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Age Restricted Investment Properties:  Over 55 Buildings

Should you buy an investment property in a community for a specific age demographic? Are age restricted communities or properties a good investment? How do you finance an investment property in an age restricted community?

Just as you might target a certain type of tenant when you use the strategy of buying apartments or condos near colleges, you can also buy investment properties where 80% of the tenants will be over 55, or retirement communities.

Of course, you can’t discriminate against people because of their age, race or sex, but there are potential investment properties or buildings that are built for the baby boomer generation and have certain advantages as an investor. These are communities for empy nesters and those who have retired.

Older community centered apartment’s or communities for tenants over age 55 have a number of benefits - to start, they're usually not having raging house parties causing harm to your property like young college students might and they tend to stay in one place, they're less likely to move away:

  • Long term tenants – as they are less likely to move around the country on a whim
  • Upkeep – the elderly are done partying let’s say, and they don’t have children to take care of
  • High demand – exclusivity will breed a high demand, usually there aren't they many apartments setup for just the elderly
  • Population growth - By 2030, more than 20% of U.S. residents will be aged 65 and over, compared with 13% in 2010 and 9.8% in 1970
  • Reliable - pay on time each and every month - it's rare to have tenants that are elderly to have trouble making rent when they have Social Security and retirement funds to support themselves

The selling point for the community is property tax for the area but no children or families to provide services for.  However, what happens in twenty years when these residence are no longer around.  Who's going to live in the building?  As a real estate investor, you have to look at the supply of these types of buildings and ask if there will always be a demand for this type of building or is there a glut already. 

Good piece on age restricted buildings in the NY Times:

"And when the baby-boomer wave goes through, you're going to see a dramatic drop-off in that age group," Mr. Tuba added. "All of a sudden these communities are going to say, 'We can't fill our units, and we have no alternative but to open them up and sell them to whomever.' And what has been billed as a positive tax flow and a positive for the community will start to reverse. This has not been a well-thought-out concept. It's one of these hot ideas that everybody is hooking their stars to and trying to follow."

But if there's the opportunity to change the use of the building after a certain number of years, or increase the number of units that are not age restricted, you may have hit a gold mine.  Your demand is vastly increased and not narrowed to just those who are over 55.  This all depends upon the local area and what type of tenant is living in this community.  If the area is targeted towards the elderly then you may not want to change the use.

Although there are other drawbacks in buildings for those who are over 55, these buildings require certain amenities that other units usually do not, say an elevator, wheelchair access, extra lighting, and perhaps more parking spaces or security.

These age restricted communites or townhouse units should also be close to emergency care services or hospitals.  As the residents get older, they're less and less likely to want to drive long distances or in emergency situations to drive at all, so perhaps there's a relationship already established with a local hospital to shuttle tenants to doctors appointments from these types of communities. Which is another selling point for those who are looking to rent a home say for their parents who've retired.

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