Why should you buy a senior care facility?

As you probably know millions of boomers are retiring each year. It’s estimated that 75M baby boomers will retire by 2030. This is the generation that owns about 2/3 of all businesses. While Millennials and Gen Z chase influencer fame, profitable boring companies are desperate for buyers & operators. It’s a massive opportunity that most young entrepreneurs are completely overlooking.

Pros

Growing Demand: Aging Population: The U.S. population aged 65 and older is projected to increase from 15.4% in 2003 to approximately 21.19% by 2024, and further to 23.4% by 2034.

Residential Care Needs: Currently, about 6% of seniors live in some form of residential senior care, with predictions that the U.S. will need to add over 800,000 units by 2030 and nearly 1 million by 2040 to meet this growing demand. EBITDA Multiples: Assisted Living EBITDA exit multiple 6.5% to 8.5% 1

Boring is sexy: unsexy, traditional businesses and industries often offer the best opportunities for wealth creation and business success. 2

Clear exit plan: REITs are constantly buying these businesses (especially if you own the land). 3 4

Low AI automation risk: Senior care relies on human empathy and physical caregiving, which AI cannot replace, limiting disruption risks.

Stable revenue streams: Senior care centers typically generate consistent income through regular monthly payments from residents, insurance, and government programs like Medicare/Medicaid.

Recession-Resilient Industry: Healthcare and elder care services are less impacted by economic downturns as they fulfill essential needs.

Scalability: Once established, the business model can expand through additional locations or services, such as at-home care or adult daycare services.

Cons

Operating at a Loss: A survey indicated that 49% of assisted living providers are currently operating at a loss, highlighting the financial instability many facilities face 5

Covid Effect: COVID-19 exacerbates financial challenges of long term care facilities 6

Contraction: The number of nursing facilities certified by the Centers for Medicare & Medicaid Services (CMS) declined by 5% from July 2015 to July 2024. 7

Staffing Shortages: In the United States, 99% of nursing homes and 96% of assisted living facilities are grappling with severe staffing shortages. 8 Since March 2020, the nursing home sector has witnessed a reduction of approximately 235,000 employed workers and 52% of assisted living providers report that their workforce situation has worsened as of late.

Regulatory Compliance: The senior care industry is subject to strict regulations that vary by state. Navigating these legal requirements can be complex and time-consuming

Liability Risks: The risk of lawsuits is higher due to the vulnerable population served. Maintaining high-quality care and comprehensive liability insurance is essential.

Opportunity

If you manage to solve the staffing problem, you’re set.

The idea would be to recruit people from other countries to come work in the United States for 2 to 5 years. Similar to how the agricultural industry does it with H-2A visas.

I think it’s an irresistible offer for nurses from other countries. The average salary in Mexico is 106,000 pesos per year vs 89,000 dollars. Even if you pay them half of that ($44,500usd), it’s still 8 times more (890,000mxn) than what they earn in Mexico. We’re talking about potentially increasing your margin from 30% to 50% versus the competition. While your employees earn 8 times more than in their countries.

Other benefits of these types of employees are:

Workers: like any expatriate, they don’t have distractions like family and friends. They’re really there to work.

Low turnover: it’s very difficult for them to be poached by other employers. They don’t know anyone there and you provide their visa.

Not illegal immigrants: They’re legal and can return to Mexico without any problem.

The competitive advantage lies in being able to provide better service at a lower price than the competition. How?…

The problem with this business is the shortage of people… As the supply of employees decreases, their salary will increase, affecting the business margin. Therefore nursing homes have to raise prices.

The risk that nursing homes face is that there isn’t enough demand at the prices they need to charge to generate profitability. (That’s why half aren’t profitable). The personnel shortage is causing wage inflation to be much higher than U.S. family income.

The two possible outcomes of this are what always happens in the United States:

Nursing homes that serve the richest 5% of the United States will be very successful.
The other 95% will do poorly or may not even survive. (Leaving an interesting gap in the market).

Risks

Visas: You depend heavily on access to visas. If for any reason they stop issuing visas, this can affect you.

Competition: There’s no clear entry barrier if someone else wants to copy the strategy.

Defensibility

Over time you can use the extra resources generated by the model to cement the competitive advantage.

Technology: Invest in technology to further lower your operating costs.

Growth: Can grow more quickly gaining market share and revenue volume.

Scale: Use economies of scale to lower costs and increase distribution.

Culture: If you care for and treat employees well, you can build a good reputation as a company, creating entry barriers.

Brand: You can invest in marketing to create a recognized brand.

Recruitment Agency: Creating your own recruitment agency, instead of depending on another.

Timing

The timing isn’t very clear, the demographic change won’t happen suddenly, the average age of boomers is 66 years. The average age of entry to nursing homes is 75 to 85. That said, I think it’s not a bad time to buy now as prices should be attractive.

Also, demand is normalizing after COVID which greatly affected businesses. If you wait until 2030 you risk paying more because demand will grow and this kind of business will be more attractive, attracting a higher premium.

The time to sell would be between 2035 and 2040 because by then most boomers will have died and you risk having low demand and oversupply. Although it’s quite a regular business like a dentist or funeral home…

Pros#

Cons#

Opportunity#

Risks#

Defensibility#

Timing#

Other links to read#