3 Reasons to Stop Investing in Traditional Multifamily and to Start Investing in Boutique Residential Assisted Living
Boutique residential assisted living has emerged as an appealing investment option, over traditional multifamily properties due to: better margins, lower investment capital requirements, and the undeniable demand in the United States. Investors can add boutique ALF properties to their portfolios and obtain significant returns without being a large bed facility that many individuals are familiar with.
1. Better Margins: Investing in boutique residential assisted living offers a notable advantage in terms of higher Net Operating Income (NOI) margin. Boutique (16 beds and below) assisted living facilities (ALFs) can achieve an average NOI margin of 65%- 70%, exceeding the average NOI margin of 59.9% for traditional multifamily properties according to National Multifamily Housing Council (NHMC).
How you may be wondering? Simple…. more “tenants” and tenants with a higher monthly rent means more monthly revenue. Take a 10 unit multifamily property and assume the national median gross rent of $1,205, that’s $12,050 in gross income per month. Take a 16-bed ALF and assume the national median costs per bed of $4,500, that’s $72,000 in gross income per month. Concerned about operating challenges? The learning curve to operate is not as onerous as many multifamily investors may assume, and given the 5.9x in revenue potential, it’s a small curve worth learning.
2. Lower Investment Capital Requirement Optionality:
To achieve desirable returns, many multifamily or single family investment strategies depend on acquiring Class B and C properties, deploying a value-add or opportunistic play that requires significant immediate capex in addition to acquisition costs. With boutique ALFs, investors can launch through minimal capital by leasing. Boutique ALFs can operate out of single family homes with no additional zoning requirements. As such, leasing a turn-key single family home requires only tenant improvements to meet licensing requirements. Investors also have the option to acquire turnkey single family homes and make required improvements for licensing standards. While precise capital requirement data may vary, industry experts suggest that residential assisted living projects may require approximately 50% less capital investment on average. This reduced capital requirement makes it a more accessible option for individual investors or those with limited capital resources.
3. Undeniable Long Term Demand in the United States:
The aging population in the U.S. is rapidly increasing, driving the need for assisted living accommodations. The U.S. Census Bureau estimates that by 2050, the population aged 65 and older will reach 83.7 million, nearly double the population in 2012. Furthermore 7 out of 10 baby boomers will need long term care according to Genworth. This surge in the aging population ensures a sustained and growing demand for residential assisted living facilities across the country. The undeniable demand in the United States market offers investors a stable investment environment with reliable rental income streams and long-term growth potential.
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