With 10,000 people retiring every day since 2004 that would hardly seem like a revolution. However, when you see Private Equity creating companies and catapulting into the Senior Assisted Living arena it’s a different dynamic.
Private Equity often has first mover advantage when there is a large new undiscovered business opportunity. It’s a perfect example of the free market at its best. As an example, several recently formed Private Equity companies have cascaded into the residential real estate market and have aggregated thousands of residential properties into rental management companies.
These companies have invested several billions dollars and have taken significant housing supply out of the market. An average investment of 15K is made with each property and then the properties are rented The companies are then launched into the public stock market to drive further liquidity. A perfect example is Invitation Homes. This company will be coming public Spring 2014 with $4.5 billion in homes purchased.
The presence of Private Equity investment has gone a long way in solving the supply and demand imbalance in real estate markets nationwide and it has also taken thousands of undesirable homes off the market in some of the hardest hit market. These companies have succeeded in resurrecting balance in the market in less than two years where the government and other private sources have failed.
This same opportunity may hold true for Assisted Living. It is well known that the cost of Assisted Living is expensive. In home assisted living is estimated to cost around $4,000 per month depending on the level of care but more realistically it could easily escalate to $6,500 per month in our area. We know that, based on the number of aging people, the need is prevalent and the choice is to stay in their homes. The supply of affordable care versus the eventual demand could impair the system. Private Equity is now playing a role in the Southern United States investing and creating companies to address this need. We need supply to address demand so care can be delivered at affordable rates.
The final question is how people are going to pay for levels of required care as they age. In my opinion, the plan will be to preserve your principle savings and pay as much as you can with income first. To this point, we touched on annuities last month. Annuities return non-taxable investment and taxable earnings as income. Reverse Mortgages converted to annuity-like payments return tax-free income. Preserving home equity and annuitizing for life with a Reverse Mortgage may be a tool to help pay for various levels of Assisted Living for those that cannot otherwise afford it.
It’s about a plan for money and quality of life through the process. If you have this, I am a strong believer that the free markets will ensure that the supply of affordable care will be available.