Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
I’ve been beating the drum pretty consistently on keeping your eyes open and looking for trends that you can take advantage of to put a lot of money in your pocket.
One consistent theme that I’m seeing is healthcare. Billions of dollars per year are being spent on it, and that number is only going up as the population ages.
A second theme that I’ve seen a lot and written about is the baby boom generation, who I lovingly refer to as “bluehairs.”
I read an article recently that combined the two. That got my attention, and it should get yours too.
The piece referred to some data from the Centers for Disease Control, which stated that U.S. life expectancies have risen to 78.8 years -- the highest ever recorded within the country. They believe that a mixture of living a healthier lifestyle (e.g., not smoking, eating right and exercising) combined with improved pharmaceutical know-how is substantially extending our lifespan.
The article went on to say that that news is good for real estate investors, because it means that as an investor you have an opportunity to take advantage of the needs of an aging population.
Think about this for a moment: If people are living longer than ever before, it means extra years of consuming items they love, taking advantage of products and services they need and potentially spending a lot more than seniors did in previous decades.
I believe the best way to invest money in an aging population, and perhaps the most logical choice, is to consider buying stocks in the healthcare sector.
Healthcare's bright future
Why healthcare? There's obviously a plethora of reasons, but the most important of those is that as people age they become more reliant on the healthcare system to support their needs. This could be as simple as more frequent visits to the doctor, or the need for a few pharmaceutical medications, to something long-term such as the need for nursing home care.
In addition, the Affordable Care Act, better known as Obamacare, is transforming the healthcare landscape. While senior citizens aged 65 and up are far and wide covered by Medicare, those under the age of 65 are being introduced into a system that's designed to encourage people to visit their primary care physician more frequently...
More visits to the doctor could lead to earlier disease diagnoses and the need for long-term maintenance therapies, which is also where healthcare investments could come in handy.
An aging population is also more likely to need senior housing or a nursing home at some point in their life.
Based on data from the U.S. Census Bureau, slightly more than 5% of those aged 65 and up live in a nursing home. This figure jumps to nearly 50% for those aged 95 and up. As life expectancies grow and our population of elderly citizens increases -- remember, baby boomers are retiring in full force over the next 15 years -- the need for end-of-life care is going to take precedence.
Lastly, investing in the wellbeing of others is a socially good thing to do. Putting your money behind companies that are potentially changing millions of lives is often a good proposition.
Where to safely invest your money?
Let me offer a specific example of where you can consider parking your money.
For more risk-averse investors, there are a couple of relatively safe ways to approach the idea of investing in America's aging population.
One idea, especially for older investors themselves who are seeking stability and income, would be Senior Housing Properties. Its a business strategy focused on acquiring properties focused on seniors -- such as hospitals, senior apartments, nursing homes and independent living properties -- and then lease those properties out over the long term. With baby boomers' retirements in full swing, the pricing power pendulum is fully in favor of a senior property manager like Senior Housing Properties.
Another idea is Adult Foster Care housing, or AFCs. AFC homes are residential settings that provide 24-hour personal care, protection and supervision for individuals who are developmentally disabled, mentally ill, physically handicapped or aged who cannot live alone but who do not need continuous nursing care.
The primary function of an Adult Foster Care home is to provide general supervision and personal care services for individuals who require minimal assistance in activities of daily living (ADLs), who require supervision/monitoring with the self-administration of medications, and who require supervision/monitoring of self-treatment of physical disorder. Activities of daily living are defined as any activity normally done in daily life, which includes sleeping, dressing, bathing, eating, brushing teeth, combing hair, etc.
The cool thing about AFCs is that they’re within the reach of average investors, in that they’re simply regular single-family homes that need to be updated to AFC guidelines. And if you’re doing a full rehab anyway, meeting the guidelines doesn’t take a ton of extra cash.
But the kicker? Each bedroom in an AFC home is rented separately. And the rental rate per room is almost the same as what a full house would rent for. So for a four bedroom house that would normally rent for, say $2,000 per month, you might get $1,500 per month per bedroom, or a total of $6,000 per month when it’s full.
Could you live with that?
So instead of getting frustrated when you get behind a seasoned citizen driving 45 in the fast lane, just smile to yourself when you realize that bluehairs are pure gold for real estate investors.
Whatcha think?
What do you think about my silver lining with these bluehairs? Share in the comments section below.