Knowing the Value of Your Assisted Living Facility
Whether you plan on selling your assisted living facility soon, later or never, it’s beneficial to have a good idea to understand assisting living valuation. Knowing the value of your assisted living facility can help you plan for the future, decide what you want to do with your business, and what retirement options you have.
What your assisted living property is worth boils down to the answers of two different questions; what are other operators willing to pay for it, and how much is a bank willing to lend on it. To answer these questions, we look at other transactions that have happened in our market recently and how those properties were valued.
An assisted living facility has two values
A residential care facility typically has two values; a real estate only value, and “going concern” value. The real estate only value is what the property is worth based on the property being vacant with the business no longer operating. The “going concern” value is based off of the current condition of the operating business and its current income. With a “going concern” value, it’s assumed that the property and business will be sold together, with the current residents and staff in place, along with all furniture, fixtures and equipment.
Real estate value
For real estate only values, the market has been valuing assisted living homes on a per licensed bed value or a price per square foot value.
On the lower end, assisted living facilities are valued at $20,000 per bed or at around $100 per square foot. On the higher end, assisted living facility real estate is being valued at around $35,000 per bed, or $180 per square foot.
Goodwill or going concern
Some appraisers are valuing assisted living facilities with a “going concern” value, which is based on a capitalization rate. The net operating income (NOI) is calculated based on the historical performance of the business with an assumed vacancy rate based on the number of beds, and a reasonable manager’s salary. That NOI is then used to calculate a value based on a 10% – 12% cap rate.
With assisted living business valuations using goodwill, a separate business valuation is completed on the business. A fair market rental rate is removed from the operating income of the business, and the adjusted net income is given a market multiple. Multiples vary based on the net income. The higher the net income, the higher the multiple normally.
To get a rough idea of the value, it’s safe to use a 3x multiple, since the value won’t be too far off in either direction.
2020 Update on Assisted Living Facility Valuation
As we complete more assisted living deals, we’ve seen some more valuation methods between appraisers.
We’re seeing appraisers value assisted living real estate on a per square foot value instead of basing it on per licensed bed. Most of these values are ranging from $110 – $140 per square foot.
For the business valuation, we’re seeing most appraisals using a multiple of of net income and adding that value to the real estate value. They may determine a reasonable lease rate for the property, add that amount to the business’ expenses in their financial statements. The adjusted net income number will be given a multiplier, and the value is determined. The average multiple has been around 3x.
We rarely see going concern values anymore.
A rule of thumb we’ve found with final sale prices in our transactions over the past year has been averaging about $50,000 per bed. That may not give you an accurate number depending on your specific property and business, but it may give you a good starting point.
Of course, every property is different and each situation is unique. If you want to get a better idea of what your assisted living property may be worth in today’s market, please feel free to contact Vandenboss Commercial to discuss your unique property.