5 Reasons To Never Start An Unlicensed Care Home
Nov 05, 2026
Starting a small, unlicensed care home may seem like an easy way to get into the assisted living business. You might think starting with two to five beds will help you save money and learn as you go. But before you jump in, there are five big things you need to understand so you do not lose money or put yourself in a bad spot.
Want the full breakdown? Watch the video below👇
1. You May Not Be Able To Serve The Residents Who Need More Care
The first thing you need to think about is the population you want to serve. Who are your residents going to be, and what kind of care will they need?
When you run an unlicensed care home, you may be limited in the level of care you can provide. In many states, you may not be allowed to offer medication management or work with residents who need a higher level of care.
This means you may have to turn away people who need more help. It can also mean moving a resident out of your home if their care needs change.
I have seen how hard this can be. You build a relationship with a resident, and then they need more care than your home can provide. Now you have to find another place for them.
This also creates more turnover in your home. When residents leave, you lose income until you find someone new.
âś… Before you start, check your state's rules and understand exactly what level of care you can provide.
2. You Will Have Fewer Ways To Get Paid For Care
The second reason is your payers. This is a big one because it affects who you can serve and how you get paid.
One of the best opportunities in assisted living is serving people who use Medicaid or VA benefits. These programs can help residents pay for the care they need.
But an unlicensed care home may not qualify to work with these programs. That means you will likely need to depend on private pay residents.
Think about that for a minute. Not every family can afford to pay $5,000 or more each month out of their own pocket.
You may also have limits on serving people with dementia or those who need memory care.
đź’ˇ Your pool of potential residents could become much smaller when you cannot accept certain payment programs.
Before you choose your business model, find out which programs you can work with and what rules apply in your state.
3. Your Insurance May Cost More Or Be Hard To Get
Insurance is another big reason to think twice before starting an unlicensed care home.
There are three main types of insurance you need to consider:
âś… Property insurance to protect your building.
âś… Liability insurance to help protect your business if something goes wrong.
âś… Workers' compensation to help protect your employees if they get hurt at work.
The problem is that insurance companies may see an unlicensed care home as a bigger risk. Because of this, they may charge you more for coverage or refuse to insure your business.
Imagine a resident falls, or an employee gets hurt while working in your home. If you do not have the right insurance, you could be left paying for those problems yourself.
I have run assisted living facilities for six years, and we have needed all three types of insurance more than once. I can tell you that having the right coverage matters.
Do not put your business, your residents, or your personal finances at risk just to save money on insurance.
4. A Small Care Home Can Be Very Hard To Make Profitable
This is the big one. You can have a beautiful home, great caregivers, and residents who love living there, but if the numbers do not work, your business will struggle.
Let's look at a simple example.
Say you have a five-bed care home and charge each resident $5,000 per month.
-
5 residents = $25,000 in monthly revenue.
-
4 residents = $20,000 in monthly revenue.
-
3 residents = $15,000 in monthly revenue.
Now let's look at your expenses.
I teach five core expenses using the word WIFE'D:
-
Wages: Paying your caregivers and staff.
-
Insurance: Protecting your business.
-
Food: Feeding your residents.
-
Energy: Paying for utilities.
-
Debt Service: Making your loan payments.
These expenses can make up 80% to 90% of your total operating expenses.
Let's say your monthly expenses look like this:
-
Wages: $12,000
-
Insurance: $1,000
-
Food: $1,000
-
Energy: $1,000
-
Debt Service: $5,000
Your total expenses are $20,000 per month.
Here is what happens:
|
Residents |
Revenue |
Expenses |
Result |
|---|---|---|---|
|
5 |
$25,000 |
$20,000 |
$5,000 profit |
|
4 |
$20,000 |
$20,000 |
Break even |
|
3 |
$15,000 |
$20,000 |
$5,000 loss |
Do you see the problem?
Losing just one resident takes away your profit. Losing two residents means you could lose $5,000 every month.
And remember, this is revenue minus expenses. It is not enough to fill the beds. You need to make enough money to cover your costs and keep the business running.
đź’ˇ Before you open your doors, build your financial plan. Know how many residents you need, what you can charge, and how much it costs to operate.
5. Getting Funding May Be Much Harder
The fifth reason is funding.
Many people want to start an assisted living business but do not know how they will get the money to do it. An unlicensed care home can make that even harder.
Banks and lenders look at risk when deciding whether to give you funding.
They may worry about your insurance, your experience, and whether your business will bring in enough money to make the loan payments.
They also look at something called the Debt Service Coverage Ratio, or DSCR. This helps lenders understand whether your business makes enough money to cover its debt payments.
With only five beds, your income may not be strong enough to make lenders feel comfortable.
You could find yourself having a hard time getting a loan or refinancing your property later.
That is why you need to understand your funding options before you get started.
Wrap Up
Starting a small, unlicensed care home is not always a bad idea. But you need to understand the risks before you spend your money. Think about your residents, payment options, insurance, profit, and funding. Most importantly, build a strong foundation before opening your doors.
If you need help creating a business plan for your assisted living business, check out the Free Business Plan Checklist.
And if you’re ready to figure out your next step, join me for the next Roadmap Challenge, where I’ll walk you through how to get started.
Show full transcript 👇
Transcript
00:00:00
I've had hundreds of people reach out to me on YouTube telling me, "Hey, I want to get into assisted living and the way that I think I'm going to do this is I'm going to have a small unlicensed care home, two, three beds, maybe even up to five or six, and that's how I'm going to get into it. What do you think? Do you think it's a good idea?" Well, in this video, I'm going to tell you the five reasons why you should never do an unlicensed care home and help you
00:00:25
understand why it's not a good idea for you. Okay? And if you find this video helpful, make sure you look down below at the pinned comment. Join me on my next workshop. Would love to help you get into figuring out how to move into assisted living. Now, let's get into these reasons why. But, as I'm talking to you a little bit about this, what I want to share with you is a story about a former student of mine. This student decided, "Hey, I'm going to get in. I'm going to do assisted living and I'm
00:00:51
going to do it with this small unlicensed care home." And they got started by just watching my content here on YouTube and they were able to get the facility was super excited when they reached out to me one day and said, "Brandon, I was able to follow your instructions on YouTube and started my own facility. This is super exciting. I've learned a ton over the past little bit." Fast forward a year and this person reached out to me and said, "Brandon, this hasn't gone the way that
00:01:17
we planned. We haven't made enough money. We are losing money. We are selling the facility now. Do you know anybody that is looking to buy?" And I had to be like, "Oh, man, I'm really sorry to hear you experiencing that." And this is a story I hear from a lot of people and it happens because you don't spend the time building the foundation and understanding what it actually takes as you're trying to get started. So, what I'm going to help you understand today is why you should not be looking
00:01:44
at a small facility. Now, if you want to do it, I'm going to have another video for you, so stick around that I'm going to point you to that's going to tell you how to start this because, hey, just because I'm telling you in this video not to do it doesn't mean that it's always going to be the case that you shouldn't be doing it. Now, let's get into it. Our facility right here, this this house is going to represent our small unlicensed care home that we have, okay?
00:02:09
This is beautiful home, like worthy of being in Architecture's Digest in a magazine, right? It's just I'm such a good artist. Not really. Anyways, there are five reasons that I want you to be aware of as you're trying to get into it and trying to start your own unlicensed facility here, right? That's what we're shooting for. That's what we want to try to get. Five, six beds, that's what we want to look at and what we're trying to get into. And before I get into this,
00:02:36
what I want to tell you is an unlicensed facility is not something that is illegal. Even though it says unlicensed, it doesn't mean that it's like illegal or something that you shouldn't do. It just means, "Hey, we're not going to go through the process of getting fully licensed cuz that can take a little bit of time and and it's going to take some extra money for me and you're still going to be following the rules. You're still going to be providing care. If you're a good person
00:03:02
and if you're watching this, you are, then you know, "Hey, I can do this better than anybody else. I have a heart of love. I want to give back to this community. to serve this population and hey, unlicensed is the easiest way for me to do that. That's why I'm looking at getting into this." And let's talk about that, but I just want to be clear that unlicensed is not it's not shady or anything like that. It just means you haven't done all the paperwork to become
00:03:27
a licensed facility. You still get to have an incredible impact on the people that you're serving. And also, everything that I tell you in this video, you're going to want to check with the state rules and regulations within your state. Can you even do unlicensed? What kind of population can you serve? What government programs are there? What opportunities are out there? Because my information I'm giving you today is going to be a little bit general, but it is I would say pretty relevant to almost any place that you're
00:03:52
trying to get started in. But, just take that into consideration. You want to do your own research. You want to look at your own area and make sure that you know exactly what you're getting into. Okay, the first reason why you should not do an unlicensed facility, the reason why we do not want to do this is what population are you going to serve? Because when you're working with an unlicensed population, you're often times going to be limited in the level of care that you can provide. In a lot
00:04:20
of states, you're actually not able to do things like medication management because that's going to require some kind of license and then coordinating with a nurse and providing that level of care. It means that that level of care, the LOC, is just not something that you're going to be able to serve. And so, we want to be aware of this. This is a big reason why, if you have a population who needs a higher level of care, they're probably going to need to go to a licensed facility or up into
00:04:49
even a nursing home. So, this is one reason why we need to be aware of that population that we want to serve, how much care do they need, and if they ever get to a point where they come into our facility and they end up needing a higher level of care, we're going to have to discharge them and put them somewhere else that can meet that level of care. And that barrier for unlicensed facilities, that level of care, is such that you're going to have a lot more churn with your residents because you
00:05:15
just can't provide that level of care in a way that is going to meet the care needs of the resident while also complying with what you're able to actually provide in the care setting that you are providing care in. So, be aware of that. It can force you to end up having to discharge your residents when you become so attached to them and that source of income that you have coming in from that resident whose level of care just doesn't jive with what you are able to offer, they could be going out. Okay,
00:05:43
the next one, item number two, that I want you to be aware of, the reason why you should not get into an unlicensed care home is going to be the payers. Say I love teaching people about Medicaid, okay? Medicaid, I think, is one of the best-kept secrets when it comes to assisted living. I think you have an incredible opportunity to serve an underserved population and help them out in receiving the care that they need in a way that they can't receive it anywhere else. And when you are an unlicensed care
00:06:16
home, you cannot serve this population. Okay? It actually limits you. Same thing if you want to serve a home a veteran population, you will not be able to work with veterans using that VA benefit. Now, you could bring them in and you can work with them, but everybody's going to have to be private pay. And for some people, that's really hard to stomach. The rates that you are charging for assisted living are not going to work if if they don't have the funds to do it. So, it's going to limit you because
00:06:46
these government programs, Medicaid, the VA, you're not going to be able to tap into those when you're an unlicensed facility. And so, it can really limit the scope of who you can serve and the population that you're going to be going after. So, you got to be aware of that that hey, the population that we're going to be looking at, the pool of people that we're going to pull from, it's not going to work for us if we work there. Same thing if we want to work with somebody like a memory care
00:07:12
population where we're working with like dementia and that type of a group, we're probably not going to be able to work with that population, either. We're a much lower level of care with people that don't need a lot of care needs and they can't be on those government programs. And so, our scope of residents, potential residents, these are not the high-paying residents. And yeah, there might be a lot of them, but they're not paying us a ton. And what I'm going to show you here with number
00:07:35
four, which is the big one, by the way, is that it probably isn't going to work for you from a financial standpoint. Okay. number three, the third reason why you should not be doing an unlicensed care home is insurance. All right. Insurance is a big one. You are going to need to have three types of insurance uh when it comes to assisted living. We need our property insurance, we need our liability insurance, and we need workers' comp. Okay, now when it comes to insurance, if we don't have those things, it puts us
00:08:12
up for liability. And when we're an unlicensed care home in the eyes of an insurance company, it means a unlicensed, like they they hyper hyper focus on this prefix to to the word, and they don't like that. It makes them feel uncomfortable. And because of that, your insurance rates are going to go up significantly. You're going to be paying more because there's from the eyes of an insurance company, there's a lot more risk involved, and when there's more risk involved, they're
00:08:44
going to charge you more because, you know, there's there's the chance that you're going to do something you shouldn't be doing. You're not licensed, there's no governing body, and so we're going to make you pay more in insurance in case something does come up. Or you might find that you can't actually get these types of insurance, and then you're putting yourself at risk. And so that's another reason why you might want to avoid doing an unlicensed care home
00:09:08
cuz it puts you at risk for more liability, which could lead to issues down the road. Now, you hope that you don't have to use any of these types of insurance, but I have been doing this for 6 years. I have run facilities for 6 years. We have used all three types of insurances multiple times over the course of that period of time. I'm so grateful that we have that insurance in place, and as much as we don't want to have it, it is so good to have it just in case something comes up. And so I don't want you to get into a
00:09:37
bind where you're like, "Oh, crap. Can I make this work?" And then you go, "You know what? We're going to take the risk. We're going to just do this without insurance." And then something happens, a resident falls, or somebody, uh you know, gets cut at work, or they smash their hand, or something like that, and you did not get that insurance, but you are now liable for what happened there, and I don't want you to have to deal with that. So, this is another reason
00:10:00
why an unlicensed facility right here, this unlicensed facility, is not something you should do. You should avoid it, okay? Now, as we get into number four, and this is the big one. This is the one I really want you to pay attention to. I want you to understand that the numbers can change here. And this is not something that is, "Oh, yep, there's no possible way for me to make the math work." But, the math is the thing that is really important for you to understand here. So, this is our
00:10:32
profitability. Your pathway to profitability, when you are working in a small unlicensed care home, is something that is really hard. Now, let me illustrate for you exactly what I mean, okay? So, if I have a care home, this unlicensed care home right here, if it has five beds in it, all right? I have two levers that I can pull right here. Okay? These are levers we can pull them, all right? The first lever is the number of residents, and the second lever is the amount of money that I can charge people, okay? I just multiply those two
00:11:08
things together. So, if I have five residents in a home, and I can multiply that by, I don't know, let's say $5,000 per month right here for those residents, that's going to equal a revenue number. And revenue's good, right? We want to know what our revenue is. Let me pop off my cap here. Uh $25,000. Okay? But, what happens if we're working through this and one of our residents here passes away or they decide to leave or they need a higher level of care and we can't serve them anymore. This goes
00:11:44
down to four times $5,000. Right? Or what if two of them, like heaven forbid, two of them leave and we are at three residents at $5,000 per month. Now, our revenue is shrinking with every single one of these residents that leave our facility, it's shrinking. Now, we're down to 20,000 or we're down to 15,000 and this can really hurt us. Okay? You can see how quickly this goes down. Now, on the flip side, if we wanted to flip this around and we said we had 10 residents at at that 5K, now now we're talking. Now, we're up to
00:12:21
$50,000. But, what I wanted you to know is that 5,000 or that that 10 residents right there is not probably going to happen with our unlicensed facility. Okay? So, we just want to be aware of that. So, the math goes both ways, but in our scenario, we're working with a small unlicensed care home up here. This unlicensed care home, we only have five residents. Maybe we have six, possibly depending on their state, possibly all the way up to eight, but we're still going to be limited in the amount here.
00:12:53
Now, we could also adjust this number potentially. That's something you want to take into consideration because if you can in your unlicensed care home charge $10,000 per month, then hey, maybe we're talking about something else. I've even talked to people who are able to get this up to $15,000 per month um through private pay. And if you have five residents at $15,000 per month, then hey, you know what? Unlicensed care home's probably going to make a good amount of sense for you, but a lot of
00:13:17
people are uncomfortable charging people more than 5,000 when it comes to this. Okay? I just want to be transparent. Now, this is our revenue number, right? This is revenue. This is not profit. What we know from the way that this works is we have revenue minus our expenses right here. Okay? And with the expenses, I teach you that there are five core expenses when it comes to assisted living. Those five core expenses are what I call the WIFE'D expenses. All right? WIFE'D because you're married
00:13:55
to them. I know it's cheesy, but it's true. They stand for our wages and our insurance, right? We've talked about that up here. Insurance. We need to have it. The food that we're going to We got to feed our residents. They're in the home, right? This is our energy, which is like the utilities. And then this one is our debt service, which is our loans. Anything that we have to do there. Now, these five expenses right here are going to make up 80 to 90% of our total expenses inside of
00:14:33
assisted living. So, it's not even all of them, but it is going to make up the bulk of them. Now, with our wages, let's just use some really quick round numbers. We have a small five-bed unlicensed care home. Our wages, we're going to say uh we're going to make this really easy math. Let's at 12K. Our insurance and our food and our energy, we're just going to say they're each at a thousand dollars per month um here. And then our debt service is going to be at 5,000. Right? I just want to make
00:14:58
this really quick and easy math for myself because I'm doing it live. If I don't make it easy, I will make mistakes and I'll make a fool of myself for all the world to see. But this right here is going to be $20,000 in expenses. Ooh. Look at that. Like look at this one right here. That is half of this number. And if I lose one resident, I I'd have to pay that much money in wages. Okay? And if I'm this is like just my caregiving staff, if I'm going to pay an administrator, I'm not going to be the
00:15:28
administrator or the manager of this facility, I got to pay that person. This thing's going to go up even higher. Okay? So, we have to pay attention to what this actually looks like. And so, 25 minus 20,000 in that scenario is cool. I've got let's let's do this one in green cuz that's this would be a positive, right? We'd be at $5,000 per month if we can keep us at five residents all the time. But guess what? That's not always going to happen. Often times we're going
00:15:54
to have at least one vacancy. So, we're going to be at four. That's $20,000 in revenue minus our $20,000 in expenses cuz it doesn't change that much. And now we're at zero thousand dollars. We are not making any money. We are at break even. And I know you are not in this just to to make no money, right? As much as you want to serve this population, you want to give back, you want to help people, you also I hope I hope you understand that you need to make money if you're going to be profitable, if
00:16:25
you're going to be able to continue running the business cuz if you don't make money, then all of the sudden it doesn't make sense. And now if we have this number right here, we have three residents in the facility at $5,000 per month, we are actually losing $5,000 in that scenario scenario every single month until we can get back up to four or five residents. And then we're stressing and then we can't make payroll and then we've got to lay people off or we're having to work in the home and
00:16:52
then we're getting burnt out and there's just so many bad things that happen here. And so, profit is another reason why you should never start an unlicensed care home. Okay? You have to be careful. You have to understand how these numbers work because if you mess this up, now you're in a bad spot. Now, let me show you really quick here. What if we said, "Okay, five residents were unlicensed. That's all we can get. We can't get more than that. But, what if we could charge
00:17:19
$10,000 right here? 5 * 10,000 = 50,000. Now we're talking. Now we're at this 50,000, this is 20,000. Now we're making money, right? But, how many of you are comfortable charging that $10,000 a month? Cuz I I this is something I hear from a lot of people that how can you charge $5,000 per month? And when I tell you you're charged 10,000, they're like, "Nah, that's not going to happen, right?" So, you have to understand this is a numbers game, and you have to really grasp how the revenue minus the
00:17:52
expenses equals profit formula, how it works, and how all of these things fit into place. Because if you don't, you will fit right here where you're losing thousands of dollars per month, and I don't want you to do that. That's what my student, who just followed me on YouTube and was able to get started, did not understand. They didn't follow the process, they didn't understand the finances, and they made this mistake, and they were losing thousands of dollars every month. And I
00:18:18
don't know who you are, but I cannot stomach losing thousands of dollars per month just for fun, right? Just because I have a charity. I can't do that, okay? I have to make a profit on this if I'm going to keep people employed, and I'm going to keep my residents safe and happy and healthy. If I'm going to do those things, then I have to be able to charge an amount that is going to allow me to do that and give back to those communities, okay? Profit is huge. We have to understand that, we have to
00:18:45
understand the numbers, and that's why small unlicensed care homes are not a good idea and why you should avoid them. Now, let's talk about number five, okay? Number five, the thing that I want you to understand here is funding. Now, this is something that so many of you are struggling with. I can't figure out funding, how am I going to get the funds, how am I going to get started with this? And you do not understand how you're going to get beyond that. When you are working in a small
00:19:14
unlicensed care home, you're going to have a lot harder time getting funding for a few reasons. One, is like the insurance. They look at this as a risky opportunity, and they're just going to be like, "Uh, I don't know. Come back to us after you've done it for a few years, and then we'll see if we can refinance you into something else." Or they may look at it and be like, "Um, yeah, you don't have the experience, or there's not enough, um, what they would
00:19:36
call, um, debt service coverage ratio, DSCR. There's not enough, uh, of a coverage here for you to pay this debt service. Like, you've got to have at least one resident in there, but then, that like one resident is going to take all the debt service amount, right? And the rest of it is largely going to go to wages and some of these other expenses." And so, they are like, "Oh god, that's uncomfortable, because I know in order to run a business, you've got to pay people, and if you're going to pay
00:20:03
people, are you going to have enough money to pay us?" And it just gives them pause, and they're not going to want to look at it. So, funding is another reason why you should never start an unlicensed care home. Especially a small one that you can only charge around $5,000 per month for. If you are committed to doing this, though, I'm not going to tell you, "Absolutely don't do it." I'm What I'm trying to do here is try to teach you that you need to look at this from a realistic
00:20:31
standpoint. And now you understand a little bit how these numbers actually work, how the revenue numbers come in, how the expenses actually work, and what can be profitable. And now you understand these two different levers here, and if we can pull one or both of them, and hey, maybe we've got to pay a little bit of money to become a licensed facility, but becoming licensed and going through that process is going to allow us to justify charging more, or maybe we understand a little bit more,
00:20:57
and we can increase this number up, and we can get, you know, eight to 10 residents or something like that into the home, that's what's going to allow us to move forward with a lot more confidence that we can be profitable in this assisted living facility cuz I don't want you to be like my student who only watched me on YouTube and was like, "Yep, I'm going to figure it out." And they did and then come back to me a year later and tell me, "Brandon, I'm losing $5,000 a month. I can't stomach this. I
00:21:26
cannot maintain this. I've got to sell this facility." I don't want you to get into that situation. I want you to figure out how to do it the right way and learn exactly what you need to do so you can be successful. Okay, if you found this helpful, make sure you go check out the the pin comment down below to join me in the workshop and go watch this video right here. It's going to teach you if you are committed to doing an unlicensed facility, it's going to teach you how to
00:21:49
start that because like I said, it's not always a horrible idea, but this video right here is going to help you understand exactly how to get started there.
Download Your FREE Calculator
Stay connected with news and updates!
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.
We hate SPAM. We will never sell your information, for any reason.