6 tips for buying a residential care home property and business
The 6 tips for buying a care home property and business are more about the whole process, not just finding a house to buy.
Also, the many types of residential care homes have specialized issues that need to be understood before investing in the opportunity. These are a beginning guide, not a blue print to building a care home enterprise. An assisted living facility can take on an individual quality from the business owners.
Is a residential care home investment?
Residential care home area good wealth growing strategy.
Residential care home properties offer a substantial opportunity to grow wealth.
The prospect of significant cash flow and asset gain draw people to invest in care home properties and businesses. Assisted living facilities are both a real estate investment and a business opportunity. That makes two ways to grow wealth in the health care opportunity.
Are care homes more about the real estate or business?
Care homes facilities are more about a health care business opportunity than real estate. The standard real estate investor is looking for ROI (Return On Investment) but with the presupposition owning an asset, not running a business. An assisted living business, if operated correctly, can build both cash flow and a business asset. The risk is the business must have the correct location, clients, staff, and operating systems to make a profit. If the business is operated poorly then the business can fail and take down the real estate with the failure. The key to understanding how profitable an residential assisted living facility in California is the business operations.
Tip one is the government issues.
Each type of care home requires the correct license check for the initial California Department of Public Health. A few types of care homes are Adult Residential Facilities (ARF), Residential Care Facilities for the Elderly (RCFE) a senior care facility, Group Homes (GH), Alta California Regional Center (ACRC) service provider, nursing homes and more. Check for the care services each type of care home operation needs for license and to be a good business operation.
There are facilities licensed to care for more than six residents but they are usually retirement complexes or specialty facilities built to care for elderly people. In this setting the facility is often called an Assisted Living Facility for the elderly RCFE.
Each one requires government license, qualifications, education and more. Check for their initial California department license. Knowing exactly what is needed before buying or starting a care home is imperative. Care homes facility must obtained licensing through the California Department of Public Health (CDPH). Check if the care home has an ACHC (Accreditation Commission for Health Care) certified home health agency provider number.
Tip two is the property issues.
First know if a care home can be operated at that location. Check zoning, CC&R’s and HOA’s before investing in the property. Check to see if the residential care home property meets current department of public health standards to the type of care home planning to be operated. Also, make sure the layout will work with the type of care home or nursing home.
There are strict rules on the minimum areas of living space that nursing homes must provide per resident. The Public and Private spaces in a house helps creates the home feel. These rules extend to the number of assisted bathrooms available to clients, as well as ramps and shaft lifts to provide access to communal and private areas.
Potential residential care home buyers are advised to assess whether properties are meeting the home health agency standards. The home for sale is very important when purchasing an assisted living facility in California.
Another aspect about property issues is funding. Some lenders will not make loans on a converted garage property. Also know if ADA compliance or fire systems are needed in the type of care home to be operated. Most residential care homes have private rooms available for their residents as well as shared rooms. The nursing home or care home business buyers should check the prices per client and per room both private rooms and shared rooms.
Tip three is a business plan.
This may be mandated with some types of financing. But even if not, understanding that a care home is a business is the key to the long term success. Marketing is an important issue that needs to be understood fully before buying a care home operation. How is the care home going to get clients? Do they use a home health agency?
Staffing is another key area that needs to be known. Accounting and financing issues must be understood within the business plan. Also it would be a big mistake to make the business plan after you buy the care home. Work on a business plan before you start looking for the care home operation. We provide a insights to help care home buyer to value the business and real estate as a one stop shop for aspiring entrepreneurs and business buyers.
Tip four is staffing issues.
Most care homes are 24 hours a day, 7 days a week operations. People are critical to care home businesses. Also, most staff has to meet experience and education qualifications. And many have ongoing training as well. The staff also has to be trained about the specific care home and the rules and regulations that apply to it.
Compensation is also very important to the staff and the profitability of the care home. Additional training for long term care staff, nursing home workers and senior care employees.
Tip five is residential care home’s finances.
Assisted living facilities finances have three basic characteristics to understand if it is a good investment. Check the care home businesses for sale for any issues with the department of public health. In Sacramento area it is the California Department of Public Health (CDPH).
What are the financial goals?
How much money the owner wants to make for the assisted living endeavor investment? Run the numbers you want to achieve to own and operate a care home. Make sure the ROI for the property is the number you want. Run the numbers for the care home business and check if the profit and loss looks good to you. Purchasing a residential care home, nursing homes, Senior care RCFE type, ALTA care facility are all in the health care business. Reaching the business owner’s goal in a public health enterprise can be substantial.
Where is the money coming from to buy the care home property and business?
Finding a lender for residential care home properties is not an easy task. Lending on assisted living facilities is difficult because how could the lender take back the property if payments are not made. They are not licensed to operate the care. How would the lender handle the PR of removing the clients out of the foreclosed property? It would be a nightmare.
This is reality check number one. The down for most real estate as investment loans start at 20%.
Businesses for sale also means funds are needed for more than the house for sale. This can make the job of finding a loan to buy both the business and real estate much harder. The Small Business Administration (SBA) loans are available.
Is this home care business profitable?
The last area of finances is the monthly overhead and cash flow issues. Don’t live in a dream world when evaluating the numbers. Real life means having back up funds and plans. The current books must be checked to be real numbers and real money. See the money as it flows into the bank and out. If the books and banking do not match that is a big red flag.
Tip 6 is looking into the future.
Picture yourself in the role of care home owner a year from now. Think of all the things required and look at the money to see if that is something worth doing. If the vision is, I would love doing that, than move forward with the opportunity. If the vision is, that is not me, than look for other real estate opportunities. See if providing comprehensive residential and day care services for elderly service users in the future will help the business opportunity is worth the purchase price.
Which is better a residential care home or commercial care homes?
Residential Care homes can be great investments. Care homes help people and are great for society.
Use these tips to identify if care homes are good for you. When it comes to commercial care homes investments, not only do the numbers change but the whole formula for profitability is much more dynamic.
Many clients I worked with want to trade up to a commercial operation. They feel the numbers just make more sense in an upscale operation. Also franchise sell systems that could be used to help potential buyers. One reason to grow an assisted living facility in California is the value per client grows.
My questions to clients who own a residential care home and want to move up to a commercial care facility is are the operational skill sets the same? Is it just more volume of the same activities or is it more and a different skill set? Much due diligence is needed to evaluate the skills, resources, legal and government issues when changing from a residential care home to a commercial care facility.
The Sacramento area residential care home market is very diverse. Northern California has many entry level residential assisted living facilities and every step of value and price to the most luxurious care facility.
Dan Parisi with Coffee Real Estate has sold and helped clients buy residential care home real estate and business operations. Are you ready to look at the residential assisted living opportunity and see if it is a good fit for you?
Coffee Real Estate website containing information about care home and support documents is about business values intended to provide general information only. Because legislative requirements for home care standards, employment laws and business operations vary, the information presented should not be interpreted as being universally applicable. The information is given with the understanding that they do not constitute legal, medical, accounting or other professional advice. Legal advice & other professional assistance should be sought prior to commencing your care home business in order to determine the impact of all levels of government legislation, rules and regulations, local laws, licenses, etc. upon the operation of the care home business.
