Why Senior Housing Cap Rates May Offer a Long-Term Yield Advantage
As real estate investors, we spend a lot of time chasing yield—especially in a market where cap rates are compressing and financing costs are unpredictable.
Lately, one asset class keeps standing out to me and my team: senior housing.
I know what you're thinking: "Isn’t that an operational nightmare?" And yes—these properties aren’t exactly turnkey rentals. But when you zoom out and look at the macro and cap rate trends, the opportunity becomes hard to ignore.
Cap Rate Spread: A Key Indicator of Yield Potential
Here’s what caught our attention.
Over the past decade, senior housing has consistently maintained a premium spread over the 10-year Treasury—averaging 120 to 160 basis points higher than multifamily. That spread is one of the best indicators of long-term yield durability.
In contrast, multifamily cap rates have compressed significantly, and in many cases now sit well below 5%, often leaving little margin after debt service unless you bought early or added serious value.
Senior housing, on the other hand, has historically hovered closer to 6–7% cap rates, even on stabilized assets.
Demographics Are Destiny
This isn't just a yield play—it’s also a demographics play.
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-Every day, over 10,000 Americans turn 65
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-The 80+ population (the group most likely to enter senior living) is growing at its fastest pace in U.S. history
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-Demand for housing that accommodates this population will increase significantly over the next 10–15 years
Unlike many other sectors, this growth isn’t based on speculation—it’s baked into the national age pyramid.
Limited New Supply + Operational Moats
Unlike apartments, senior housing isn’t seeing a flood of new development. Barriers to entry—like regulatory approvals, labor requirements, and operational complexity—make it harder for developers to build.
While that may scare off some investors, it also limits competition and helps preserve cap rates. It’s one reason institutional players and REITs are increasing their exposure to senior housing—particularly as traditional asset classes show signs of flattening out.
What This Means for Investors
Senior housing isn’t for everyone. It’s more operationally complex, and yes, there's more to understand. But if you're a long-term investor looking for strong yield, demographic tailwinds, and less cap rate compression, this is a sector worth studying.
We’re currently investing in this space and continue to see strong opportunities—especially for those willing to look beyond the usual asset classes.
Would love to hear from others here:
Have you looked into senior housing? What are your thoughts on the risk/reward profile vs. more traditional assets?
