Why I don’t like retirement residences as an asset class

I have felt negatively about these constructs for a long time (I’ve been known to call them “vertical warehouses where people go to wait for death”), but my thoughts crystallized when a friend of mine moved from her farm into a brand-new facility.

It costs her $5,500 a month for a room with a cot, TV, sink, microwave, a tiny w/c, a table not big enough for three people to sit at and windows that only open partway; there is no balcony.

Mind you, the public areas (ground floor dining room and reception) are splendid, but so what? She spends most of her time in her room.

So, from her POV, it sucks. But what about as an asset class?

Turns out, it’s not so hot to own these either.

Here’s a summary of my rationale on all of this:

1. they’re expensive to build and operate.
2. the responsibilities (and liabilities) you have as a landlord when you have elders in your care are huge.
3. other than having nice public areas, most seniors’ rooms are not even as nice as modern college dorms these days.
4. elders in these places feel isolated and ghettoized.
5. in many of them, seniors can’t even sit on a balcony (since many of them don’t have even the most meager private outside space).
6. most of them don’t even have micro kitchens so elders can’t cook for themselves.
7. these places are expensive as heck (an average of around $3,275 monthly).
8. they can’t stay in their own communities.
9. (as a landlord) there is way too much competition.
10. as a landlord, most seniors don’t have much money.
11. decision-making is slow (seniors have to talk to their daughters and granddaughters, then their financial advisors, then their doctors, then their friends, etc etc).

But now I have another reason—today I learned vacancy rates are incredibly high in these places: 10.3% in Ontario, 13.8% in Alberta in 2019. It’s better in BC and Quebec.

See, https://www.canadianrealestatemagazine.ca/news/vacancy-rates-for-seniors-on-the-rise-in-b-c–quebec-alberta-257991.aspx?utm_source=Pinpointe&utm_medium=20190603&utm_campaign=CREW-Newsletter&utm_content=E2463587-E610-4AB9-BBEB-F87DD38FC423&tu=E2463587-E610-4AB9-BBEB-F87DD38FC423.

But no matter where you are, compare that to the vacancy rate in one-bedroom apartments in Ottawa (1.4% in 2017) and two-bedroom places (2.1%).

See, https://www.cbc.ca/news/canada/ottawa/ottawa-rents-minimum-wage-tenant-advocate-1.4673287.

Bottom line: I’m not sure I would ever want to live in one of these places and, I am quite sure, I’d never want to own or run one either…

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
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bruce.firestone@century21.ca
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