Renting to mental health for a group home

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Renting to mental health for a group home

Jorge R.
Specialist · Davidson, NC · Member since 2011 · 35 posts · 6 votes

Hey BP Community,

I have a rental available in a C class neighborhood and my property manager let me know that a mental health organization wants to submit an application.

The property is a 3 bedroom SFR and the organization intends on putting in 3 children to start between the ages of 11-17. The expectation is that each child goes through a three month rotation and then a new child would come in to the house when the previous departs. All the kids go to school daily and there is an adult staff member in the house 24 / 7.

Looking for any advice or things to consider before accepting this application.

Thanks!! 

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y

Have you checked zoning to verify this type of facility is allowed? You can expect complaints from the neighbors once they realize teenage kids are rotating through. You can also expect complaints of noise, trespassing, etc.

If the situation permits, I recommend only allowing it for a significantly higher price and additional requirements in place. For example, is the "adult staff member" licensed? Screened? Insured? Is the company insured with a minimum of $1 million? Are they licensed with the city and state? Will there be a security system or security cameras on the property?

I'm not familiar with your city but I've seen similar group homes pay up to 5x the standard rent and sign longer leases like 3-5 years. They can be charging up to $6,000 a month PER KID. That's $18,000 a month income and their costs are probably 1/3 that.

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  • Glenn McCrorey
    Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes
    7y

    Make sure the company is on the lease and is responsible for the rent, yard, etc.  I even have them be responsible for the appliances.  

    1Reply
  • Jorge R.
    OP
    Specialist · Davidson, NC · Member since 2011 · 35 posts · 6 votes
    7y

    Thanks for the suggestion @GlennMccrorey.

    I just listened to your podcast in it's entirety...  You are the perfect guy to answer my questions.  I feel much more comfortable going forward with this.

    One more quick question, I ended up getting a HELOC on this property so I had to put it back into my own name. Would you recommend I keep it as is?

    Thanks!!

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    Have you checked zoning to verify this type of facility is allowed? You can expect complaints from the neighbors once they realize teenage kids are rotating through. You can also expect complaints of noise, trespassing, etc.

    If the situation permits, I recommend only allowing it for a significantly higher price and additional requirements in place. For example, is the "adult staff member" licensed? Screened? Insured? Is the company insured with a minimum of $1 million? Are they licensed with the city and state? Will there be a security system or security cameras on the property?

    I'm not familiar with your city but I've seen similar group homes pay up to 5x the standard rent and sign longer leases like 3-5 years. They can be charging up to $6,000 a month PER KID. That's $18,000 a month income and their costs are probably 1/3 that.

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  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Might as well go for it most tenants in c class areas are nuts anyway so the extra rent money is icing on the cake

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y
    Originally posted by @Dennis M.:

    Might as well go for it most tenants in c class areas are nuts anyway so the extra rent money is icing on the cake

     LOL!

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  • Glenn McCrorey
    Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes
    7y

    You could quit claim deed it back to your LLC and hope the bank doesn't notice. The main reason to keep it in your name is to get better financing but the offset to that is your liability is not limited like it would be in an LLC. If the financing is already done, I would probably put it back into the LLC.

    1Reply
  • Account Closed
    Rental Property Investor · Fremont, CA · Member since 2018 · 21 posts · 8 votes
    7y

    @Jorge R. Congrats !!. I would suggest to get in touch with the landlord of a similar facility in your city and find if he had any challenges/issues with the institute who leased the property or if any from neighbors and how he handled them. That would help you to address such issues at your end.  

    rgds

    Kishore 

    1Reply
  • Christopher Gee
    Member since 2018 · 8 posts · 1 vote
    7y

    Hi all - wanted to resurrect this thread because I'm in a similar situation. I am a first time investor, about to rent out my current home (3BR/2bath) as I move into a new one (so a tad nervous!).

    The company that's interested runs an Adult 24-Hour Residential Program (OR state link here) for adults with disabilities. Tidbits of what we know:

    • It sounds like 3 program participants would stay here (potentially alone without supervision, and plus we don't know the participants yet).
    • The participants have a highly structured day where they would leave early in the mornings (the business states that they're focused on keeping these participants very active and doing things).
    • The business also said that the house is kept very clean, as the state can do a surprise inspection at any time.

    Perhaps my first question is to Jorge from the OP - did you end up renting to the company? If so, what's your experience been like?

    For everyone else, other questions:

    • Does insurance change for us in this situation?
    • Do you end up dealing directly with the state or whomever is giving funding? or just directly with the business?
    • How do we handle application fee's based on only having the business apply vs 3 residents. (One of our fees is a $50 fee per resident over 18yr)
    • Is it reasonable to increase the monthly rent based on leasing to a company instead of an individual?
    • Advantages/disadvantages about a longer-term lease in this situation?
    1Reply
  • Thomas Dougherty
    Member since 2019 · 135 posts · 25 votes
    7y

    Make sure the company is leasing and is responsible for rent, yards, etc. I even let them take care of these devices.

    0Reply
  • Michael Weismann
    Rental Property Investor · Member since 2019 · 28 posts · 2 votes
    7y

    Check with another landlord in your city to see if he has any objections to the agency or neighbor and how he handles them. I believe this will help you solve these problems.

    0Reply
  • Jan Bruce
    Member since 2019 · 1 post · 1 vote
    7y

    What's the process to renting your sfr out to mental health group homes....would you have to go through the state?

    1Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y
    Originally posted by @Jorge R.:

    Hey BP Community,

    I have a rental available in a C class neighborhood and my property manager let me know that a mental health organization wants to submit an application.

    The property is a 3 bedroom SFR and the organization intends on putting in 3 children to start between the ages of 11-17. The expectation is that each child goes through a three month rotation and then a new child would come in to the house when the previous departs. All the kids go to school daily and there is an adult staff member in the house 24 / 7.

    Looking for any advice or things to consider before accepting this application.

    Thanks!! 

    I think it can work but will it change the dynamics of the neighborhood or does this business fit in.  Does the state have to check out the place first? Will neighbors complain?

    If you go forward, make sure they handle all maintenance & repairs on the property too because these organizations typically have in-house staff..Snaking toilets, repairs, grass cut, snow removal, paint...Make sure you're covered with insurance as well.

    0Reply
  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    7y
    Jorge, I would recommend that you sit down with a Lawyer and Insurance Agent with experience in this area. There are Lease requirements, Insurance requirements, etc. that you need to incorporate to protect yourself. Things like: - having them name you as an additional insured - having their policy be Primary and Non-contributory - Requiring that their policy provide 30 day notice of cancellation - Having their policy waive subrogation The Tenant should have General Liability, Professioanal Liability, Workers Compensation, Business Auto, and possibly Accident/medical coverage. You need to make sure the policy/coverage you get is designed for this use and not a standard homeownes policy. The Lawyer and the town can give you an idea of the Modifications you may be required to make due to: - ADA compliance - Fire Code Compliance - other Laws/Ordiances that may be triggered when you move away from a Residential to a Commercial exposure
    3Reply
  • Ojam Dawson
    Member since 2022 · 7 posts · 3 votes
    3y

    I am trying to do the same thing, but I do not know where to start. I have an investment property in Pittsburgh, PA that I am rehabbing for rental, but I don't want to go through the conventional route. I will rather rent it to a group. Can anyone share any resource on how to obtain these group homes info, how how to go about this as a starter?

    Thank in advance.

    2Reply
  • Tim Bee
    Investor · CA · Member since 2023 · 196 posts · 107 votes
    3y

    Lots of wear and tear that the owner is responsible for.  Get ready!

    0Reply
  • Wilburt KingPro Member
    Investor · Detroit, MI · Member since 2015 · 36 posts · 14 votes
    3y
    Quote from @Dennis M.:

    Might as well go for it most tenants in c class areas are nuts anyway so the extra rent money is icing on the cake


     So you moderately appreciate C- class properties and its tenants... 

    0Reply
  • Fatu Robertson
    Member since 2024 · 1 post · 0 votes
    2y

    Hello,

    I am looking for rental property in Northern Virginia to be use as a group home for adults with Intellectual disabilities. The home will be occupied by maximum of 4 people.  Any recommendations will be appreciated. Thanks. 

    0Reply
  • Teresa Jacobs
    Member since 2024 · 1 post · 1 vote
    2y

    Hi I have a rental property that is currently on Section 8. She asked me yesterday could she take in intellectually disabled children and or adults.  She was being very vague when I asked if this was a group home?  Through research it states it is and I already 4 months ago declined her wishes.  Why would I take on that liability and she gets all the profit and i have the liability? Can I ask her to terminate her residency?  This keeps coming up and I already accepted her being a foster mother but now she found away she could get more money. 

    1Reply
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