Investing in Residential Assisted Living - Should I own the Business + RE or just RE?

[Keegan Schaub]

Residential Assisted Living (RAL) is becoming an increasingly popular asset class for real estate investors looking for high cash flow opportunities. However, there are two primary ways to invest in this space: owning only the real estate or owning both the real estate and the business. Each approach has its own benefits, challenges, and potential returns. Here’s a breakdown of what to consider when deciding between these two investment models.

Owning Only the Real Estate

Some investors choose to simply own the property and lease it to an operator who runs the assisted living business. This approach functions similarly to a traditional commercial lease with longer-term tenants and higher-than-average rents.

Pros:

• Consistent, Passive Income – Since RAL operators typically sign long-term leases (often 5–10 years), landlords enjoy stable rental income with fewer vacancies.
• Reduced Liability – By leasing to an operator, the investor avoids the operational complexities and legal responsibilities associated with caring for residents.
• Lower Workload – No need to manage staffing, compliance, or daily operations, making it a more passive investment.

Cons:

• Limited Cash Flow Potential – While the rents are higher than standard residential properties, they don’t come close to the potential profits of owning the business.
• Dependence on Operator Success – If the operator fails to maintain a profitable business, the investor risks losing a reliable tenant, leading to turnover and potential vacancy.
• Less Control – The property owner has little say in how the business is run, which can impact property value and tenant reliability.

Owning the Real Estate and the Business

For those looking for maximum cash flow, owning both the property and the assisted living business presents a lucrative opportunity. This means not only collecting rent but also managing the care services provided to residents.

Pros:

• Higher Cash Flow – RAL businesses can generate substantial revenue, often producing net profits of $5,000–$20,000 per month per home, depending on occupancy and pricing.
• Full Control – The owner can directly manage operations, staffing, and resident care, ensuring high standards and a well-run facility.
• Increased Property Value – A successful RAL business can significantly boost the value of the underlying real estate, making it an even more valuable long-term asset.

Cons:

• Higher Workload – Running an assisted living home requires managing caregivers, compliance with state regulations, and ensuring quality care for residents.
• Greater Risk – Business success is dependent on maintaining high occupancy rates, providing quality care, and managing expenses effectively.
• Licensing and Compliance Requirements – State and local regulations for RAL facilities can be complex, requiring significant time and resources to stay compliant.

Which Strategy is Right for You?

If you’re an investor looking for a hands-off, steady income stream, owning only the real estate may be the better fit. You can benefit from long-term leases, stable cash flow, and property appreciation without the headaches of running the business.

However, if you’re willing to take on the operational responsibilities, owning both the real estate and the RAL business offers significantly higher income potential. While it requires more effort and risk, it also gives you full control over the property and its success.

Final Thoughts

Residential Assisted Living is a powerful way to generate strong cash flow and long-term wealth. Whether you choose to invest in just the real estate or take on the business as well, understanding the pros and cons of each model will help you make an informed decision. For investors willing to put in the work, owning both the property and the business can be a game-changer in achieving financial freedom.