longer, healthier lives than any that preceded.
Supply and demand in the senior living real estate market and current investment gaps
Occupancy rates among senior housing communities in the U.S. continue to rise as the supply of new properties slows. Construction starts for senior housing totaled 7,100 over the last four quarters, the lowest level since the 2009 housing crisis rattled markets.
According to the non-profit organization National Investment Center for Seniors Housing & CARE ("NIC"), by 2040, the U.S. will need over $1 trillion in inventory to house the 80+ age group. At the current construction pace, there will be an investment gap of approximately $298 billion by 2030. By 2040, that gap will grow to roughly $774 billion.
The intersection of a dwindling supply and accelerating demand ultimately means that the senior housing market is perhaps better positioned to withstand an economic downturn than other real estate classes.
Active adult living as a segment of senior housing that is increasingly in demand
One of the fastest growing segments in senior housing will be active adult living.
NIC defines active adult rental properties as market-rate, age-eligible multifamily properties that are lifestyle-focused, with general operations, and do not provide meals. These properties appeal to younger seniors with minimal or no acuity needs seeking to remain independent and maintain an active lifestyle.
This cohort is seeking to relinquish the burden of home ownership and oftentimes is looking to move closer to children and grandchildren. It is not surprising to see that the same states with the largest percentage increase in population age 65 and over strongly correlate with the fastest growing states overall.
How the rental market for active adult properties and senior living compare to other multifamily investment opportunities
Rents in the active adult segment typically command rent premiums of 10% - 30% over comparable multifamily properties. In addition, tenants in active adult communities tend to have longer lease tenures, ranging from 6-9 years, reducing the risk and costs associated with high turnover.
The average occupancy rate among active adult properties was 92.6% as of the 2nd quarter of 2024, nearly 7% higher than the average for the entire senior living industry of 85.9%, according to NIC.
Opportunities for investing in senior housing and active adult properties
While the level of care will vary among property types, any successful senior living investment will require both operational and real estate expertise.
While you can take an active approach and purchase a senior living home or small community, there are also passive options for investing in the space. Whether you are interested in active or passive investing, senior living opportunities are worth considering as part of any real estate investment portfolio. While many uncertainties remain for the U.S. economy and the future of the real estate sector, the aging population and its housing needs are an undeniable demographic trend poised to perform well in the next real estate cycle.
Passive ways to invest in the senior living space via REITS and syndications
Real Estate Investment Trusts (“REITs”) and private equity firms offer investment opportunities for those who want to invest in senior living without the burden of active management. REITs must distribute at least 90% of taxable income in the form of dividends to their shareholders annually and must derive at least 75% of gross income from rent, interest, or real estate sales. By definition, REITs focus on income-producing properties rather than developing new ones and are generally more growth-constrained as a result.
Private Equity investments are typically unconstrained by asset class and are not required to pay out high income producing properties in the form of dividends. As such, real estate private equity returns are usually driven by profits upon exits in the form of capital gains. One constraint of private equity investments vs. public REITs is that private equity investments are not publicly available and are restricted to accredited investors.
Related PSG resources:
Sign up for our upcoming free webinar on the state of senior living, where our sponsors at Sovereign Properties will dive deeper into the topic below and answer your specific questions.
Our sponsors at Sovereign Properties offer investing opportunities in senior living real estate for physicians interested in exploring options. As noted above, you must be an accredited investor to invest with them. Let them know you’re coming from PSG, in case they’re offering perks to the group as part of their sponsorship of our real estate education series.
Learn more about syndications (opportunities to passively invest in real estate).
Conclusion
There is simply not enough housing to meet the demands of an aging population. Increasing demand, dwindling supply, and improving financial conditions are poised to create an attractive investment entry point for those interested in leveraging demographic trends and getting involved with investments in the senior living space.
Additional real estate investment resources for doctors
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Dive deeper into real estate investing with our free real estate educational virtual events for doctors, including replays of previous events.