When we talk to people that want to get into the assisted living business, one of the first questions they ask is, how much money they can make. It’s not an easy question to answer as the amount that can be made depends on many factors, including number of beds, location, and services offered. As such, the amount of money an investor is willing to contribute to the venture will have an impact.
Whether investor is looking to open a new facility or buy an existing facility can also vary the return. For example, if the investor purchases an existing facility, with little upside, the return can be lower. The tradeoff is that you are making money on the first day of ownership. Buying a fully stabilized business can also allow for an investor with no prior experience to get into the business with a low down payment SBA loan. On the other hand, buying a distressed facility that is losing money, can be more costly in the short term, but have the highest potential return. Without experience in the industry, banks will be hesitant to lend money to purchase a distressed facility.
Opening a facility from scratch can also provide very good upside, however, they are also hard to finance, and may require more capital initially. Other factors in opening a new facility include construction costs, time to build, operational losses until the facility reaches the breakeven point in occupancy.
Often people want to “Start Small” as it seems less risky to start or buy a small 6 bed residential assisted living facility. I often tell those people that it can be the opposite and actually be more risky to start too small. Another factor to consider is if you plan on being an owner operator and be very hands on. If so, it is possible to start small. Most small facilities under 15 beds are owner operated businesses. If you do not plan on being involved, and want to “Manage the Manager”, you will need a facility big enough to pay a good manager. If you are too small, there just isn’t enough funds for this.
That being said, how much money you can make varies dramatically. I’ve seen 6 bed facilities making $50,000 a year, and 100 bed facilities earing $500,000 annually. Start looking around at assisted living facilities for sale. See if you can find an existing facility that is stable and has upside potential. This is the perfect place to start.
