As the population of old adults is on the rise the call for retirement communities is seeing the biggest surge than ever. Features catered to make life easier, comfortable and amenity-rich are all they want.
This phenomenon creates a unique opportunity for investors to create new sources of income via rental properties and long-term appreciation. To bode well with this trend, I present you with a comprehensive guide on retirement communities as profitable real estate.
What Does a Retirement Community Look Like?
People aged 55 and older who have distanced themselves from regular work are considered to be retirees. Residential areas nurtured for people alike are typically labeled as retirement communities.
As most retirees need comfort, independence, and convenience, they include single-level homes or condos, community centers, fitness facilities, and healthcare access. The U.S. Census Bureau reports that within 2034, the population of people reaching age 65 is projected to be 77 million. That is a huge number and shows the viability of developing such communities.
You see, senior living amenities are the center of appeal for retirement communities. Take Sun City Hilton Head as an example. It stipulates the residents for over 100 clubs, multiple pools, and quick access to state-of-the-art healthcare facilities. That’s everything a retiree can ask for!
Reasons You Should Consider Investing in Retirement Communities
Steady Rental Income
Investment in retirement communities in general is a great way to make money through rental homes. Retirees seek specialized housing and the demand is consistent so to speak.
As it happened, from 2010 to 2020 the population aged 65 and older increased by 34% throughout the U.S.A. That is 55.8 million people we are talking about. A huge part of this demographic in particular prefers rental options. The reason behind this is flexibility, maintenance-free living, and catered to meet their regular needs and emergency services.
From an investor’s perspective, the economic benefit is feasible as retirement-focused communities are typically persistent. The Joint Center for Housing Studies of Harvard University backs the idea up in general. They indicate that when higher-income households enter the rental market due to the demand, especially for amenity-rich housing. Not to mention, retirement communities capitalize on low tenant turnover, a common trend of long-term leases. As a result, the vacancy rate and operational costs are greatly reduced.
Adding to this, rents in such communities are not affected by market fluctuations. The multi family homes which include retirees living facilities maintain high occupancy rates during economic downturns. So reliable returns for the real estate investor.
Long Term Appreciation
With the projection of expanding the retiree demographic, retirement communities offer substantial potential for long-term property appreciation. This steady demand often increases the property value over time.
Interestingly, the data from the National Investment Center for Seniors Housing and Care (NIC) demonstrates that the average occupancy rates for Continuing Care Retirement Communities (CCRCs) are higher than other retiree living facilities. And that’s with a rebound to over 85% post-pandemic.
You see, as I’ve mentioned earlier, retirees like to have everything that is easily accessible like healthcare, social interaction, and other amenities.
Now, the growing reliance on specialized homes for an aging population confirms a sustained market for such communities. At least the National Bureau for Economic Research (NBER) finds this true. Also, economic indicators highlight that the expenditures of retirement communities make up a growing segment of GDP.
Tax Benefits
Any tax advantage is a plus for investors, be it for normal housing projects or the retirement communities we are focusing on here in this write-up. The first or primary benefit of investing in such a community is the depreciation deductions.
The IRS lets a proprietor deduct the depreciation of a residential rental property that is 27.5 years and over. This reduces the taxable income remarkably. For instance, if you invest in a $300,000 home, approximately $10,900 could be subtracted annually in depreciation.
A tax advantage comes from the 1031 exchanges as well. It allows investors to hold off capital gains taxes after selling one property and then reinvesting into another like-kind property. This strategy allows investors to upgrade a retirement community without an immediate tax penalty.
On that note, the income from retirement communities through rental properties can be offset by subtracting operational expenses. These include property management costs, repairs, and HOA dues. Take a $20,000 rental earnings for example. If your operating expense is a total of $5,000, the tax will be applicable to the rest of the profit. That is on the $15,000.
Hilton Head: Best Retirement Community to Put Money Into
When it comes to a retirement community, Sun City Hilton Head stands taller than most other places. And it’s magnetic for investors due to several qualities.
Starting off with the location — it’s located in the heart of the low country in South Carolina. Having 10,000 homes, three golf courses, and more than 100 clubs, it is the most sought-after community by retirees searching for an active and engaged lifestyle.
Investment in Hilton Head is equally lucrative. This is due to the track record of consistent growth with property value appreciating steadily. A home in the Sun City can hover around $250,000 to over $1 million. At the same time, luxury properties pose robust demand. Similarly, rental income opportunities are strong as many retirees and vacationers lean towards short-term leases in the area.
For good measures, Sun City has a tax-friendly policy for retirees, as South California implies. Hilton Head’s governing body ensures well-maintained infrastructure and amenities. The final outcome is a thriving real estate market, which is desirable to senior citizens.
Recommendations to Maximize Return on Investment
Hunt for Properties with High Rental Demand: Look for units within retirement communities that are active year-long such as the Sun City Hilton Head. This will attract persistent renters. Go through demographic and occupancy trends on the U.S Census Bureau
Promote Property Features for Retirees: Introduce property features that speak for aged personnel such as grab bars, wide doorways, and single-level layouts. According to the National Association of Home Builders, implementation of such a feature can boost rental appeal by 25%.
Leverage Tax Deductions: Take advantage of property depreciation, maintenance, and other expenses.
Invest in Energy Efficiency Upgrades: You can significantly reduce utility costs by installing energy-efficient appliances. This also attracts eco-conscious tenants. This also saves $200-$300 annually.
Strategic Marketing for Retirees: Advertise your properties in senior citizen-focused publications or platforms such as AARP. Highlight features that appeal to retirees.
Track Local Market Trends: Analyze the market and the orientation it’s going forward. Take advantage of government housing data like the Federal Housing Finance Agency to monitor price appreciation.
Considerations Before Investing
As exciting and prospective as it seems to be, retirement communities don’t come without drawbacks and challenges. The first is market specificity. The success of your investment depends on demographic trends and preferences of older adults.
To give you an example, the livability indices are lower for naturally occurring retirement communities (NORCs). These people also have fewer employment opportunities and lower diversity. This affects the community as a whole and hinders the growth big time. So goes down the investment appeal. The Joint Center for Housing Studies states that the average livability score for NORCs is 48.5 compared to 51.4 for other neighborhoods.
Secondly, regulatory complexity is one of the biggest hurdles for investors. Retirement communities fall under zoning laws, age restrictions, and tax seasons. Each of these variables however fluctuates depending on the location. Investors are required to dive deep into these to confirm compliance.
Last but not least, such communities require higher initial costs to reinforce specialized features. This directly impacts profitability.
Summary
Tax benefits, rental income, and long-standing appreciation scream for investment. This is the right time and smart choice to pay heed to retirement communities. This will help you create a new stream of income and grow the real estate market. So tie your laces and start exploring options.