“We’ve been pitched a few opportunities to invest in senior living communities through a private REIT. Between aging demographics and rising care needs it seems like a strong trend. What kind of due diligence would you recommend before investing?“
We’ve been hearing a lot about opportunities to invest in senior living communities, often through private REITs. But attractive trends don’t automatically make for good investments. Private REITs carry unique risks, and due diligence is critical. Here’s what to focus on before committing capital.
Start with Portfolio Fit
Before looking at any single investment, step back and ask: does this fit your portfolio? Private alternatives should rarely exceed 10–15% of total assets, and even then, that slice should be diversified across multiple strategies, not just a single REIT in one sector. Start small and build exposure over time.
Manager Quality
The senior living boom has attracted experienced operators—and opportunists. Some managers launching REITs have little background in real estate but know the demographic pitch will resonate. Look closely at track records, past performance, and how managers are compensated. Strong experience and alignment of incentives matter more than glossy pitch decks.
Fees and Liquidity
Private REITs are typically far more expensive than public REITs. Compare fee structures across offerings. Just as important, understand liquidity. When a REIT promises a “liquidity event” in five or six years, that’s only a projection, not a guarantee. You may be locked up longer than expected.
Scrutinize Assumptions
Pitch decks always look good—smiling residents, rising occupancy, charts going up and to the right. The real question is whether the underlying assumptions make sense.
- Return projections: If you see promised returns of 25–40%, that’s a red flag. More realistic expectations fall in the 10–15% range.
- Renovation and rent increases: Claims like “we’ll put on new paint and raise unit prices from $300,000 to $500,000” deserve scrutiny. Do those assumptions hold up in the real market?
- Debt and refinancing: Many REITs rely on leverage. If the plan depends on refinancing at lower interest rates in the future, ask what happens if rates stay higher. A failed refinance could lead to cash flow stress—or even capital calls, where investors are asked to put in more money.
Understand the Business Model
A REIT has to keep growing, not just operate a single profitable community. That usually means acquiring, fixing up, raising rents, then selling properties to fund expansion. Know how the REIT plans to generate liquidity and whether those plans are realistic.
Do the Work—or Bring in Help
The biggest danger isn’t just demographics being overhyped. It’s that hot themes attract predatory offerings right alongside legitimate ones. That means due diligence matters more than ever.
If you’re considering writing a five or six-figure check, don’t treat it as a gamble or “just $50,000 to see what happens.” Either do the work yourself—scrutinizing assumptions, fees, and management—or hire an attorney who can. That’s the only way to separate sustainable opportunities from glossy pitches.
👉 For high-net-worth families, private REITs can play a role—but only after asking the hard questions about management, assumptions, and fit in your broader strategy.
This post is based on a recent episode of the Scholar Wealth Podcast. For more insights, listen here.