Renting to a Residential Care Facility

[Fiona Humphrey]

Hi, 

I am in negotiations to purchase a property in Sacramento, CA which has an existing lease with a Residential Care Facility. The price and the rental income are good. I have looked up the license of the business with the state and they are in good standing with only small violations in the past (fixed in a timely manner). This will be my first pure investment purchase, my experience up to now has involved house hacking. That was what I thought I would do again, but then I came across this deal. I will have to scramble some to come up with a bigger down payment than I expected and that is making me a little nervous. Does anyone have any experience with these types of tenants? Have any advice? I am researching myself, but want to leave my question open ended to see if something is brought up that I have not thought of. I appreciate any assistance with this matter. 

[Shea Bartolino]

Hi Fiona, just for my understanding, is this considered a residential property or commercial? From the way you are writing this I am assuming you are doing a buy and hold strategy? What’s your goal with the property? 

[Fiona Humphrey]

Hi Shea,

It is a residential property and, yes, my strategy is buy and hold. My goal is collect income from the property and I expect the value of the property to rise as well over the next few years.

[Wes Blackwell]

@Fiona Humphrey

Just make sure the property cashflows if the owner of the business dies and you're forced to rent to a normal everyday tenant. Your agent in Sacramento should've brought this up and checked those rents for you prior to making an offer.

Often when renting to a residential care facility you'll get higher rent than normal, and if that's what making the deal work just make sure that it will still work if something happens to the facility and you need to rent to a regular tenant. You don't want to get stuck with negative cash-flow because you can't find another care facility tenant to rent it.

Also, probably want to check with your insurance provider and see if all those tenants who are likely to fall and break a hip are going to be an issue for them, and look into the legality of what happens in the care facility owner dies and you're stuck with 5-8 tenants in the home with no one to care for them and no living descendants. That would be a big no bueno.

[Jo-Ann Lapin]

Being that is residential . How much would take to bring make to it’s regular use as a sfr. Would confirm to the rest of the sfr in the neighborhood?

[Melinda Vaughn]

Hi Fiona!

I am late to your inquiry but wondered if you ever closed on that investment opportunity? We own several residential homes in San Diego that we only lease to operators of care facilities...They make amazing tenants if set up correctly.

[Fiona Humphrey]

Hi @Melinda Vaughn, I just now looked back at this conversation. As a matter of fact, I closed in September and so far it is going well. There are a few concerns that made me question going through with it, but I have a few contingencies for backup if anything goes wrong. I'd love to hear some of your experiences if you ever have the time.

[Thomas Crotwell]

I recently purchased a home for a residential care facility. I would love to discuss my purchase and here about your backup plan. I also have liability concerns that I have not been able to answer. 

[Michael Encoy]

@Melinda Vaughn

Hello, I’m in a situation where I have an opportunity to rent my property to an operator. Would you care to share on specifics if doing this right?

Thank you!

-Mike

[Melinda Vaughn]

Hi Mike! Happy to discuss. Please feel free to give me a call. Structure as a commercial lease, 5+ years, annual rent escalations, requirement to carry liability insurance (name you as additional insured), etc. You will need special Lessor policy. 

[Tom Wallace]

Questions for those who are leasing to care facilities.

How did you go about finding the care facility operators and get them interested in your properties?

Have any of you done this with mutli-family properties (whether 2-4 units or 5+)?

Thank you in advance.

[Thomas Crotwell]

I had a unique situation where a family member lived in a home. We made a proposal to them to help grow in a better area and they accepted the offer. 

You should contact the geriatric unit at the hospitals and ask if they could give you some operator contacts. 

[Victoria Redlin]

Hi @Fiona Humphrey and @Melinda Vaughnundefined

And anyone else on this thread.

Melinda, what are some of the components you find necessary to set the contracts up correctly?

You mention using a NNN commercial lease instead of a residential lease. I've been exploring that option, how has that worked?

How did you structure the agreements to lease the house to a care provider?

Did you sell or lease the business as well?

I'm hoping for some input on the best way to write up the lease contracts, as that is my next personal assignment.

Is the house licensed under the property owner's name (LLC) or under the care provider's name?

If you first licensed the property under the property owner's name or their LLC, how did you transfer the license to the care provider?

Thank you in advance

[Dené Sellers]

Quote from @Melinda Vaughn:

Hi Fiona!

I am late to your inquiry but wondered if you ever closed on that investment opportunity? We own several residential homes in San Diego that we only lease to operators of care facilities...They make amazing tenants if set up correctly.

 Hi Melinda, I know this is way late, but what kind of lease agreement did you use to for the care facilities? 

[Melinda Vaughn]

Commercial lease agreement, long term (5+ years). Essential for operator to name you (or your business) as an additional insured. You also need special insurance that understands that you have a commercial tenant within a residential property. 

[Rose Jones]

I have a son with special needs and I would like to do this at some time. He is going to need care, and people like that require a lot. The rent can be thousands a month. 

[Kory Jackson]

Quote from @Melinda Vaughn:

Hi Fiona!

I am late to your inquiry, but did you ever close on that investment opportunity? We own several residential homes in San Diego that we only lease to care facility operators. If set up correctly, they make amazing tenants.

Hi Melinda. I am VERY late to this, but I was wondering if I could speak to you(all) about leasing to an operator. I own a property in Los Angeles and would love to hear your experiences. Happy to pay for your time. 

[Melinda Vaughn]

Sure, sorry I have not been active in these forums. Happy to chat...will you send me your email?

[Pallavi Kakkar]

Hi @Melinda and everyone else on this thread. I came across this post while searching for some information on how to make your home available for lease for retirement homes. Does anyone from you know how can we market a SFR available for lease for retirement homes? Would it be a residential lease or a commercial lease?