Adult Family Home Rental

[Ryan Lehman]

Hello All,

I was wondering if any others have experience with owning a rental property that is an adult family home by renting out the rooms?

[Charlie MacPherson]

If by Adult Family Home you mean a non-medical "assisted living facility" (ALF), these can be quite profitable.  I am representing a few right now and having taken a close look at the financials, I can confidently say that these can be a very smart investment.  Operators of very small homes are taking home strong 6-figure incomes.

It's essentially recession-proof as the supply of aging baby boom seniors needing care will be in place for the foreseeable future.

Residents of an ALF are generally in need of assistance with "Activities of Daily Living", called ADL.  That means that they need help with dressing, bathing, using the bathroom, etc.  But they do NOT need medical care.  If they do, they go to a higher level of care such as a nursing home (higher level of assistance with ADLs) or a Skilled Nursing Facility (called a SNIFF, where medical care is provided).

The ALFs I'm working with are all running at 100% capacity and have waiting lists, because there are simply not enough beds.

A sharp operator will find an unused municipal building - especially a school - and work with the town building department, code enforcement and fire inspector to get it up to code.  These buildings typically have large rooms, wide corridors and high ceilings, making them ideal for an ALF.  If the building is unused and the town recognizes the need for an ALF, you might be able to negotiate an extremely favorable deal.  I've seen it happen.

A home run scenario would be to acquire or build several buildings that would cover the continuum of elderly care.  Senior living > assisted living > nursing home > skilled nursing facility.  Maintain the absolute highest standards of appearance, cleanliness and service and families will be beating your door down.  

Build in a more affluent area and focus on private-pay residents where monthly fees run $6,500 - $10,000+.  Medicaid typically pays about $3,000 - $4,500 per month.

Run it for 5-10 years and cash out at an enormous profit.  I met with an operator of two small ALFs.  When I sell these two facilities, he is going to pay off his very high-end home, plus all of his other debts and put a ton of cash in the bank.  He will then decide what, if anything, he wants to do for work.  Or he might just retire and spend a lot more time with his young kids.  In his early 40s.

If I were 30 years younger, that's exactly what I'd do!