What's bad about senior housing
Earn money with senior and care properties
The market for good rental apartments is almost exhausted, especially in the expensive regions of Germany, and yields are falling. Many investors are therefore looking for alternatives to classic rental apartments. One possibility for a good investment are senior citizens' homes or nursing homes. Due to the demographic situation, a greater demand for apartments for senior citizens and care properties is to be expected. A distinction has to be made between classic retirement homes, assisted living and pure care facilities.
Investing in old people's and nursing homes is now also possible in small parts. There are properties in which individual apartments or rooms can be acquired by private investors. In the past, however, this was the domain of wealthy investors who are able to build and operate a nursing home themselves. Sometimes it was also possible to participate through a closed fund. Today the offer has become wider. It is possible to purchase individual apartments - or even crowd investing. Smaller amounts can also be invested.
With this type of living, apartments can be rented where independent housekeeping is possible. These are apartments that are either unfurnished or partially furnished. Kitchen, washing machine connection and the like are available. This type of living differs from running one's own household only in that certain services such as cooking, laundry care, shopping and cleaning of the apartment can be booked. Often there are also parking spaces for your own car.
Providers of these services are usually the operators of such a residential complex, who also work with care services. In the case of care, they also offer care services depending on the care level. In the case of need for care, it is sometimes also possible to switch to a pure care department, such as in the case of dementia.
These senior or care properties are usually built by developers and in cooperation with the future operators, taking into account special requirements such as accessibility, handicapped-accessible construction and increased safety precautions in the area of fire and personal protection. The property developer concludes long-term rental agreements with the operator and sells the apartments as partial ownership to investors or owner-occupiers.
If it is no longer possible to live in your own apartment, assisted living can be an alternative to the classic retirement home. The reasons are varied: severe physical or mental limitations; furnishing of the apartment that is not suitable for seniors or a floor plan that is not age-appropriate; Nursing services that are easier and better to provide within an institution. The person or the couple is so restricted that it is no longer possible to run a household. In these cases, assisted living is a good solution.
With this type of living, only the assistance is offered that the person in need of assistance and care really needs and can no longer provide himself. The possibility of using different service providers and the security that you only have to purchase a minimum amount of services at a flat rate distinguishes assisted living from home facilities. The demand for such housing options is steadily increasing.
Also read: This is how assisted living works
Numerous companies have specialized in designing and building such building complexes according to special requirements. Investors can purchase one or more apartments as early as the planning phase, which will then be handed over to tenants immediately after completion. In addition to the rental contract for the apartment, these tenants then conclude separate contracts with the operators of the assistance and care offers for the necessary services in the household or health care.
The rent that can be achieved for these properties is not based on the customary local market for rental properties, but is usually much higher. When renting such an apartment, in addition to the use of communal facilities and leisure activities, it is also possible to make use of other services. An investment in a senior citizen's apartment therefore generally yields a higher rent per square meter than other residential properties.
Biallo tip: Whether retirement home, assisted living or care facilities, the tenants of an apartment or a room are certainly not long-term tenants in the classic sense. A certain fluctuation is to be expected.
Special conditions for assisted living
It should be noted, however, that the construction and purchase prices for such apartments are usually higher than in standardized housing construction. In order for the apartment to meet the demands of the future tenant, special structural facilities are required and standards must be observed. Depending on the federal state, DIN 18040-1 (apartments for wheelchair users) and DIN 18040-2 (barrier-free apartments) are already anchored in the state building regulations. When purchasing a senior citizen's apartment, it should therefore be contractually ensured that the property is equipped in accordance with DIN 18040.
Properties that are suitable for assisted living are subject to further structural regulations and requirements that are specified in DIN 77800. This standard also includes the provider's duty to provide comprehensive and understandable information. The DIN standard 77800 also specifies which requirements a property in assisted living must meet and describes the residential complex, the apartment itself, basic and optional services, housing costs and service offers.
Nursing home residents are always dependent on care services. A distinction can be made between part-time inpatient and inpatient. Usually these are not apartments, they are rooms with an attached bathroom. The rooms can be of different sizes, single or double rooms are the standard in care facilities. Likewise, a standard facility with a hospital bed, but there is also enough space to take personal items with you. The food is taken in the dining rooms or in the room, all-round care is possible. Usually people stay in the facility until they die.
Decision criteria for the investment
Buying an apartment is conceivable in both old people's homes and assisted living. In this case, it is important to define the correct selection criteria. They differ in part from conventional residential properties.
The operator is only able to operate the property at a cost-covering or profitable basis if there is a certain number of apartments. 80 to 120 apartments are named by experts as the optimal size. Houses that are too small carry the risk that fixed costs have to be paid for communal facilities such as garden areas, lounges, caretakers and communal kitchens, but utilization cannot be guaranteed due to the small number of residents. A system that is too large, on the other hand, is subject to the risk of overcapacities in the catchment area.
The location and catchment area of the property are of decisive importance for the long-term occupancy of the senior citizen's property. This is especially true when it comes to target groups who are not bedridden and who are actively involved in everyday life. With increasing age, the willingness of potential tenants to move decreases. Therefore, locations with populations below 30,000 should not be chosen.
Also read:Property as retirement provision
In areas with a smaller number of inhabitants, the demand for such forms of housing is unlikely to be sufficient to sustainably operate residential complexes with a minimum number of 80 to 120 apartments. The interest should therefore apply to investment properties in the catchment area of medium-sized centers with more than 35,000 inhabitants or regional centers with more than 100,000 inhabitants. The only exception to this rule are popular health resorts and recreational areas, which can also have a smaller population, but are of interest again to the elderly due to their attractiveness.
So far, the providers of senior citizens' homes or nursing homes have mainly been non-profit organizations, such as Diakonie or Caritas. However, by the end of 2017, the proportion of private providers will rise to 43 percent. At the end of 2017 there were a total of around 14,500 care facilities in Germany. Non-profit, municipal or church operators generally do not operate with the intention of making a profit. This reduces the risk that rents will become too high for residents. However, due to the low rental income, in many cases there is also a lack of willingness to invest in new care facilities or other forms of senior citizen housing.
Due to this fact, private providers have good chances in the market for senior housing and care facilities. However, with regional differences: According to the industry service Pflegemarkt.com, the federal states of Schleswig-Holstein and Mecklenburg-Western Pomerania are well equipped with care facilities, while Baden-Württemberg and Rhineland-Palatinate are rather poor. It can also be that one district has a good supply, while the neighboring district has a poor one. Therefore, an operator should also be able to explain why a care facility makes sense at this location.
Existing facility or new property
An investment in senior real estate is also possible for existing properties. The advantage here is to be able to receive the utilization, turnover and return figures in advance and to be able to create an in-house analysis of the expected income. Independent specialists and experts can also be used for analysis and decision-making. Of course, it is always important to take a look at the investment plan for the building and the furnishings. In addition, if possible, you should take an expert in structural engineering with you on a tour.
Biallo tip: Before making a purchase, have the data prepared by a tax advisor. Because experience with such numbers is just as essential as business knowledge.
Investing before building a facility can be a wise decision. This is the only way to guarantee that the property complies with the currently applicable standard, that there is no investment backlog and that defects that occur later are covered by warranty. Companies specializing in the construction of senior real estate usually have a lot of experience in planning new buildings. The senior professionals know the latest demoscopy figures in the region, create location-specific needs analyzes that lead to well-founded decisions. In addition, these companies have a wide portfolio of construction companies and craft businesses that focus on the specialty of senior real estate.
Also read:This is how retirees can sell their property
With our own architects, planners and structural engineers, but also interior designers and room planners, needs-based concepts are designed, planned and built. The future operators of the facility are usually already involved in the planning and also during the construction phase and there are contractual agreements on the operation of the facility for a longer period of usually 25 to 30 years. Depending on the contract design, safe and long-term use is guaranteed. Other investment properties also allow self-letting, where your own administrative effort is slightly higher, but the income is not reduced by the costs of external administration.
Check operator carefully
Unfortunately, there are also black sheep in senior citizens' homes. As a pension model, these often offer to buy and rent senior citizens' apartments and to move in themselves when they are old. In principle, this is a good idea - but not if it is a junk property. It is not uncommon for larger apartment buildings to be bought up and redesigned for senior-friendly living. The problem: the objects are difficult to market. The purchase price of such a senior citizen's apartment is thus significantly excessive. The rents that are supposed to be enough to finance it look good on paper. However, they are too high for the property. Therefore, offers should always be checked by a tax advisor or lawyer from a business point of view and by a building expert from a structural point of view. Only then can you consider acquiring it.
Checking the operator is extremely important; the return on investment depends largely on the company's performance and strategy. Therefore, the operator should always provide comprehensive information about the business model before concluding a contract.
Service concept of the facility
Whether you are planning the purchase of a single apartment in self-administration or want to leave it to an operator for further marketing: It is crucial that the operator or the provider of the additional services has a comprehensible, sustainable concept. Care should be taken to ensure that care services up to care level III are offered in the apartments or the facilities connected to the system. In this way, there is no risk that tenants will have to move to another facility due to a lack of care facilities as the need for care increases.
When renting out, it must therefore be ensured that the operator can provide a viable maintenance concept. Should be checked
- the institution responsible for the facility,
- the care concept,
- the size of the facility,
- the location and infrastructure of the immediate vicinity of the investment property.
If, after an intensive examination of the available offer, the thumbs up, the prices for a senior apartment start at around 120,000 euros, but for larger apartments can also be over 200,000 euros.
Possible return - and possible risks
The return on rental apartments is usually higher than average. You can expect at least three percent to over five percent. This depends on the region, but mainly on the purchase price and the services offered, which provide the facility with additional funds. Another advantage: the purchase is often accompanied by a preferred right of residence in old age. This means: if a (comparable) apartment is free, the investor has priority for moving in.
Risks for investors are that the operator becomes insolvent. However, given the demand for nursing homes, it shouldn't be a problem to find a new operator. However, it remains to be seen whether the conditions will be equally good. However, the failure rate of an operator is currently low due to the good market prospects. Legal changes can also have a negative impact on returns. In addition, unforeseen investments can be necessary and it can be difficult to find good nurses. Then the quality of service can decline. In the long term, this also affects the return.
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