Need some info on Group Home (potentially looking in Indiana)
Hi,
Does anyone have experience with converting (or rather renting out) their SFH as a group home? I have a SFH i'm looking at, and looking at different investment option for it. It's a good investment just as a SFH, but it maybe more lucrative to look at other options. First, it looks like this property used to be a Duplex (I can clearly see that there was a second kitchen in the 2nd floor before). The zoning however, is for SFR, and the current zoning does not allow the lot of this property size to be zoned for MFH. I'm trying to see if we can get grandfathered in some how, since it clearly was a duplex at one point. Secondly, this is a nice size 5BR2B home, and my property manager thinks group home is another great option. I have never done group homes, and I wanted to see if people can share their experiences with me. My understanding is that we can lease it to a company, which then sublets it to an individual, and we can pass on all expenses (e.g. insurance, utility, maintenance) as part of rent to the company. the property has been maintained REALLY well. here are some of my questions about group homes:
1. Does the property get trashed or is it usually well maintained?
2. I understand that the property will be classified as commercial property. I know this increases insurance expense to x2~ x3 of SFH. what other costs should i be aware of?
3. Usually when i look at SFH, I estimate 1 month rent towards repairs/maintenance/capex. is that estimate still a fair one for group homes? Note that income on group home is estimated to be x2~x2.5 of what a SFH would be able to generate for this property.
4. Any other general advices? Tax consequences?
Most Popular Reply
Not sure if this will help, but here's my two cents:
1.) This depends on the onsite manager, the overall condition of the property, and how well the residents do chores and general inspections (if applicable)....which again is really a factor of how well the manager manages.
There is a higher wear and tear with these types of properties. They also require more commercial grade things like appliances. For example, we have a commercial grade washer and dryer, paper towel dispensers, toilets, etc. Of course this particular aspect depends on how many residents you have.
2.) Being zoned commercial could increase trash costs, utilities, and taxes.
3.) It depends on the property itself (it's size and usual maintenance schedule), the tenants, and again...the manager. But there's no question there's an increase in wear and tear. One thing we do is renovate certain areas during the summer (our slow period) every year.
4.) I think you've thought of just about everything...but one thing. In my opinion, I've found that the most important piece of owning an alcohol and drug recovery home is the manager. In the beginning I was fortunate to open our place with my son who had experience with the recovery process and managing a home. He was then able to train managers that we promote from within our home and to this day still acts as sort of a "manager of the managers".
But the pitfall I see most people who venture into this arena is the lack of a quality manager. I also see the lack of a "why" or purpose. Our home wasn't really started to make money, but rather it was a much needed community stabilizer and something of a project for my son to take up out of recovery, a subject we're both passionate about. Not to mention one of the key tenets of recovery is giving back. Owning and operating a home like this can be demanding at times, much more-so than traditional property...but also more rewarding. Hope this helps!