Many institutional investors have invested in assisted living facilities because Baby Boomers, the second largest generation in the United States, are aging. Many of these older adults will move into assisted living facilities as they age to receive higher levels of care. These facilities will be in high demand during the next few years due to impressive demographic fundamentals.
Healthcare services in our country are being used primarily by the boomer generation. 2011 marked the first anniversary of the oldest Baby Boomers turning 65. There will be an estimated 65 million boomers by 2030. Investors may consider converting their current real estate investments into assisted living facilities through 1031 exchanges in an asset class poised for long-term growth.
Assisted Living Facilities: What Are They?
People who cannot live independently or have disabilities are accommodated in assisted living facilities. There are generally private and semi-private units available. They also coordinate the residents’ medical care with their healthcare providers. “senior living communities” or “assisted living facilities” refers to long-term housing available to seniors over 65.
Besides assisting with activities of daily living (ADL), these communities also offer other services. The following services can be provided:
Supportive services offered by assisted living include:
- Managing money
It is possible for the level of care provided by one facility to differ from another because these are regulated at the state level, not at the federal level. An investor should understand what is offered by an assisted living facility for sale before investing.
What are the benefits of investing in assisted living facilities?
A thorough understanding of what you invest in is crucial before investing in any asset class. There are many differences between investing in assisted living facilities and multifamily properties.
There are many advantages to investing in assisted living facilities, so the sector is a strategic option for many investors. Investing has the following benefits:
Growing demand: Senior housing demand will increase as the Baby Boomer generation ages.
Resiliency: Assisted living facilities provide services and amenities that residents need, so assisted living is a needs-based investment. As the economy fluctuates, this factor may protect investments in these facilities.
Unique operating circumstances: As an asset class, assisted living facilities are unlike any other commercial real estate asset. While other asset classes focus on only one of these areas, healthcare, service, housing, and hospitality investments offer a blend of all four.
Specialized management: The complexity of running an assisted living facility requires technical management teams. As an investor, you are investing in real estate and the operating company associated with the real estate. By underwriting the facility, you trust it will sustain itself under strict regulations while at the same time attracting residents from local and regional hospitals. Consequently, acquiring assisted living facilities is highly specialized, so the acquisition team and the operator should be highly knowledgeable in this field. As only some have the resources to operate this type of facility, establishing relationships with professionals creates a barrier to entry.
1031 Rules to Follow
Real estate investors can defer their taxes by rolling gains in one property into another through the 1031 exchange. By following this principle, you will not have to pay potential massive capital gains tax even if you sell an investment property that has been appreciated.
A successful 1031 exchange involving an assisted living facility must meet several criteria. However, strict adherence to the rules is required.
The following are some examples of 1031 exchange rules:
- The replacement property must be identified, and the sale of the original property must be completed within 45 days.
- The transaction must be completed 180 days after your initial sale or sales.
- Qualified Intermediaries, also known as accommodation agents, should hold the funds during the sale’s identification, negotiation, and closing phases.
DSTs Can Be Beneficial to 1031 Exchanges:
Under Delaware law, Delaware Statutory Trusts (DSTs) are separate legal entities. DST investors own a pro-rata interest in the trust and receive distributions from the trust’s operations, either from rental income or from future property sales.
DSTs are treated as real estate for 1031 tax-deferred exchanges according to IRS Revenue Ruling 2004-86.
A 1031 exchange can be completed with the DST as a turnkey solution. The debt on the property is assigned to you pro rata without qualifying. Because the property is usually already closed, there are usually no closing risks. As most ordinary investors cannot afford multimillion-dollar investment properties, this approach can offer a favorable price for real estate.
There is great potential for growth in assisted living facilities, a highly specialized asset class. Click here to find our current DST for senior housing.
Learn More About Assisted Living Real Estate Exchanges With investment.org