Most astute real estate investors are aware of the outstanding opportunity that assisted living facilities offer for decades to come as 77 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 a related business model, the facilities are converted and the investor sets up his or her own care provider business to manage the facilities.

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. What tenants pay for assisted living varies but in California, the average resident pays $ $4,050 per month (2017 data) that comes to $48,600 per year. Across the country the range varies significantly from $1,000 to $10,000 per month depending on level of services.

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 puts together five or six of these properties can make a very nice living.

Assisted Living Facilities are More Business Than Investment

A residential assisted living facility is not a passive investment. You will have to employ staff and that staffing may require some medical professionals. A draft business plan is the place to start before investing in property. A good initial starting point is 40% for labor, 40% for expenses, and 20% profit along with some occasional marketing costs. You also want to explore your upfront costs that will include licensing and certification. You also need to decide what level and range of care you will provide. Will it be only some housekeeping, cooking, and activities or will the facility accommodate disabilities all the way through advanced Alzheimer’s? The level of care also comes with a need for medical equipment. All of this begins determining the fee structure you’ll need to charge. The simplest will be a monthly flat fee but can become a more complicated structure based on services needed.

Clearly this article can only spark thought about a profitable business that will thrive for decades. You’ll need to do much more research. 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.

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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 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. With the Pacific Ocean a couple of miles in the opposite direction.

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