How Healthcare Facilities Can Complement Your CRE Portfolio
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Healthcare real estate is a massive industry, receiving over $25 billion worth of capital investment every year. Given that the healthcare field as a whole is expected to grow more than 13% between 2021 and 2031, it's likely that investment volume will follow suit.
Here, we'll discuss how buying healthcare properties for sale can balance your commercial real estate portfolio. We'll cover the different types of healthcare facilities for sale, how you can invest, and talk about healthcare facility profitability.
Let's get started.
What Is a Commercial Real Estate Portfolio?
An investor's commercial real estate portfolio is made up of the commercial property the investor owns, manages, or leases. Strong commercial real estate portfolios are diverse and usually contain holdings across a wide range of industries.
Most investment experts recommend having some kind of commercial real estate in your portfolio. Commercial real estate is income-generating property, so it provides steady cash flow. Additionally, commercial real estate has the potential to massively appreciate over time.
What Are the Different Types of Commercial Real Estate Properties?
Investors have several options for buying commercial real estate, including but not limited to the options listed below.
- Office space;
- Industrial space;
- Retail;
- Multifamily (e.g., apartments);
- Flex space;
- Healthcare;
- Hospitality; and,
- Special purpose.
Most commercial real estate investors pick one or two property types to specialize in. A good investor becomes an expert in their niche to identify properties with the most potential investment success.
In order to find the best healthcare facilities for sale, we recommend hiring a commercial real estate broker. Brokers that specialize in healthcare properties understand what features successful investments have. They can not only help you find a suitable property but also analyze real estate financials and negotiate sales and lease contracts.
What Types of Healthcare Facilities for Sale Can You Invest In?
The US alone is home to nearly 2 billion square feet of medical office space and several hundreds of millions more of lab and medical research space. Generally speaking, there are four main types of healthcare properties for sale that are of interest to investors.
#1 – Medical Offices
Medical offices include space where doctors, nurses, dentists, and other medical professionals see patients. These spaces can be owned by individual medical practitioners or by larger medical groups.
The general rule of thumb is that medical offices should have about 1,200 square feet per individual medical provider.
#2 – Hospital Campuses
Hospital campuses include all hospital and lab facilities where medical staff treat patients. Hospital campuses may have several buildings that include surgical centers, patient rooms, waiting rooms, parking structures, and more.
#3 – Retail Medical Facilities
Retail medical facilities include facilities where patients receive retail healthcare products, like drug stores and clinics. Several retail giants, like Walgreens and CVS, have healthcare facilities under their brand names. Medical retail space can also include medical supply stores.
#4 – Special Facilities
Special facilities cover all other medical facilities for specialized purposes, like surgery centers, medical warehouses, rehab centers, nursing facilities, hospice homes, and medical education centers.
These types of properties are diverse and tend to provide a more niche investment than traditional healthcare facilities for sale.
How to Invest In Healthcare Facilities
There are three main options for investing in commercial healthcare real estate.
#1 – Direct Ownership
The most straightforward way to invest in healthcare facilities for sale is to either own or partially own the property. Investors can buy a building or buy a stake in the property with other investors.
Direct owners of buildings make money through rental payments, property value appreciation, and profits from business activity that takes place in the building. The downside of this type of ownership is that you'll be directly responsible for all management and upkeep. Physical property is also much less liquid than other investment vehicles.
#2 – Syndication
A syndication is a firm that takes investor capital and uses that money to purchase real estate, then divides the profits from those investments accordingly. The syndication as a legal entity owns and operates the property while the investors receive a share of the income the properties generate.
Investing in healthcare properties for sale through syndication is an option for those who want to invest in real estate but don't want to deal with day-to-day management.
Holdings through syndication also receive favorable tax treatment through their K1 federal tax filings.
#3 – REITs
Another way to invest in real estate is through a REIT, or a real estate investment trust. REITs are companies that acquire, lease, sell, and manage commercial properties. Investors can buy shares in the company, and the company uses that money to finance properties. Investors receive a portion of the profits in the form of dividend payments.
REIT investments are highly liquid because you can buy and sell REIT shares just like any other kind of security. REITs are highly lucrative, generating an 11.7% average annual return between 1972 and 2021.
Healthcare REITs, in particular, are very lucrative, with an average annual dividend yield of 5.5%—higher than the overall REIT average of 4.2%.
How Profitable Are Healthcare Facilities?
Healthcare facilities can be extremely profitable, depending on the type of property. For example, the average hospital in the US generates over $210 million in net patient revenue every year.
Larger healthcare facilities typically produce more revenue per patient. Similarly, the average net profit for a private doctor's office is 13%, with an average gross margin of 97.5%.
Which Legalities & Licenses Are Required to Own a Healthcare Facility?
The specific license you need depends heavily on the state and city, but most states require healthcare facilities to receive a license that allows them to procure and provide medical services on-site. Healthcare facility licenses are granted by local government authorities.
Additionally, healthcare facilities will have to go through a specific accreditation process to ensure that care quality is up to industry standards. Third-party organizations offer accreditation for medical facilities.
What's the Difference Between a Care Facility and a Nursing Home?
The main difference between senior care facilities and nursing homes is the degree of care offered: Care facilities are general living facilities for seniors who may need assistance with day-to-day tasks, and they're more geared towards the social aspects of living in a community with others.
Nursing facilities, in contrast, are living facilities for seniors that require a higher degree of medical care. Nursing homes provide treatment for seniors with serious medical conditions. Because the level of care is higher, nursing homes typically charge more than care facilities.
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