Should You Buy Rental Property in a Retirement Community?

Retirement communities that cater to the 55+ crowd bring up an interesting question for real estate investors: is it a good idea to buy property there? There’s a lot to consider when you’re evaluating a niche property like this, and reviewing some of the pros and cons is one way to help you make a decision. Here are some of the good and not-so-good factors that come with investment properties in retirement communities:

 

Pros

  • Maintenance Included – One of the big perks with retirement properties is that many come with maintenance included. This can include lawn care, snow removal, and some exterior maintenance projects. While you will pay a fee for these services, it will undoubtedly save time and possibly even money over the long-haul, as well. Plus, it’s just nice not to have to worry about that stuff!
  • Amenities – Most 55+ communities have on-site amenities that make them desirable places to live. Swimming pools, walking trails, clubhouses and even hobby areas are some of the amenities commonly found. These are major marketing talking points, so be sure and play these up to potential renters.
  • Wear and Tear – For rental property owners, wear and tear on the house is always a concern. With older renters, however, this is usually not as big of a worry. For starters, there are typically only 1 or 2 people living the unit. Less people means less wear and tear. There are also not any kids living there full-time, and we all know kids can wreak havoc on a place.
  • Fewer Vacancies – Most older people stay in retirement communities for several years. Moving is stressful and costly, and people in this demographic often just don’t want to deal with it. This is great for property owners who can count on steady income and fewer vacancies.
  • Streamlined Marketing – When you’re in a niche area like a 55+ neighborhood, your marketing efforts are more streamlined. You know exactly who your target renters are and you can tailor your marketing strategy to speak directly to them rather than trying to appeal to a broad range of diverse renters.

 

Cons

  • Fewer Properties – The supply of available homes for sale is much smaller when you’re focusing on retirement communities. Instead of shopping around all over a larger city or market area, you’re honing in on select, niche neighborhoods. Understandably, you’ll have fewer choices.
  • Limited Tenant Pool – It’s the same concept when it comes to the tenant pool. Even though you can enjoy streamlined marketing, you’re cutting off a large portion of renters when you focus solely on people over age 55.
  • HOA Costs – Most, if not all, retirement communities come with HOA fees, some of which can be pretty steep. Make sure you review these fees carefully to see what they include and if they are reasonable (remember, you will be responsible for paying these even if the unit is vacant). Whether you decide to pay the fees yourself, have your tenants pay them, or split the costs, these fees will affect what you can charge in rent. Make sure you factor this in when evaluating the financials of a property.
  • Long-Term Profits – Finally, long-term profits (i.e., appreciation) may not be as good with this property type. These homes tend to appreciate less than homes without restrictions, so be sure to review the historical appreciation rates and decide if that is going to be an issue for you.

 

The 55+ crowd is one of the fastest-growing segments of renters in the U.S., and there’s no shortage of demand from these folks looking for housing. There are also plenty of other positives that come with renting to this demographic. However, there are some possible drawbacks as well, and those must be considered before you buy property. Before signing on the dotted line, be sure to carefully weigh all the pros and cons, as well as the risk/reward you’re likely to encounter with this unique property type.

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