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The New Assisted Living Facility Business Model

By Brian Kline | May 18, 2015

Most astute real estate investors are aware of the outstanding opportunity that assisted living facilities offer for decades to come as 79 million baby boomers continue retiring at the rate of 10,000 per day. The frustration is that building or purchasing a fully developed facility can easily cost more than $20 million. Sure, you can invest by purchasing shares through a REIT that specializes in assisted living facilities but there are two drawbacks to this. First, individual real estate investors are in the business because they don't trust Wall Street. They have seen Wall Street collapse too many times and seen too much fraud. They've sworn to never trust Wall Street with their investment funds again. Second, the fees and management charges for these funds eat into profits that investors would rather deposit in the bank.

Two Related Alternative Assisted Living Facility Investing Models

Large residential homes in upscale neighborhoods are being converted into assisted living facilities. In one business model the homes are purchased, converted, and then leased to licensed care providers. In the related business model, the facilities are converted and the investor sets up his or her own care provider business to manage the facilities.

A Portrait of a happy senior woman at home

As these new business models evolve, the tendency is to search out single-level, single-family residences in affluent neighborhoods. Two important keys to these properties are large square footage and the more bathrooms the better. The number of bedrooms isn't as important because it's relatively in expensive adding more bedrooms by dividing large suites or adding bedrooms in the garage. Adding more bathrooms is expensive because of the need to install plumbing and fixtures.

The money is in the number of bedrooms the facility has. Each state has its own regulations for how many bedrooms an assisted living facility can have in a residential home. In California, it is 6 bedrooms but some states allow up to 10. Typically, states also regulate how close together these facilities are allowed to be. Be sure you fully understand the regulations at your location.

Purchase Price Isn't All That Important

Finding the right house in the right neighborhood with the right zoning is more important than a bargain purchase price. What it's really about is the cash flow. Again, what tenants pay for assisted living varies but in California, the average resident pays $3,750 per month that comes to $45,000 per year. With a 6 bedroom home, the cash flow amounts to $540,000 annually.

That sounds like incredible cash flow for a single-family residence but of course, your costs of running an assisted living facility are much higher than renting out a single-family home to one family. The facilities reflect a home environment where each tenant has a private bedroom and all meals are prepared for them. There is also a 24-hour staff member on duty. It's important that tenants receive quality care and are treated with dignity. Still, a well-managed assisted living facility can be expected annually deliver between 15 percent to 25 percent in annual profits. An investor that can put together five or six of these properties stands to make a very nice living for his or her family.

These business models can work in almost any part of the country but do work better in some areas with a higher concentration of retired people such as Florida, Phoenix, and Atlanta.

Please leave a comment if this article was helpful or if you have a question.

Brian KlineAuthor bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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