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PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Investing in Senior Housing with a Self-Directed IRA

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  |  By Chris Shanahan, CISP®

The 65-and-older population in the United States is projected to grow from approximately 40 million in 2010 to 71 million by 2030 — a 78% increase,[1] while roughly 10,000 boomers will turn 65 every day for the next 19 years.[2]

These trends are poised to reshape the senior housing industry in the next two decades. For self-directed IRA investors who are interested in real estate investing and senior housing, these changing demographics may also present opportunities. Self-directed IRA owners are able to use their tax-advantaged dollars to invest in real estate, which could include the senior housing category.

According to the National Investment Center for Seniors Housing & Care (NIC), market fundamentals for senior housing are benefiting from the expanding national economy, rising household net worth, and the housing market recovery. Occupancy levels are above recession lows and rent growth is positive. 

In the first quarter of 2015, occupancy levels for senior housing were above 90%, up sharply from the low point of 86.9% reached in early 2010. In 2016, occupancy levels are 90%, with an annual rent growth of 3%.

What types of senior housing do PENSCO clients hold in a self-directed IRA?

Housing for seniors varies greatly. There are independent-living communities that serve those who need only a little help with daily living, and these communities might provide meals and activities. Assisted-living properties can provide help with everything from bathing and dressing, to transportation and medication management, according to Bloomberg. Some properties have a mix of services, offering independent- and assisted-living options.

Many PENSCO clients use their self-directed IRAs to buy single-family homes and rent them to a single tenant. But an assisted living facility, which can be operated out of a converted single-family home, provides the opportunity to produce a steady income stream from multiple tenants.

This chart from NIC captures what the center says are potential returns for senior housing property:

Source Note: These performance measurements reflect the returns of seven managers, who reported $2.8 billion of seniors housing performance data on stabilized properties to NCREIF in the first quarter of 2015 and represent the institutional investment community’s historical experience. They do not indicate future performance results.

What to consider when investing in senior housing

As with all investment opportunities, self-directed IRA investors need to consider opportunities carefully, and weigh the pros and cons before making any investment decision. It is up to you and your advisor — not your self-directed IRA custodian — to evaluate an investment’s merits and suitability.

Senior housing real estate investing is subject to the same risks as investing in any other type of real estate. Factors such as location can have an impact on the performance of the investment, as well as:

  • Zoning laws
  • Cost of property renovations
  • General accessibility to the facility

Using a self-directed IRA to invest in senior housing

According to Bloomberg, peak demand for senior housing across the United States may still be 15 to 20 years away, but there are numerous ways that retirement savers have invested in senior housing with a self-directed IRA.

For instance, a self-directed IRA can purchase an investment property and lease it to an assisted living facility operator. An IRA can own and operate the assisted living facility and lease the real estate.

IRA investors can form an LLC to invest in real estate, or they can use their self-directed IRA dollars to invest in public or private REITs that are focused on senior housing.

In addition, investors can consider periphery businesses that might benefit from aging demographic trends, such as medical office facilities or hospitals.

To learn more about using your self-directed IRA to invest in real estate, please download our guide.

[1] Source: American Seniors Housing Association (“ASHA”), Seniors Housing Statistical Handbook, Edition V

[2] Source: Pew Research Council

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. PENSCO is indirectly affiliated with a registered broker dealer and with a licensed small business investment company through Opus Bank (“Opus Affiliates”). Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.