Which Type of Owner Are You?

Here was a question some time ago from one of our readers:  how involved should an owner be in their assisted living facility?

For many of you, the answer to that question is probably obvious…based on your circumstances.  But there are at least three different types of owners and their levels of involvement vary.

First, I expect that you already know this but I’ll remind you.  Most of my answers are my opinions based on a lot of experience.  Your circumstances may vary from the situation that I’m considering in this post, so my answer for your specific question could be different than what you will read below.  Always consult with a professional that is familiar with you and your specific situation before making business decisions.  However, I think this answer will be helpful for many of you.

The Owner-Operator

An owner-operator owns their assisted living facility and actively works on a regular basis in its day to day management.  The owner-operator might have a single assisted living facility or a portfolio of many facilities.  Owner-operators may come from a variety of backgrounds, including nursing, other healthcare, property management, construction, and more.  Having a strong background in just one aspect of assisted living doesn’t prevent an owner-operator from being effective, it only means that they may need to build a team around them to complement their own strengths.

No matter the size of the operation, most owner-operators have one thing in common:  significant involvement in the management decisions and most of their workdays spent dealing with residents, staff, and the myriad other issues of assisted living.

The Owner-Investor

An owner-investor owns their assisted living facility but retains professional staff and/or a third-party manager to operate the facility on a day to day basis.  Like owner-operators, an owner-investor may have a single facility or many, and they may come into assisted living ownership from many points of entry.  The more common starting point in assisted living for an owner-investor is from experience in real estate investment and discovering the benefits of investing in assisted living facilities.

The question that prompted this post was from a soon-to-be owner-investor that wanted to know how much they would or should be involved in the assisted living facility they planned to purchase.  And that is a great question.  The answer really is that it depends – it depends on how much assisted living experience the owner brings with them, the relevance of their experience, the capacity of their manager, and more.  However, in general, because owner-investors are seeking a more passive investment opportunity and not a job, they rely on their employees or their third-party manager to run the facility.

The owner-investor is normally smart if they leave day to day decisions to those they hired and not get too involved.  Even more important, an owner-investor should maintain a less visible role and never confuse staff about the organization chart.  When the staff begins to bring matters directly to the owner and bypass the manager, trouble is sure to follow.  Of course, an owner-investor needs to stay aware of potential pitfalls in the operations and have safeguards in place to hold the manager accountable.

Tenant-Landlord Owners

There is another classification that is really just a subset of the owner-investor type, and that’s the landlord-tenant arrangement.  Investors often choose to lease an assisted living facility they own to an operator.  In this case, the investor is generally not a part of the operations at all and has even less influence with the operator, besides collecting rent and ensuring the lease terms are met.  That may include periodic reports from the operator to keep an eye on their investment and their lender satisfied but the landlord should have the least amount of involvement when they’re only a landlord.  But investors, in this case, need to remember that they typically own just the land – not the operations.  In fact, when a landlord gets involved in the operations of an assisted living facility and they haven’t been invited to do so, a conflict between landlord and tenant may be around the corner.

This topic reminds me of a talk that a friend of mine gave every semester at our high school.  As the athletic director, he helped navigate plenty of conflict between the many interested parties in high school athletics.  In his mandatory meeting with parents and students at the beginning of a new season, he encouraged everyone to choose their single role whether it was athlete, coach or parent, and stick to that role.  Likewise, I think that owners, operators, investors, managers, landlords, and tenants each need to understand their role in an assisted living facility and stick to their role.  You’ll find that how much you’re involved depends on your role.

To our reader that asked this question, thanks.  I hope the answer is helpful to you and others.