Licensed vs. Unlicensed Assisted Living: Key Differences Explained
Feb 19, 2025
Starting your journey into assisted living investing can be both exciting and challenging. One of the crucial decisions you’ll face is whether to operate a licensed or unlicensed assisted living facility, each with distinct advantages and disadvantages.
Licensed facilities follow strict state regulations, ensuring a higher level of care and safety. This can attract more residents and justify higher fees, helping to create trust among families seeking quality care for their loved ones.
In contrast, unlicensed facilities often face fewer regulatory requirements, making it easier to start one, plus they're often less expensive to start up. They offer flexibility and the possibility to cater to specific market niches. However, the lack of a license may raise concerns about safety and quality of care, potentially limiting your client base.
Understanding these differences is important for determining the path that aligns with your goals and vision in the assisted living industry.
Check out the video, too:
What is a Licensed Assisted Living Facility?
A licensed assisted living facility is regulated by the state. Obtaining a license requires completing extensive paperwork and coordinating with state authorities on key operational details.
- Types of services offered.
- The population you serve.
- Facility size and layout.
- Medicaid and waiver program compliance.
Benefits of a Licensed Facility
- Credibility and Trust: Licensing your facility builds confidence among potential residents and families, assuring them of quality services.
- Higher Levels of Care: Licensed facilities can offer advanced care, meeting a wider range of needs.
- Increased Revenue Potential: With the capability to provide higher care levels, licensed facilities can charge premium rates, leading to increased income.
Challenges of a Licensed Facility
- Regulatory Oversight: Annual inspections and compliance with health and safety standards are required.
- Staffing Requirements: Must meet state-mandated resident-to-caregiver ratios, increasing costs.
- Upfront and Ongoing Costs: Licensing involves initial fees and annual renewals, usually offset by higher revenue.
What is an Unlicensed Assisted Living Facility?
An unlicensed facility operates without the required state licensing, leading to potential safety, health, and quality issues for clients or patients. This lack of oversight can result in legal repercussions, such as fines and shutdowns, and may hinder the facility's ability to attract clients due to concerns about credibility. While avoiding licensing may seem appealing, the long-term risks can be significant and detrimental.
Benefits of an Unlicensed Facility
- Reduced Regulation: Without licensing requirements, you’ll face fewer inspections and less paperwork.
- Flexibility: Operating as an unlicensed facility often allows for more operational freedom.
- Lower Costs: You save on licensing fees and can potentially start your business with less upfront investment.
Challenges of an Unlicensed Facility
- Limited Services: Unlicensed facilities may not be allowed to provide higher levels of care, limiting revenue potential.
- Perception Issues: Families often view unlicensed facilities skeptically, which can negatively impact residents' impression of the facility.
- Legal and Zoning Risks: Compliance with local zoning and fire safety regulations is essential to avoid shutdowns.
Key Considerations When Choosing Between Licensed and Unlicensed Facilities
When comparing licensed and unlicensed facilities, it’s crucial to weigh the benefits and drawbacks within the context of your business goals. Consider the following:
Resident Capacity
Most states limit unlicensed facilities to 4 to 6 residents, impacting revenue and margins.
Regulatory Trends
Some states are enforcing stricter regulations on unlicensed facilities due to misuse and overcrowding, making their operation riskier.
Long-Term Viability
Unlicensed facilities may have lower startup costs, but the peace of mind and revenue potential from a licensed facility often outweigh these savings. Licensing positions your business for regulatory adaptability and sustainable growth.
Why Licensing May Be the Better Option
Licensing may require more effort initially, but it can lead to long-term success. It enhances credibility, enables higher care levels, and boosts revenue potential. Additionally, licensing protects against risks from operating in a gray regulatory area, ensuring greater business stability.
Final Thoughts
Deciding between a licensed and unlicensed facility is one of the most important choices you’ll make as an assisted living investor. By understanding the benefits and challenges of each, you can confidently choose the path that best suits your goals and ensures your success.
Get Started on Your Assisted Living Journey
Whether you decide to operate a licensed or unlicensed facility, careful planning is essential. At Assisted Living Investing, we’re here to help you every step of the way. Get your free Business Plan Checklist to help you get started today.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:00
hey friends it's Brandon Gustafson with Assisted Living investing I help beginners like you launch their Assisted Living business in 12 months in today's video we're going to be getting into what's the difference between a licensed and an unlicensed facility hair home uh as you get started on your journey so if you're interested make sure you stick [Music] around hey there before we get started I want to remind you to get over to the website Assisted Living investing. net you can get access to our free under
00:00:30
writing calculator which is a great tool that I've created to help you move along on your investment Journey let's get into the topic of today's video what is the difference between a licensed and an unlicensed facility and you know how how do you understand what that is and which one's going to be best for you we've actually talked about this in one of our live videos we'll link that up above so you can go get access to that but I wanted to get into this topic a little bit deeper for you now let's first start
00:00:54
off by talking about licensed facilities what is a licensed facility a licensed facility is has a license basically um so when you go through that process you're going to be talking to the state there's a lot of paperwork you got to get through to understand exactly what types of services you're going to be providing who you're going to provide that service to you have to specify what that looks like the house the size of it the type of Resident you're going to serve if you're doing Medicaid you're going to be
00:01:21
looking at different types of um waivers and things that that you want to be serving so those are all things that you want to kind of keep in mind as you're going about this process the nice thing about being a licensed facility is you can brand yourself as a licensed facility you can go out and you can say we're licensed we serve this population give you some credibility with the population that you're trying to serve which is really helpful in just kind of giving those families those
00:01:47
residents a level of comfort that you know what you're doing and you're going about it the proper way and they're going to want to you know be in your home and things like that and and work with you so that's a really nice thing the other good thing is is because you're licensed you're able to provide higher levels of care and that can lead to more income coming into the facility so that's a really nice thing as well because as we know we're in this business not only to help people and
00:02:13
provide services for them to help them live we also have to do well for ourselves and make enough money to make it make sense and so when you're licensed you're able to kind of charge a higher amount which is also you know a really nice thing some of the things that are kind of not as fun about being a licensed facility though are the inspections and the things that kind of come with being a licensed facility in a highly regulated field like healthc care and assisted living so as a as a
00:02:41
licensed facility you're going to have to have at least an annual inspection there's going to be different audits that come in um surveys all kinds of things that kind of happen with this you have to be prepared for make sure your policies and procedures are in place and that you know how to handle things when somebody comes in and does an inspection it can be scary it can be stressful um it it can be hard but it's the reality of working in this world of being an assisted living owner uh home owner and
00:03:10
being able to provide care to your residents so that's something you want to be aware of the other thing with being a licensed facility is you have to make sure that you are hitting any staffing requirements we've talked previously about Resident to caregiver ratio so go ahead and watch that video because it will give you a better insight into what that is and how it works but when you're licensed you're going to need to make sure that you are following and complying with those rules
00:03:34
and regulations to make sure you have enough staff inside of the home to help you out um through the process so that's something else that you want to just kind of keep in mind as you are getting into being a licensed home now let's talk about an unlicensed home this means you don't have a license it's that simple as an unlicensed home some of the things that are really nice about it you know you don't have to deal with those regulatory things quite as much you don't have to worry about those
00:04:01
inspections that are coming in you don't have to worry about the paperwork and things like that which is really nice you still are going to want to make sure that your Zone properly cuz you'd hate to have something happen where you're 6 months into operating and the city finds out you're running this business because a neighbor told them and they come in and they say you're not zoned for this and they shut you down you still want to have those conversations make sure that you're meeting the needs but it's going
00:04:23
to be less regulated there's going to be less um things you have to do to get ready things you want to have that conversation with the uh city planner about and potentially the fire department are you know we're going to be doing this care home we're going to be providing service for you know people with special needs or uh whatever it is and we plan on having you know six people living in the home four people living in the home that are unrelated is there any issue with me doing that
00:04:48
that's kind of the level of of questioning that you want to have as you get into that another nice thing about being an unlicensed facility is you don't have to worry as much about that Resident to caregiver ratio although typically in these types of homes when you're making this decision between licensed and unlicensed you're going to be dealing with a smaller home and the chances of you running into any Resident to caregiver ratio requirements there are going to be pretty slim because you
00:05:12
just don't have a ton of residents in the home so something for you to kind of keep in mind though as you go into that where this can be maybe a hindrance for you is as an unlicensed provider an unlicensed home um you can't brand yourself as a license facility and that may give some residents their families pause before wanting to come into your home and so that's something you want to be aware of you're also probably not going to be providing as high of a level of care for these residents there's
00:05:40
going to be less income coming in from that standpoint going the license route there's some upfront costs and there's an annual fee to renew it but it's such a minimal amount that it's not going to make a difference um if you were able to charge somebody an extra ,000 to $2,000 per bed per month and a licensed facility over an unlicensed facility you're more than making up the amount that that you would be making that you'd have to pay to maintain your license so that's something you want to keep in
00:06:08
mind um but the big thing there is just kind of the regulatory piece of it and um the inspections that come as a licensed facility that's something you really want to keep in mind there um as you go into it now let's talk about a few of the other differences and things to take into consideration as you're doing this number one is when you're looking at a licensed versus unlicensed facility uh and you're comparing Them Apples to Apples and you want it to be as similar as you can you're probably
00:06:32
looking depending on the state and their rules and and what they say you can do between four and six residents so you're not talking about a 20 bed home you're talking about something that's four to six residents that's relatively small so your margins are going to be pretty slim already um so it's something you kind of want to take into consideration each State's going to have something slightly different so you just kind of want to understand what that looks like for you
00:06:55
and your state so you're making the the right decision as you go about getting things started so that's one thing you want to kind of take into consideration I've also noticed that there's quite a few states that are starting to crack down on unlicensed homes and so uh the reason for that is as we have some of these immigration problems that are coming in and you have a lot of people coming across the border there are people that are taking advantage of that and they are saying oh yeah you can live
00:07:21
here and they're packing people into homes like sardines and that has caused law enforcement to start cracking down on on licens homes when somebody reports them they they're going in and they're checking on those homes so it's a line that you may or may not want to cross uh you may not want to deal with being an unlicensed home because of the negative connotation people have with it they there's just kind of this negative stigma that that people associate with being an unlicensed home so it might be worth it
00:07:53
to go ahead and and be licensed and deal with some of the regulations there so you don't have to deal with those headaches I don't know what this is going to turn into in the future as well so if you started at an unlicensed home and 6 12 months from now you know there's going to be an election who knows what happens with that but other you know there's going to be changing in different agencies and things like that new rules could come out very conceivable either way um so it's one of
00:08:19
those things that it's probably better to be licensed and have that um level of comfort that you're doing things correctly so that you don't run into any of those types of hiccups along the way right to recap so we've been talking about licensed unlicensed facilities and kind of some of those other things you want to take into consideration as you're trying to decide which route you want to go if you found this information helpful make sure you like the video subscribe and ring the bell as well cuz
00:08:43
it will notify you when we go and do these videos we go live on Tuesdays we put out uh one of these other long form videos for you on Thursdays uh getting content out for you putting out a lot of information and comment down below your questions cuz that I can build content for you specifically uh with would love to help you want to remind you as well to get over to the website Assisted Living investing. net uh we've got our free calculator over there I mentioned but also some other courses and things
00:09:08
like our business planning guide which is the base of everything you need to get started on your Assisted Living investing journey and then if you feel like uh you need some extra coaching and things we've just launched our Mastermind as I'm recording this so by the time this this comes out it'll be a few months but um I'm super excited for the Mastermind if you want to learn more about that go to Assisted Living investing. net / Mastermind we will link that down below uh we can jump on a free
00:09:33
strategy call and chat and see if it's a good fit for you or not and that's Assisted Living investing. net strategy um any of those resources they're available for you just hop over to the website and make sure you're taking advantage of that to help you along your journey because at Assisted Living investing I'm here to help beginners like you launch their assisted living in the next 12 months it's what I want to do this residential Assisted Living sound interesting to you but you don't
00:09:56
know how to get started at Assisted Living investing I'm here to help you through the process start to finish to help you achieve that time and Financial Freedom that you're looking for I want to thank you for watching remind you to like the video subscribe and ring the bell so you get notified and also remind you that it doesn't take a lot just a little bit keep going step by step by step I promise you that if you do you're consistent and persistent you're going to be successful thanks for watching and
00:10:19
have a great day [Music]
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