Any advisor serving baby boomer clients knows we are in the midst of the most significant demographic shift this country has ever seen. Figures from the U.S. Census Bureau tell us that some 40 million Americans are past the traditional retirement age, and that figure is expected to double over the next few decades. I look at that demographic inevitability and see opportunity.
It doesn’t matter who the current president of the United States is, or which in direction interest rates are moving — 12,000 Americans every single day are turning 65. The 75-and-older segment of the population is expected to grow by 84% between 2010 and 2030, an increase of almost 16 million seniors. All of these older people are going to need somewhere to live. And for savvy investors, and their advisors, that presents a timely opportunity.
I’ve always considered real estate as an important part of a truly diversified investment portfolio. It’s an asset class that I’ve put my own money into and I’ve seen some of our most successful and wealthiest clients build tremendous net worth by including real estate as part of their investment strategy. In the current market, I think senior housing is among the most attractive segments of the real estate sector.
For my own clients, I try to avoid development deals or anything that’s highly leveraged in favor of more stable, high-quality, long-term investments, like apartment buildings or assisted living facilities. There has been a steady increase in occupancy and rents but a limited supply of new inventory, due to a severe contraction in construction lending caused by the credit crisis.
Clients Love the Cash Flow
Anyone who survived the 2007-2008 market crisis is understandably skittish about relying too heavily on a stock portfolio. For investors looking to diversify into an asset class with no correlation to the public markets, real estate is hard to beat.
I think the best returns can be found by investing privately, but the tradeoff is the illiquidity factor. The portion of any client’s portfolio devoted to illiquid investments is obviously going to vary according to the individual’s circumstances, investment horizon and long-term goals, but, a focus on senior housing can be an intelligent way to take advantage of this demographic shift.