Can a 2 or 3 Bed Care Home Actually Be Profitable?
Dec 10, 2024
Welcome to the Assisted Living Investing Blog. I'm Brandon Gustafson, and I own and operate two assisted living facilities. I created this blog to help people like you learn the ins and outs of assisted living.
In this blog, we're diving into a common question: Can a care home with just 2 or 3 beds be profitable?
Check out the video too:
Understanding the Small Care Home Model
Many of you might have extra rooms or a house and wonder if you can turn it into a profitable care home. Let’s explore whether such a small-scale care home can generate income and provide value.
The Living Caregiver Model
A successful approach for small care homes is the "living caregiver model." In this model, the caregiver, often the owner, lives in the house with the residents. This setup allows you to reduce labor costs significantly because you're providing care and managing the home simultaneously. Alternatively, you can hire someone to be the live-in caregiver, but we'll assume you are the caregiver for this discussion.
Reducing Labor Costs
Labor costs are the largest expense in operating an assisted living facility. Being the live-in caregiver eliminates the need for additional staff, drastically cutting down on labor expenses. The savings remain substantial even if you need respite care or occasional help. This model allows for more control over day-to-day operations, leading to better cost management and higher profitability.
Cost Management and Profitability
To achieve profitability, you must manage expenses effectively. Focus on key areas like groceries and supplies, ensuring efficient shopping to reduce costs. Handle cleaning and maintenance yourself if possible to save money. With fewer residents, your insurance premiums will be lower since you’ll need property, liability, and worker's comp insurance, but smaller facilities often pay less. If you own the house, traditional mortgages often have better terms than SBA loans, reducing debt service payments. By addressing these areas, you can effectively manage costs and enhance profitability.
Legal Considerations and Licensing
Before starting, consult an attorney about forming an LLC to protect yourself legally. This separates your personal assets from the business, offering a layer of protection in case of legal issues.
Licensing Types
Understanding the different types of licenses is crucial. Care homes typically accommodate 4-6 beds and are regulated differently by each state. Residential assisted living facilities can have up to 16 beds, providing a more home-like environment. Commercial assisted living facilities have more than 20 beds and are usually in larger, more commercial settings. Check your state’s regulations to ensure compliance and choose the appropriate license for your facility.
Benefits of the Small Care Home Model
Running a small care home has several benefits. Acting as the caregiver reduces the need for hired staff, significantly reducing labor costs. With fewer residents, you benefit from lower insurance premiums. Financially, you receive payments both as the caregiver and the owner, offering potential tax advantages. Additionally, traditional home mortgages often have more favorable terms than commercial loans, helping reduce debt service payments. These factors collectively enhance the profitability and viability of the small care home model.
If you're interested in diving deeper into the assisted living business, make sure to download our free underwriting calculator from Assisted Living Investing to help you navigate your investment journey.
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Show full transcript 👇
Transcript
00:00:00
hey friend it's Brandon Gustafson welcome back to the channel today we're going to be getting into the topic of can a care home with two or three beds actually be [Music] profitable hey friend it's Brandon gustofson I own and operate two assisted living facilities and I created this channel to help people just like you learn the ins and outs of assisted living welcome to Assisted Living investing today we're going to be getting into the topic of can a care home with two or three beds actually be
00:00:32
profitable it's a question I hear all the time and you are probably watching this and wondering to yourself I've got this extra house uh or I've got some extra rooms now I'm an empty nester could I bring some people in here and actually make some money U so we'll talk about that as we get into the video today before we do though I want to make sure that you get over to the website assisted living investing. netal and you'll be able to download our free underwriting calculator to help you
00:00:58
out through your investment journey and get you down the path to reaching your investment goals uh excited to help you out through that process and the link is down here in the video description below so you can just click on that and and get over to it now let's jump into the topic we're going to be talking again about um Can two or three can a two or three bed care home actually be profitable as you are going through your investment Journey now what I what I'm seeing with a lot of you that want to do
00:01:26
this kind of model where there's two or three beds in a facility and a care home and I'm talking specifically about Care Homes here because this is a different level uh you're doing a lot of the same work that you would in an assisted living facility but but it's going to be termed differently your State's going to have a different regulation on this than than my state might what I've seen is kind of a a rule for where I operate is four is kind of the max for a care home
00:01:51
but I've also seen a few as I've done some research in different states where they get up to six so this is kind of the The Sweet Spot that you're working with in a care home um uh but a lot of people want to know hey I'm an empty nester my kids just moved out now I have two or three uh beds in in my facility uh can I can I turn this into something that it's it's generating income now there is the model that I would suggest that you go through if you're if this is the path that you want to go down is
00:02:17
what's called a Livin caregiver model so with a Livin caregiver it means that you I'm I'm going to assume that you're the one that's doing this are actually living in the house with these people and you are the caregiver and you're helping them out through that process you could hire somebody to come in and be the living caregiver if you have space in the house or or things of that nature but we're going to go off the assumption that you're the living caregiver that's how I'm going to talk
00:02:42
to you a lot about this but you're probably going to want to have this model regardless in a care home where you have the caregiver actually living at the house with them so they can provide the cares and and be there um all the time when it's needed what is that Livin caregiver model uh that I'm talking about how does it work work so that caregiver that actually lives in the facility with the residents is there and they are going to be kind of uh doing all the meals they're going to be
00:03:07
taking care of any of those activities of daily living that you might be familiar with in the Assisted Living World so making beds dressing um cooking cleaning all of those things are going to be what you're doing as a living caregiver as you go through the process here in your care home now in a two to three bed care home as the owner you are likely the one that's Liv Liv in that facility and caring for the residents so you're the one that's going to be doing a lot of that work and and helping them
00:03:38
receive the cares that they need so this means that you are actually going to be the caregiver and the landlord at the same time and where that can really help you out is you're going to be able to reduce labor costs which is something that's super valuable um something I will point out and I'll make another video on this is that as the living caregiver you don't necessar necessarily have to be there all the time you can still have other staff that come in and you can do what's called respit care
00:04:05
which allows you to get outside of the facility again we'll talk about that a little bit more as we go through um some of these videos here on the channel so make sure you stay tuned ring the bell so you get notified every time that I put this content out to help you out on your investment Journey but by being that living caregiver yourself you're going to significantly reduce your labor costs which as we know and I've talked about this in a previous video the most expensive Ive part of owning and
00:04:31
operating an assisted living facility by far and it's not even close is your labor cost and so if you're able to reduce that amount of money that you are putting into um running a facility based off of your staff you're going to be more profitable which is something that I think you're here trying to learn is can I do this and can I actually make money while also making an impact on the world and the answer yes you absolutely can um doing the living caregiver model is going to help you out through that
00:04:59
process process let's get into some a little bit of cost management because this is kind of the enticing part here about running that two three bed facility what is cost management and what is profitability basically with profitability you're taking all of your expenses everything that it costs for you to to run the facility and all the income that you have and if you are bringing in more income than your expenses so if your incomes up here your expenses down here that Gap right there is going to be what your profit ility is
00:05:31
so that's that's kind of give you an idea of what that is so the more cost management features or or strategies that you can Implement in your assisted living facility and the way that you are operating the more profitable you're going to be on your journey to investing in Assisted Living so if you are running one of these little facilities how are you going to reduce those costs and how are you going to um make it a profitable small care home when you are that living caregiver when you're you're kind of
00:06:00
there on a daily basis day-to-day you're you're doing all the things you have a lot more control over the amount of money that you are spending on things in the facility how much money are you going to be spending on groceries how much are you going to spend on somebody to help out with the cleaning are you going to do that yourself or you going to hire it out and how much are you going to to be doing uh with that you might be looking at uh some of the especially the the lower Staffing cost
00:06:26
so if you're you're doing this you're you're probably going to be paying yourself um two ways one as the caregiver um and that's going to be kind of a W2 job and then one time as the owner the landlord and that's going to be more of a passive thing that's coming in that's profitable so from a tax advantage standpoint you're actually putting yourself in a pretty good spot here by implementing some of these processes here for you but you're going to be able to reduce that cost
00:06:50
significantly in the sense that you know on on your paper it's still going to show up as a big cost but it's coming to you so you're going to be generating more income for yourself as you go through this um and profitability it kind of gets into a hairy situation here right where profitability true profitability for the business is based off of those expenses and income whereas for you from an income perspective you're getting paid twice in two of these areas once is the the W2 uh living
00:07:18
caregiver and once is the investor that's getting those things and that money coming to you is is going to benefit you and and help kind of offset some of those costs in helping you generate the income that you need to run a successful um care home here that you're you're running another Point here is you're going to have reduced Insurance costs as well because you're going to have fewer residents which means um you just don't have as as much to Ure so that's something that is good
00:07:45
insurance is actually one of the largest expenses that you're going to have when you are running an assisted living facility I've covered that before as well in the video that I linked previously uh but insurance is something you got have you're going to have to have three types of insurance property liability and workers comp now um when you have fewer residents that liability insurance is going to shrink down and when you're living in the facility as well it's probably going to shrink that
00:08:09
down a little bit so your premiums are going to come down which is going to save you some extra money and if you're doing this going this model you're likely going to have a more traditional mortgage rather than SBA which is something that I have done and in doing that you're probably going to have better rates and better terms than what you can get on the SBA because you have the house already uh which is a really nice feature having those things having a reduced Debt Service payment is going
00:08:34
to help you out a lot Debt Service is a huge expense that you have when you're operating an assisted living facility so anything that you can do to reduce that the better off you're going to be let's talk a little bit about kind of the the legal implications of this licensing and how that's going to work now I'm going to qualify all of this by saying I am not an attorney and I would very much encourage you to talk to an attorney about your investment decision before you dive into this but from a kind of
00:09:03
legal structure I would suggest to you that you consider becoming an LLC it takes off the liability from yourself and and makes it so that if something does go bad at the facility you're not held liable yourself for those things that are going on at the facility it's going to help you out from that standpoint I'd also suggest that you have some kind of a simple lease agreement and between the facility the operational business and the landlord now you are the same people in this situation but having that that basic
00:09:36
lease agreement is going to help you out through your your process and just kind of protecting you in the event that something bad does happen um or you get into a sticky situation we actually have this for our facilities where I have a lease agreement between my operational business and the entity that I own that also owns the real estate and they they have this it's really basic um it's four pages long uh just kind of protects Us in the event that something does happen but we're covered with a lot of those
00:10:06
things so it's it's a really useful tool for you to have I I'd encourage you to do that again talk with an attorney um but I think you'd be able to do this pretty easily um because it's you're signing both both sides of that agreement which is nice and going back to the insurance conversation you're going to want to talk to an insurance broker and make sure that you have the proper coverage for the type of facility that you're operating and how you are um operating that that house and and making
00:10:32
sure that it has all the things that it needs to help you run a successful and profitable business now let's talk a little bit here and I I alluded to this earlier in the video but what type of license should you have as you go into this and I'm considering making some res resources around this so if you are interested in kind of learning a little bit more of the landscape of senior living and and what it's like and all the different components make sure that you comment down below Deep dive and I
00:10:58
will uh take all of those and as a sign that you want this type of content and I'll go ahead and build it for you so if you want to know and have a a deeper understanding of the senior living industry as a whole comment Deep dive down below and I'll I'll kind of create something that's going to help you out on your investment Journey with that said let's get into the different types of facilities on a really briefly here so you can understand what you're looking at number one is going to be
00:11:24
Care Homes which is what we've been talking about I would say you're looking at something that's like four to six beds inside of that facility um and it's going to be called a care home more than likely in the state where you're residing next is a residential assisted living facility and this is something that I talk a lot about on my channel because this is a lot of what I do but typically what you're looking at here is anything that's licensed up to about 16 beds your state might have some
00:11:50
different rules around it but you're in a more residential setting and you have um up to 16 beds um and it it just kind of feels feel more like a home but you you have different kind of classifications on there and what you can and can't do and beyond that is going to be getting into more of a commercial assisted living facility and these are um you know 20 plus bed types of facilities uh they are probably going to be in a bigger type of a building that is maybe more commercial feeling than you would have it as a as a
00:12:23
residential facility so those are the three types of classifications there as you get into the Assisted Living World and beyond that there's actually a few different classifications you could be working with different populations and this is based off of different waivers that the state is going to have so you could be working with special needs or mental health like I do at one of my facilities you could be look working with uh sober living or just kind of traditional Assisted Living which you
00:12:47
are probably thinking of as you get into this path of investing in Assisted Living Elderly Care those that that need um assistance with things part of the silver tsunami if you will that is coming as the Baby Boomers age into this this age group that are going to need the services of an assisted living facility and if you want a more detailed version of of some of these things and uh kind of what that licensing process is make sure you get over to Assisted Living investing. net you can access our
00:13:16
free underwriting calculator there as well and get some of the resources that you need to help you be successful and go down the path uh to running and operating a successful assisted living facility regardless of the type of facility that you want to start though you need to make sure that you are following the rules and regulations make sure you're compliant with things and following the rules so that you can be successful and generate income sufficient to for your needs to help you out on your investment Journey make sure
00:13:41
you're going about it the right way so you don't get shut down I don't want that to happen to you so to recap what we've been talking about here in this video we've been talking about can a two or three bed assisted living facility be profitable the answer is yes it really can you're going to be able to reduce a bunch of costs we talked a little bit about the different licensing types and where you kind of want to fit we're going to save some money as you go through that process as well if you
00:14:02
found this information to be helpful make sure again you get over to Assisted Living investing download that free underwriting calculator and we'll kind of help you through that process I'm here to help coach you on your investment Journey does residential Assisted Living sound interesting to you but you don't know how to get started at Assisted Living investing. net we're here to help you through the process start to finish thanks for watching and have a great day
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