Why I'm Buying Healthcare REITs While Everyone Else Panics

Welltower Inc. (WELL) has gained 38% this year while most investors still won't touch healthcare real estate investment trusts with a 10-foot pole. They're making a mistake.

The knee-jerk reaction is understandable. Healthcare REITs got hammered during COVID-19 when nursing homes became death traps and hospitals delayed elective surgeries. Ventas (VTR) dropped 45% in 2020. Healthpeak Properties (PEAK) fell 35%. But here's what the market is missing: America's silver tsunami is just getting started.

The Numbers Don't Lie About Aging America

Every day, 10,000 Americans turn 65. This isn't some distant demographic trend – it's happening right now, and it's accelerating.

By 2030, all baby boomers will be over 65. That's 73 million people who will need more medical care, assisted living, and specialized housing. The Census Bureau projects the 85+ population will nearly triple by 2050, jumping from 6.7 million today to 19 million.

Here's the kicker: we're not building nearly enough healthcare real estate to handle this wave.

Why Healthcare REITs Beat Regular Real Estate

Most real estate investors chase apartments, office buildings, or retail spaces. Healthcare REITs own the buildings where medical services happen – hospitals, medical office buildings, senior housing, and skilled nursing facilities.

The difference? Your tenants literally can't move their businesses online or relocate to cheaper markets. Try running an MRI machine from your garage. Good luck performing surgery in a WeWork space.

Welltower's properties have an average lease term of 13 years. Compare that to typical commercial leases of 3-5 years. When your tenant is a major hospital system like Cleveland Clinic or Kaiser Permanente, they're not going anywhere.

The Contrarian Play: Senior Housing Is Recovering

Here's where most analysts get it wrong. They're still fighting the last war, worried about COVID-19 impacts on nursing homes.

Senior housing occupancy rates are climbing back. Welltower reported same-store operating income growth of 21.8% in Q3 2023. Occupancy hit 83.4% – the highest since before the pandemic.

Why the recovery? Simple supply and demand. We stopped building senior housing during COVID, but we didn't stop aging. The pent-up demand is massive.

Brookdale Senior Living, the largest senior housing operator in the US, is seeing waiting lists grow at their premium communities. In markets like San Francisco and Boston, some properties have 6-month waiting lists.

Medical Office Buildings: The Steady Eddie Play

While everyone obsesses over senior housing, medical office buildings (MOBs) quietly generate consistent returns.

Healthpeak Properties owns 463 medical office buildings totaling 25.5 million square feet. These properties stayed 94% occupied even during the worst of COVID. Doctors need somewhere to see patients, and these locations are typically on or near hospital campuses.

The best part? Medical office buildings have built-in inflation protection. Most leases include annual rent escalators of 2-3%. When inflation runs hot, your income keeps pace.

Three Healthcare REITs Worth Buying

Welltower (WELL) - The Premium Play

Market cap: $40 billion Dividend yield: 3.1% Funds from operations (FFO) growth: 15% annually over the past 3 years

Welltower owns the highest-quality portfolio in the sector. Think luxury senior housing in wealthy suburbs, not budget nursing homes in rural areas. Their average senior housing community costs $4,200 per month – well above the national average of $3,500.

Healthpeak Properties (PEAK) - The Diversified Option

Market cap: $11 billion Dividend yield: 4.8% FFO growth: 8% annually

Healthpeak split its portfolio between medical office buildings (60%) and senior housing (40%). This gives you exposure to both growth areas while reducing concentration risk.

Omega Healthcare Investors (OHI) - The Value Pick

Market cap: $7.5 billion Dividend yield: 8.2% P/E ratio: 11.8x

Omega focuses on skilled nursing facilities – the unloved corner of healthcare real estate. Yes, it's higher risk. But that 8.2% dividend yield isn't available in Treasury bonds. Their occupancy rates have stabilized at 80%, up from pandemic lows.

The Risks You Need to Know

Healthcare REITs aren't risk-free. Government reimbursement changes can hurt operators who lease from these REITs. Medicare and Medicaid pay for much of the care in these facilities.

Operator bankruptcies happen. When a nursing home company goes under, the REIT has to find new tenants or operate the properties themselves. Welltower had to take over 28 properties when operator Genesis Healthcare filed for bankruptcy in 2020.

Interest rate sensitivity is real. REITs borrow money to buy properties, so higher rates squeeze margins. But healthcare REITs are less sensitive than other REIT sectors because of their long lease terms and essential nature.

Start Small, Think Long-Term

I'm not suggesting you put 50% of your portfolio in healthcare REITs. But a 5-10% allocation makes sense for most investors.

Start with Welltower if you want quality and can accept a lower yield. Choose Healthpeak for diversification. Consider Omega only if you can handle the volatility that comes with that 8% dividend.

The demographic trends are locked in. We know exactly how many people will turn 75 in the next decade – they're already alive and aging. The only question is whether you'll profit from this certainty or let fear keep you on the sidelines.

Open a brokerage account and buy 10 shares of Welltower next week. Watch how it performs over six months, then decide if you want to add more.