Preparing for the Sale of Your Assisted Living Facility
May 26, 2018

Investing in Assisted Living Facilities

Investing in Assisted Living Facilities Has Become a New Focus for Many Real Estate Investors.

Real estate investors and entrepreneurs alike are starting to take notice of the opportunities available in assisted living properties. While deals are becoming more scarce and returns declining with traditional real estate investments, investing in assisted living facilities has become a new opportunity for investors to start securing more deals and realizing an increase in their returns. 

While large nursing homes and various other types of large assisted living facilities for sale have been a highly sought after investment, the market for smaller facilities has remained a relatively untapped market. Many investors have been looking right over the residential assisted living facilities and any other facilities that are 20 beds or less. Since the competition for these types of properties isn't high yet, the prices remain low and the returns are significantly higher than other investments. 

Investing in assisted living facilities doesn't require purchasing multi-million dollar facilities with hundreds of beds. In fact, many assisted living properties accommodate as few as six residents and operate in converted residential homes. There are a number of opportunities available for investors to get into the assisted living market for the cost of a small multi-family property. 

There are a few options available for getting into this market. Some investors may want to be as hands-off as possible and simply collect a rent check every month, while others want to be more involved in the operations. Some of the more common ways to invest in the assisted living market are below. 

Be an Owner Operator

For the investor that wants to be involved in the business, there are many opportunities available to purchase the real estate and business, and take over the operations. This scenario requires licensing, with requirements that vary by state. There are also a lot of additional responsibilities to consider, such as managing staff, overseeing resident care, negotiating with various agencies, and overall business administration. While this type of investment offers the opportunity for the highest returns, it also requires the most time and effort. 

Management Agreement

Another option for investors is to still acquire the business along with the real estate, but hire a management company to oversee the business operations. These arrangements often involve a percentage of the gross income and/or profits going to the management company. All expenses come right off the top, and the management fee is taken from the remaining profit.

this option allows the investors to be more hands off, but still has to keep an eye on the business to ensure the management company is following all rules and regulations, is taking proper care of the residents, and is operating the business as efficiently as possible. The investor is relying on the success of the management company in order to receive a return. 

Partner With an Operator

Similar to the management agreement option, the investor has another company operating the business. The difference is that the investor only owns the real estate, not the business. Each resident that moves into the facility has a lease directly with the property owner, and pays the operating company for their care. The resident's monthly cost stays the same, but is just split between two entities. 

This situation gives the investor a high monthly return when the facility is full, but little monthly income when occupancy is down. There is a lot of up side, but a higher amount of risk than traditional real estate investments. 

Lease Directly to an Operator

This is the simplest of all of the options presented here for investing in assisted living facilities. This is essentially a standard commercial lease. The investor buys the property, and an assisted living operator leases the property to run their business. The operator will typically sign a five to ten year lease and pay a set monthly rent rate. In most cases, this is a triple net lease with the operator covering all expenses, such as property taxes, insurance, and maintenance. While this option doesn't have as much upside as owning the business or partnering with an operator for a per bed rent, it is typically the safest investment with the most stability.