Rental vs Entrance Fee, Part I: 3 Reasons Boomers are Moving Toward Rental Senior Living Options

by | Jan 10, 2020

Here’s a statistic that will either excite you or terrify you: By 2037 – just 17 years from now – the number of households with at least one person over the age of 80 is set to more than double.

If you work in the senior housing field, you know there is a term for this: this is the “boom” we’ve been waiting for.  However, just as they have in many other facets of their lives, the boomer generation wants to do things differently.

While the entrance-fee model has been the long-held standard in senior living, more and more members of the boomer generation are preferring the flexibility and freedom found in rental products.

Based on an analysis of data from the U.S. Census Bureau, people over 55 are actually the fastest-growing segment of the country’s rental population. This demographic shift — a 28 percent increase in renters over 55 between 2009 and 2015 — represents 2.5 million seniors.

So this is something that the not-for-profit senior living field—which has been dominated by entrance fee contracts—has to understand: Why are baby boomers choosing to rent, and how can communities that currently focus on entrance fees adapt to meet this demand?

For the current and coming wave of boomers, rental communities are attractive for a number of reasons. We will address more of the details in our upcoming webinar Rental vs. Entrance Fee: Responding to Consumer Preferences, but for now, let’s discuss three primary reasons boomers are opting for rentals.

Baby boomers can rent in walkable areas with all the conveniences they need

One of the downsides to traditional homeownership is that your property is rarely in walking distance from the places you’d like to visit on a daily basis. Many of today’s seniors long to enjoy what comes with city apartment living: A low-maintenance lifestyle that allows them to be part of an active downtown community. They are not as interested in an isolated, independent living “campus.” Boomers are seeking places where they can still have easy access to grocery shopping, restaurants, walking trails, fitness centers, music venues and theaters. So, as this generation gears up to enter its rightsizing years, Life Plan Communities will need to prepare to meet the desire for this lifestyle, especially when considering expansions and partnerships.

While rental communities are more likely to be located in social and cultural hubs, one could argue that many full Life Plan Communities have been offering a similar lifestyle for many years now, with multipurpose, town-like campuses and onsite amenities. However, recreating this type of infrastructure does come at a cost, which leads to another reason many baby boomers are interested in rental options.

Affordability and flexibility

Affordability and flexibility go hand-in-hand, and represent important considerations for why many boomers are preferring rental communities over entrance fee communities.

Projections show that many boomers do not have strong asset bases. For many of them, their home will be their major asset, and locking up that asset in the upfront commitment to an entrance fee is just not a realistic use of those funds.

Rental communities, on the other hand, allow the opportunity to keep assets liquid; no one has to put all their eggs in one basket. This provides boomers with more control over their financial futures. The flexibility to leave the rental community—for whatever reason—without losing all or part of their entrance fee, is attractive to them, and even worth paying a little more on a monthly basis.

Rental offers a feeling of freedom

The core theme that runs through the many reasons that boomers are attracted to rental options is freedom. This freedom is realized in many ways. Like with most Life Plan Communities, rental communities offer the freedom that comes from the elimination of home maintenance. An in-town, walkable community offers a different sense of freedom in that residents can feel more connected to the city center or neighborhood, with more choices of what to do with their new-found time. And for some, it is more of a psychological freedom that comes from removing the perceived restrictions and long-term commitments that come with an entrance fee contract.

So should your organization introduce a rental product? While the entrance fee model remains strong, and is by no means obsolete, many organizations are rolling out rental products, some with great success, to reach a broader audience and expand their mission.

If you’re wondering how your community may be able to introduce a rental product – and maintain investor confidence as you do it – join us for our upcoming webinar to talk through and answer these very questions with me, Toby Shea, a partner at OnePoint Partners, and Keith Robertson, a managing director at Ziegler. And stay tuned for Parts II and III of this blog series, which will feature insights from Toby and Keith.

If you can’t make the webinar but want to discuss the implications that the growth in rentals could have for your Life Plan Community, feel free to give Love & Company’s Tim Bracken a call at 410-207-0013 or click here.

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