Making several key assumptions, nursing homes are extremely profitable.
Assumptions:
- You live in a developed country
- You are buying or building 50+ units
Let’s say you have $1,000,000.
You can invest that money in bonds with a sub-5% return.
You can buy a multi-family property. Assuming a standard 5% cap rate (fancy word which you can ignore) and 25% down payment, your return on down payment will be, with appreciation, 13–18% per year.
While a 5% cap rate is standard for multi-family buildings, the cap rate for a retirement home (for autonomous individuals) is usually around 8% for a similar-sized building. For all practical purposes, that means your return just jumped at least 10%.
The return on your down payment (ROI) should be around 25–30%. It is not unusual to see a 40% return.
The difference between multi-family buildings and retirement homes is the latter will require at least 10 times more employees. (For multi-family, a single person can run a 50-unit building.) These costs are included in the net return above. They are also fixed, which means the ROI increases significantly with the size of the building.
The barrier to entry is also more significant. Anyone can purchase a rental unit. But for a retirement home to be reasonably profitable, you need at least 50 units, which generally means over one million dollars as down payment.
In most developed countries, there is a significant undersupply of housing units for seniors. This undersupply gets worse with an aging population and with the significant barrier to entry in the market.