COMMUNAL LIVING HAS moved beyond the college dorm and spread into housing communities nationwide. A select handful of these cohousing communties, which combine private homes, condos or apartments with shared living spaces, cater exclusively to the 55-plus crowd.
“Senior cohousing fills a significant demand in the marketplace for seniors that no longer want to live on their own, but don’t need assisted living,” says Kevin Vandenboss, broker at Vandenboss Commercial in Lansing, Michigan.
Senior cohousing is designed to meet two specific needs for older adults: a lower cost living and a supportive social environment.
“While independent living communities are a great option for many seniors, they can be quite expensive,” Vandenboss says, “and the seniors are still living by themselves.”
As the youngest baby boomers begin approaching their 60s, senior cohousing developments could be a golden ticket for real estate investors.
Get in on the ground floor. “Right now is an incredible time for investors to look at senior cohousing as an investment option,” Vandenboss says. “The demand is quickly increasing and it’s not yet a mainstream investment, like typical single family and multifamily rentals.”
Senior cohousing communities often fail to register on real estate investors’ radar, owing to their scarcity. According to the Cohousing Association of the United States, there are just 13 senior cohousing communities. That number is set to grow, however, as two additional communities are under construction and another 13 are in the early stages of planning.
“The senior housing community is a niche market,” says Jay Morrison, CEO of the Tulsa Real Estate Fund. That could scare off real estate investors are less familiar with it. But, niching down “can provide a great opportunity to penetrate the market with these property types as the playing field is a lot smaller.”
Increased longevity may continue to spur growth in the senior housing sector.
Longer lives are all but guaranteed, Morrison says, as Americans become more health-conscious. That makes the general market outlook for senior cohousing communities “extremely encouraging.”
Balance return potential against risk. Like any real estate investment, senior cohousing has its peculiarities. Keep both the upside and downside in focus.
“If you decide to buy and rent out properties in a senior cohousing community, you’re guaranteed stable rental income,” says Daniela Andreevska, content marketing director at real estate data analytics company Mashvisor. Further, you may be less likely to have high turnover in the short-term from seniors who view cohousing as being preferable to assisted living or traditional retirement communities.
Senior cohousing may also yield higher rental income if you’re investing in communities that offer extensive amenities, such as communal cooking or recreation areas, on-site dry cleaning or housekeeping, communal office or workspaces or a fitness center. The cost of those amenities can be built into rental prices.
Investors must consider the culture that a senior cohousing community creates and promotes, Morrison says. For developers, that begins with deciding what features to include to make the community more livable for its residents, such as wider sidewalks or outdoor seating areas.
Investing in senior cohousing also requires investors to adopt a long-term view, as eventual turnover is unavoidable.
“In communities where there’s a 55- or 65-year-old minimum age requirement for tenants, some may become ill, sick or unable to care for themselves,” Morrison says.
When that happens, they may be forced to move in with family or to a skilled nursing facility. And while seniors are living longer, the mortality rate for this tenant demographic is naturally higher compared to renting to college students or young families.
The management of senior cohousing communities can be very different than other rental properties, which is another factor for investors to bear in mind.
“Besides the typical screening process, you have to consider how well a new resident is going to be received by the current residents,” Vandenboss says. “It’s also important to make sure that this type of living arrangement is appropriate for a new resident, and that they shouldn’t be in some type of assisted living instead.”
Communal living can also blur privacy lines, which could lead to personal conflicts between residents. Vandenboss says there needs to be a specific process in place for resolving conflicts if and when they arise. He recommends that real estate investors who are new to the space consider hiring a management company experienced with senior communal living.
Learn the finer points. Senior cohousing’s relative newness means there may be a steep learning curve for some investors. In that case, the best thing beginning investors can do is get educated, says Joe Fairless, co-founder of Ashcroft Capital.
Specificially, senior cohousing investors need to understand what they’re investing in and what they plan to do with that investment, Morrison says. “As with most investments, often the biggest risk is lack of knowledge, education and experience,” he says.
For instance, if you’re planning to acquire or build a senior cohousing development with the intention to resell, you’d want to be able to package the benefits of this type of community to would-be buyers.
“Becoming an expert will always put you in a better position to facilitate the deal,” Morrison says. “You risk not being as effective if you’re not well-versed in the marketplace.”
With a specialty market such as senior cohousing, having a mentor can also be a significant help.
“The best way to educate yourself is to learn from hands-on experience with someone who’s already successful in what you want to do,” Fairless says.
Consider senior cohousing alternatives. There are other ways to invest in senior living if cohousing seems too niched down or you’re turned off by the idea of direct ownership.
Senior living real estate investment trusts, or REITs, can provide the same benefits of owning an investment property with fewer strings attached. The difference is that they’re often focused on assisted living communities or skilled nursing facilities, versus senior cohousing.
Senior Housing Properties Trust (ticker: SNH) is a health care REIT that owns senior living communities with an annualized dividend yield of 9.3 percent. Ventas (VTR) is another REIT in the senior living space that’s seen an 8 percent compound annual dividend increase since 2001.
Casting the net a bit wider to include other senior living investments can yield an opportunity to capitalize on a deficiency in your portfolio, Morrison says. As with senior cohousing, however, keep the risks and rewards of senior living REITs and/or exchange-traded funds that offer exposure to them in perspective.