Retirees: The Most Highly Profitable, Yet Grossly Underserved Niche in Real Estate

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In housing news over the last year, the repeated refrain has been Millennials, Millennials, Millennials.

But Baby Boomers make up the second largest cohort of homebuyers at 31%, and that doesn’t even include the “Silent Generation” (even older homebuyers, who make up an additional 9%).

Is there an opportunity for real estate investors and landlords? A niche that other mom-and-pop investors are missing?

Corporate landlords and real estate developers haven’t overlooked it. The nursing home and senior living industry alone is estimated at $250-270 billion annually. So what’s the opportunity, for targeting retirees in your real estate investing business?

Why Landlords & Investors Should Target Retirees

Where to begin? With money, of course.

Retirees tend to be wealthier than young adults, having had decades to accumulate assets and personal wealth. Consider their incredible equity: According to a Merrill Lynch study last year, Americans aged 65 and over had an average home equity of $200,000 — equity that converts to cash before they move into your investment property.

Retirees also make perfect tenants. Take a moment to ponder how much less wear and tear they inflict on their homes. They’re less likely to have a zoo of pets, almost none of them have rambunctious children living with them, and they don’t have rowdy parties.

Then there’s the lower turnover rate. How often do retirees move? Quite rarely — the senior move rate is around 5%. Longer tenancies and lower turnovers mean lower costs and higher returns for landlords.

In other words, retirees are quiet, stable, low-impact, perfect tenants.

retirees

Related: How to Invest In Real Estate When Your Tenants Are Retired Seniors

Senior Moving Trends

According to the Merrill Lynch study, only 10% of baby boomers have any interest in ever moving to retirement or senior living centers.

Many want to stay in their current homes, but plenty others move to downsize, be closer to family, or even upsize. According to a Trulia study, 21% of baby boomers said they wanted to downsize, but 26% said they’d like to upsize. Even more telling is what people actually did once retiring: the Merrill Lynch study found that 3 in 10 retirees moved into a larger home post-retirement.

Likewise, they found that the number one reason that retirees moved was to be closer to their family.

These trends matter more than you might think. Nearly all of U.S. household growth between 2015-2025 is projected to be in the age 65+ category, according to Merrill Lynch.

Safety a Priority

With so many retirees eschewing retirement communities and choosing to live in “normal” housing units, age-in-place safety becomes a priority.

So how can investors provide housing with appropriate safety measures for older adults?

Retirees are attracted to homes where they can live on a single story. That can mean apartments or ranchers, but don’t count out multi-story homes just yet. Additional stories can become guest levels, perfect for visiting family members. Properties do need a large bedroom, full bathroom, kitchen and living space on the first level, though.

Bathroom grab bars are a simple and inexpensive feature to add in order to make any home more senior-friendly.

Consider adjustable light dimmer switches with high-wattage lights. Dimmer switches don’t cost much to install, but the ability to turn up the lights for reading or dim them for relaxing is a simple but effective amenity for older occupants.

Lastly, consider a security system. You could go old-school, with a subscription service (that the occupant pays for, not you), or you could spend a few hundred dollars on a smart home security system. Older adults are the least likely group to be victims of crime, but are the most worried about crime. Assuage their crime fears with a security system — it won’t set you back by much and proves a persuasive selling point.

Comforts & Conveniences

Most older adults who move have already had their fill of high-maintenance homes. They don’t need acres and acres of lawn to mow or ancient homes needing constant repairs and upkeep.

What they do want are modern appliances and conveniences. Retirees are not opposed to “new” or “modern” — they want energy-efficient windows and refrigerators just like everyone else.

Landlords and real estate investors can even offer up-sells to incoming older renters and buyers to take on certain hassles for a fee. After all, seniors and retirees tend to have more money to spend but less interest in hauling furniture or setting up wifi routers.

Related: How to Kick Your Business Up A Notch by Tapping Into the Baby Boomer Niche

Provide extra value by partnering with local moving services, maid services, tech help services, and any other local service that you think older renters might want. When your retiree tenant/buyer signs the lease or sales contract, you can ask if they’d like help moving, mounting their TV, setting up internet, or adding a weekly maid service. You can then coordinate these services as value-add up-sells and boost your ROI in the process.

retired

Walkability & Going Carless

No one likes having that conversation about taking the keys away. But it is a simple fact of aging: As you grow older, your reaction time and eyesight deteriorate, making driving dangerous.

But older people still want to have a life, just like anyone else. They still need groceries, cultural amenities, entertainment, and evenings out. Fortunately, there are plenty of areas around the country that fit this bill.

The New York Times wrote an excellent piece about how urban and suburban-center communities will increasingly become prime retirement areas, surpassing the 20th century norm of isolated, gated retirement communities.

When I rented out my urban Fells Point townhouse to move to Abu Dhabi for a couple years, I was surprised to hear my 62-year-old mother inquire about the rent. A lifelong suburbanite, she started seeing the appeal of the neighborhood when my sister and I each moved into townhouses there and admired how easy it was to walk to, well, anything. Now all my stepfather hears about is moving downtown and selling one of their cars.

Retirees and older Americans want independence and a full quality of life even if they can’t drive or climb stairs anymore. They want modern technology to make their life simpler and safer, not more complicated. With so much attention paid to Millennials, there’s an opportunity for landlords and real estate investors to service a wealthier, quieter, more stable segment of the market. The price of entry? A little thoughtfulness and attention.

Have you tried targeting retirees in your real estate investing business? How did it work out?

Let me know with a comment!

About Author

Brian Davis

Brian is a real estate investor and landlord with 15 rental properties, who writes fascinating articles for SparkRental.com. His rental management is almost completely automated by now, allowing him to travel the world frequently (if not always in style).

19 Comments

  1. “retirees are quiet, stable, low-impact, perfect tenants.” True, but your implication that they all have deep pockets that they are willing to turn out for the landlord is wrong. “Americans aged 65 and over had an average home equity of $200,000 — equity that converts to cash before they move into your investment property.” Perhaps, but that cash may represent their life savings outside of social security, and it has to last a long-time. Landlords should not go in thinking they are going to move that $200K from the retiree’s pocket to their own.

    Otherwise, your comments about meeting their needs are spot on.

    • Brian Davis

      Thanks Terri! In advertising rentals, you can showcase some of the home’s features that make it senior-friendly (e.g. single-story living, bathroom grab bars, extremely walkable neighborhood, etc.) and then explicitly state once or twice throughout the listing that the property is senior-friendly.
      Just be careful not to use any language that’s exclusive of children, even implicitly, such as “Perfect for a retired couple.” That violates Fair Housing laws. Instead, you could say “Retiree-friendly property and neighborhood.”

  2. Jennifer McElliott

    Makes sense on the ‘why’ – but what about the ‘how’? How do you target them w/o being discriminatory? Are there ways to market to this segment – I imagine they aren’t doing online searches for their housing – though their adult children may be the ones doing the housing search through the regular online channels?

    • Brian Davis

      It’s a fine line to walk, with Fair Housing laws. Check out the example I gave in the last comment, in response to Terri.
      Many baby boomers are comfortable with the internet, but to reach older adults who don’t use the internet, try some old school offline methods like newspaper ads, circular ads, and posting flyers in places where older people might see them. A lot of older adults do read neighborhood circulars, and it’s dirt cheap to advertise in them, so they can be an effective way to reach that market segment.

  3. Rachel Luoto

    Great article! Thank you for challenging us to think in a new way. I wonder about the liability risks from an older generation? It appears more likely for a fall to result in serious injury, or for someone beginning to develop dementia to forget the stove is on. I appreciate your thoughts!

    • Brian Davis

      Thanks Rachel! I’m not lawyer, but it seems to me that the legal liability would not fall on the landlord. Falls, forgetfulness, etc. are all legally on the tenant.
      That being said, no one wants their property exploding because the gas was left on. But at least older tenants are still legal adults and legally liable for their own actions.

  4. Gary Breitbord

    I currently don’t own any rentals (still have nightmare$ from 1986 RE crash where I lost my shirt, shoes, socks, etc.), but can relate to your comment on seniors downsizing and first/single floor living. I know this is anecdotal, but my last two “flips” validate your premise.
    1) Single family 1450 sqft ranch that I sold to a young couple with two young children. However, my backup was a retired couple looking to downsize to one floor living. They kept driving through the neighborhood and contacting me to see if the house had closed yet.
    2) Single family 2100 sqft 2 story cape. We redesigned it so it had a 1st floor master suite and 1st floor laundry. Had many young families look at it, but this time we did sell it to a 50ish couple with an older son on his own and daughter in college who will be living in one of the second floor bedrooms. The first floor master and laundry were two key features that sealed the deal.

    • Brian Davis

      Thanks for sharing those stories, I find a great deal of truth in anecdotal evidence when it comes to real estate. I’ve seen a lot of empty-nesters in their 50s and 60s hunt for an easy, senior-friendly “last stop” house while they’re fully healthy, and basically say “I’m living here until I die.” And they go off and do some traveling, maybe spend winters elsewhere, but there’s something to be said for finding the perfect house to age in while you’re still fit and healthy.

  5. Eric Christians

    Intriguing……. I am going to do more research on this. The biggest obstacle I can see in my area is the cost of entry into this market. This demographic is looking for a nicer home than many other potential tenants. Are they willing to pay an increased rental rate that is in step with purchase prices?
    Glad you mentioned that Seniors are moving away from the exclusive gated communities. I would not have thought that but makes sense.

    • Katie Rogers

      “This demographic is looking for a nicer home than many other potential tenants.” Many other potential tenants ardently wish their rent money would pay for a decent rental, but landlords often give them the bare minimum they can get away with. In my town, with its 0.5% vacancy rate, landlords charge and receive market rent for clearly substandard units. Seniors are not likely to be as desperate or tolerant of substandard conditions as “many other potential tenants.” They will expect to pay market rate for good quality (not necessarily high end, or “nicer,” whatever that means). Many are living on a fixed income. Do not let dollar signs glitter in your eyes.

    • Brian Davis

      Depends on the market, how closely the rents mirror the prices. But at the higher end of the market, you end up with lower vacancy rates and usually lower turnover rates, which help.
      Curious to hear what you end up finding, as you research your area more closely!

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