How to Open an Assisted Living: Choosing the Right Number of Beds

Starting an assisted living facility is an exciting venture, but one of the most critical decisions you’ll make is determining the license capacity—how many beds your facility should have. In this guide, Kalei Stockstill, an expert from My ALF Consultant and My ALF Training, shares insights on selecting the optimal number of beds to ensure financial viability and operational success when learning how to open an assisted living facility.

Why Bed Count Matters

The number of beds in your assisted living facility directly impacts your revenue, operational costs, and ability to secure financing. While many new operators prefer starting small to learn the business, going too small can limit profitability and make it challenging to cover expenses like staffing and management. Kalei emphasizes that the goal is to balance your financial resources, operational capacity, and market demand.

Key Considerations for Bed Count

1. Return on Investment (ROI):

   • Smaller facilities (e.g., 6 beds) can work, but only if you charge high rates (e.g., $5,000+ per resident) or live on-site to reduce staffing costs.
   • Banks and investors evaluate ROI, so a facility that’s too small may not generate enough income to justify the investment.

2. Staffing Needs:

   • Smaller facilities require fewer staff, but this limits your pool of employees to cover shifts, increasing reliance on expensive temporary staffing agencies.
   • Larger facilities (10+ beds) allow you to build a broader staff roster, enabling shift coverage through overtime or internal resources.

3. Management Requirements:

   • If you need a manager, their salary must be factored into the budget, which can strain smaller facilities.
   • If you live near the facility, you may cover shifts or manage operations, reducing costs.

4. Income Replacement:

   • If you’re quitting your day job (e.g., earning $80,000/year), the facility’s revenue must support your income needs.
   • Banks may reject loans if the facility’s projected income represents a significant downgrade from your current earnings.

5. Market and Location:

   • High-profit areas (e.g., Maryland, where rates reach $10,000/bed) can make smaller facilities (6–8 beds) highly profitable.
   • In lower-rate markets, larger facilities (10+ beds) are often necessary to achieve economies of scale.

Recommended Bed Count for New Operators

Kalei suggests that 10 beds is a good starting point for most new operators learning how to open an assisted living facility. This size offers a balance of manageable operations and sufficient revenue potential. However, the ideal number depends on your goals, resources, and market:

• 6–8 Beds:

  • Suitable if you live on-site, charge high rates, or operate in a premium market.
  • Example: An 8-bed facility in Maryland charging $10,000/bed can outperform larger facilities in lower-rate areas.
  • Challenges: Limited staffing flexibility and higher per-bed operational costs.

• 10–20 Beds:

  • Ideal for new operators with access to financing or a partner.
  • Provides enough revenue to cover a manager, staff, and loan payments while allowing operational flexibility.
  • Easier to secure SBA-backed loans, which require as little as 10% down for experienced operators.

• Larger Facilities (20+ Beds):

  • Best for experienced operators or those with strong financial backing.
  • Higher upfront costs but better economies of scale and resilience to staffing challenges.

Financing and Partnership Options

When exploring how to open an assisted living facility, financing is a critical factor in determining bed count. Kalei highlights several strategies:

1. SBA-Backed Loans:

   • Existing facilities can be purchased with as little as 10% down (or even 5% with seller financing) using SBA loans.
   • Interest rates may be high, but this is the most cost-effective way to enter the market compared to building from scratch.

2. Building from Scratch:

   • Expensive due to costs for sprinklers, fire alarms, and licensing delays.
   • Not recommended for new operators unless you have significant capital.

3. Partnerships:

   • Partnering with a financial investor can help you afford a larger facility (e.g., 16–20 beds) instead of a smaller one (e.g., 8 beds).
   • Pros: Access to more capital, potential for higher profits.
   • Cons: Partnerships can be complex. Ensure responsibilities are clearly defined in writing, as the operator’s role is often more valuable than the investor’s.

4. Seller Financing:

   • Some owners may hold a second mortgage, reducing your down payment.
   • This can make larger facilities more accessible with limited upfront cash.

The Case for Relocating

Kalei strongly recommends being open to relocating when starting an assisted living facility. Markets vary significantly, and some states offer incredible deals on existing facilities. For example:

• A 10-bed facility in a high-demand area may cost less than a 6-bed facility in a competitive market.
• Relocating allows you to prioritize value and market potential over proximity to your current home.

Partnering Wisely

If you choose to partner, consider the following:

• Operator vs. Investor: The operator’s role (managing daily operations) is typically more critical than the investor’s financial contribution. Negotiate terms that reflect this, such as a salary plus ownership share.
• Trust and Accountability: Select a partner you trust, and ensure all responsibilities are documented in a legal agreement.
• Valuation: Investors may demand a higher return, so factor this into your financial projections.

Why Buying Existing Facilities is Best

Kalei emphasizes that buying an existing facility is the cheapest and fastest way to enter the assisted living industry:

• Avoids costly construction and licensing delays.
• Eligible for SBA loans with low down payments.
• Offers immediate revenue potential if the facility is operational or requires minimal renovations.

Final Thoughts

When deciding how to open an assisted living facility, aim for at least 10 beds to balance profitability and operational feasibility, unless you’re in a high-rate market where 6–8 beds can suffice. Explore SBA loans, consider partnerships to access larger facilities, and be open to relocating for better deals. Buying an existing facility is the most cost-effective entry point, allowing you to leverage government-backed financing and start generating revenue sooner.

For more guidance, contact My ALF Consultant to explore facilities for sale or visit My ALF Training for educational resources on how to open an assisted living facility. Leave your questions or thoughts in the comments, and we’ll be happy to assist!