Converting SFH to Assisted Living Facility

[Dan V.]

Has anybody had experience converting a home into an assisted living facility? We are thinking of buying a 2500 sq ft SFH and extending it to 4,500 sq ft (from 6bed/3bath to 14bed/7bath). We have an operator willing to lease it and also buy it after 5 years. The property is zone R4 which permits assisted living facility.

1. From the appraiser's standpoint, how is it going to be appraised (sales comp, income approach, cap rate, etc) once it's converted to the proposed plan? Will the lease be considered in the appraisal?

2. I'm thinking of incorporating the layout design where it can easily be converted into multifamily. I'm just thinking of an alternative strategy in case things didn't work out with the operator. I don't want to get stuck with 14/7 house. LOL

3. What's the average rent rate per room for this facility?

4. Thoughts on the number below?

PP - $200K

Rehab - $300K

Monthly rent - $6500 (not sure yet)

Any thoughts, tips, or suggestions? 

[Zach Rynders]

@Dan V. My wife and I own a local Architecture firm and have been doing a lot of work on these conversions. Like Mitch said, it is different for every city and state. I can't speak to the values and appraisals but I can talk about some of the rents in Minnesota. We typically see 5 bedroom split level properties being converted. The reason for this is that split level will usually be at a discount to a regular SFH. 5 tenants are the maximum allowed in a facility in Minnesota without being considered commercial. Once it is commercial it is considered a higher risk and things like sprinkler systems and ramps need to be considered.

Rents depend on what whether the tenants are going to be private pay (out-of-pocket) or are going to be subsidized by the state. Depending on the city where the property is we are typically seeing that just the room is renting for $900-$1,000/month. This does not include any food, any of the ADL care or running errands for the patients. Those numbers we see be an additional $3-5k/month. The big caveat with these numbers is that our operators all only take patients that are self-sufficient and do not need 24/7 care or memory care as there are a lot less regulations.

We have an owner who owns many assisted living facilities but has some single family homes that he rents out to operators who then utilize them for assisted living facilities. He said that he charges $1,000/month/resident ($5,000 total) for rent to the operator as the assisted living facility will most likely gross somewhere around $30,000/month before expenses. The one thing to consider is as the owner you would need to significantly add to your homeowner's policy and probably need a commercial policy.

Like I said, the process is probably very different in Virginia from Minnesota but if you have any other questions about numbers or the process of conversion feel free to reach out.

Best,

Zach