I’ve received this same question in many forms over the years. But here is what a reader, a nurse in Florida, recently sent me:
Is there profitability in small residential ALFs?
As I’ve said before, my answer is sometimes yes and sometimes no.
I’ve seen some assisted living homes that are profitable, not extremely so, but they produce a solid income and good lifestyle for the owner-operator. And I’ve seen others that produce less net income than one could make as an employee at the same home.
Unlike larger purpose-built assisted living facilities, assisted living homes normally have 10 or fewer residents. They’re typically single-family homes converted to use for assisted living.
In a smaller assisted living home, let’s say for up to 10 residents, you’re 10% vacant if you have just one vacancy. Two is 20%. Three is 30%. And four you’re losing money if you weren’t already.
In a larger facility, two or three vacancies are just normal turnover and the cost of the lost revenue can be absorbed more easily. Not so in a smaller assisted living home.
Maintaining occupancy is essential to staying profitable.
Another reason assisted living homes might not be profitable is because they become too dependent on a single payor source.
Having a house full of private pay residents who each pay you directly is optimal but it’s not common. Residents of assisted living homes often rely on some type of public support.
If you have just one or two sources of that public support, you’re in a very challenging situation when that source tells you they need to drop your rates – it happens.
One other reason that I find assisted living homes unprofitable is that the owner hasn’t given their own work and effort enough credit – some don’t even take a paycheck but rely on (and hope for) a check at the end of a profitable month, which isn’t always guaranteed.
When you start your assisted living home budget realistically for payroll and make sure you get paid too!
I did a presentation on this subject a few years ago at an assisted living conference. The presentation notes have more ideas that you might want to consider. If you’d like a copy of that presentation, just fill out the form below.
And please keep sending questions – I’d like to answer yours!