How Are Assisted Living Management Companies Paid?

It’s no surprise that many buyers who contact us at Senior Care Realty are investors.  Assisted living facilities and other senior care real estate can be great investments.  But most investors are looking for an investment, and not a job.

 

property manager keys

Investors Are Seldom Managers

Assisted living facilities have a lot going on.  Resident care.  Staff management.  Purchasing.  Insurance, licensing, accounting, marketing, resident events, wellness programs…..and the list goes on.  Most of these activities are the responsibility of an onsite administrator or executive director or some similar title.  And, if you’re an owner-operator, then the whole list is your responsibility.

Investors that don’t want have the expertise or the desire to get involved in operations need a manager, and that’s often a third-party, professional management company.  There is an increasing number of quality management companies that will take on the responsibilities of operations for an investor.  But investors always want to know…

How Much Does an Assisted Living Management Company Cost?

Management companies are normally paid a percentage of revenue billed – often between 5% and 8% depending on the size of your assisted living facility.

Sometimes there is a minimum monthly fee when facilities are starting up or being turned around.  There can also be extra fees for start-ups and turn-arounds because of the extra effort during those times.

Financial incentives can also become a part of the fee.  Incentives might be paid for reaching occupancy goals or net income targets.  These bonuses can be a fixed amount, a percentage of the net income, a percentage of the amount that net exceeds budget, or many other amounts.  In my opinion, it’s good to part of the compensation, even if it’s just a bonus, tied to the net income to help keep an eye on expenses and not just revenue.

But I’ve seen compensation formulas become so complicated that nobody really knew how much the management company was making.  Keep it simple – don’t create a complicated formula that will only cause extra work and potentially disputes later.

 


Already own an assisted living facility?  If you want to find its current market value, visit Senior Care Realty to learn more about the market today.


 

This post is not intended to provide legal or tax advice, and the information provided is only a limited discussion of the issue.  Please consult with your attorney, CPA or other professional advisor before making business decisions.

Comments

  1. Hi! Is their an analysis spreadsheet to run the numbers? Something that calculates everything from purchase/leverage, p&l, cash flow and exit strategy?
    Thanks

    • Michael – We do that kind of work for clients all the time but I don’t have a template available on our website. At least I don’t have one yet. I will try to get some sort of template available and include it in a future blog post. Mike

      • Michael says:

        Nice! Thank you…

        • Any template available yet? Looking forward to seeing it!

          • Travis – We are working on a ‘Store’ that will include many resources, such as template forms for things like working with a management company. It’s not available yet but many are pushing me to get that store opened. You’ll all hear about that as soon as it’s up on our site. Thanks for your patience. Mike

  2. Are there management companies that handle smaller ALFs? We have 4 locations tat are 13 to 36 beds. Is there a company that would handle as a package?

    • Leslie – Yes, there are management companies for that size in many locations. If you want to make a connection with a management company, contact me via email, let me know the locations and I can try to connect you with a company in your area. Mike

  3. Hello Mike, I wanted to know,
    How I can lease my (6) bedroom multi unit home for lease as a non medical care home?
    (to some who has a licence and looking to lease)
    And how much can I charge for the lease?
    I live in Detroit Mi.

    • Monica – I would connect with the Michigan Assisted Living Association – https://www.miassistedliving.org/ – and find if you can advertise in their newsletter or otherwise get the word out to assisted living professionals that you have a property for lease. There are other things to do but that would be a good start. You should be able to charge market rent for a property like yours and possibly a premium if the assisted living provider is especially profitable or if your property has something unique that makes it a premium choice for locating an assisted living residence. How much of a premium may be a matter of negotiation with your prospective tenant. Mike

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