How Much Money Do I Need To Start and Assisted Living Facility?

I’ve heard from many who are inspired to start their own assisted living facility.  Inspiration may keep you motivated.  Knowledge and experience will show you what to do.  But money will make your dream a reality.

Saving-for-a-Home

 

So, how much money do you need to start an assisted living facility?

The amount you need will depend on a many factors.  What is the cost of real estate in your area?  How many changes, if any, are needed to your property?  Will you be working in the facility, or hiring staff or managers to do all the work?

The exact amount is something you need to calculate for your own circumstances.  But here is a list of things to keep in mind when you do the math.

  • Down Payment.  You may be buying, building or converting your new assisted living facility.  In either case, you will probably be financing most of the price.  Lenders will normally require a down payment equal to 20% to 25% of the cost.  Yes, there are many ways to reduce that percentage but this is what most will need.
  • Start Up Costs.  So now that you have your building, it’s going to need furniture, equipment, supplies.  Some estimate this amount to be $3,000 to $5,000 per unit after accounting for both resident unit and common space furnishings.   Your facility may be more or less based on its size and on both the quantity and quality of the furnishings you provide.
  • Working Capital.  This is an area where many undershoot their estimate.  Working capital is basically the cash you have in your checkbook to fund operations after you’ve bought, furnished and supplied your facility.  If you’re buying an existing facility that is producing positive cash flow, it will be much easier to estimate the amount you need:  often that’s 30 to 60 days of operating expenses, including all payroll, mortgage payments and all other costs.  If you’re starting from scratch with no residents in a facility that you build or convert, then it gets more complicated:  how long will it take to lease up? when will you reach break-even? will the rates you expect to receive turn out to be those you do?  You will learn more on this site soon about estimating your working capital needs during a start-up, but for now plan to fund operations for at least three to six months before reaching break-even and maybe longer for larger facilities.

Let’s look at the following example.

Jane is buying a 40 unit assisted living facility at a cost of $4 million.  The facility generates $120,000 a month in revenue but expenses and debt service amount to $90,000 a month.

First, Jane will need at least a 20% down payment of $800,000.  Second,  since the facility is already operating and comes with furnishings, she only plans to make about $50,000 in improvements to the furnishings and equipment.  And third, with expenses running at $90,000 per month, Jane sets aside $180,000 for working capital to make sure she isn’t stressed financially.

That’s a grand total of $1,030,000 needed for Jane to get started in her own assisted living facility.

 

So now you know how much money you’re going to need.  Your next question is probably how do I raise that much money?  That’s a great question, and the topic for an upcoming blog post right here, so check back soon.

 


 

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. Alta Chaupard says:

    Hi dear,
    what is the first course I need to take if I leave in Montgomery county, MD, and who should I contact about this course?

    • Alta – I’ve received a lot of requests for this information about Maryland’s education requirements. I did some research and it appears that a good source for the required education is the LifeSpan Network, the trade association for senior care providers in Maryland. Click on this link to check out their online education programs: . Hope this helps. Mike

  2. Alta Chaupard says:

    I need to know how can prepare or where can find classes offer for assistant leaving?

  3. I have been working since 1977 with elderly have a 4 bedroom house that i want to turn into an alf i love it how do I get started

    • There is a long to-do list if you want to turn your house into an assisted living facility. But the first step is probably talking to your local zoning office to find if an assisted living facility is an allowable use in your location, or if you need to take any steps to receive approval. Next, I would suggest connecting with a local trade association for assisted living providers that may have a guide for starting an ALF in your area. Each state is a bit different, so let me know where you’re located and we may be able to talk about more specific next steps.

  4. Ian Ippolito says:

    Hey Mike, thanks for a helpful article and useful website.
    A couple questions:
    1) Do you sell assisted-living facilities in Tampa Florida (where I live)? If not, can you connect me to someone who does?
    2) You mentioned in another article that you can hire a consultant. If I build instead of buy, I could really use one tell me estimate revenues expenses, before proceeding further. Is it possible for you to refer one to me?

    • Yes, our company sells assisted living facilities across the US. But we aren’t currently working on anything in the Tampa area. However, between the owners we know and the agents we cooperate with, we should be able to help you in some way. Send me an email at mike@seniorcarerealty.com with more details about the size, type and location of property you’re seeking and we will get back to you asap.

      There are many consultants that could help you. Again, send me an email with a few details about what you want to build and I’ll narrow the list a bit. A consultant to help with a financial feasibilty study of a 100 unit ALF is one thing, while someone to answer some questions about income and expense at a smaller facility is another. I’m sure we can help you find someone.

  5. I live in California and I’ve been researching what the true costs are to open a facility. I’ve spoken to a few people here that have board and care homes and have received different information from all of them. One of them suggested that I should just forgo trying to open a board and care and instead try for a smaller assisted living with 30 beds. What would be your advice about this? I am interested in this business because of my 93-year-old Aunt and what our experience has been with her with these facilities both board and care and small assisted living.

    • Rosemary –

      I’m always thankful when I hear from people like you who want to start an assisted living facility because of a personal connection with an older person. That’s how our family got started in 1988. And some of the more successful facilities that I’ve seen have similar stories. At the same time, a strong mission and passion will only take you so far. The reality of running a facility may be different than the dream of what you want to do for your residents. So, it’s also great to see you doing your due diligence to understand the costs involved and making sure that you’re ready to take on the responsibility.

      Your question about the wisdom of having a smaller facility or a larger facility is a good one. And very common. In my opinion, there is a place for both the small home-style assisted living and larger facilities. Larger facilities have an advantage in the economies of scale – a few vacancies may not cause concern in a 30 bed facility but they can sink a small facility if not filled soon. Likewise, staffing and other costs can be spread over a larger source of revenue in larger facilities. If you want a smaller facility, such as 10 beds or less, plan to spend a lot of time there and to be the primary staff person – small facilities seldom work for absentee owners.

      I’m sure you may have more questions, so comment back again and I’ll do my best to give you some answers or point you toward them. Best of luck to you Rosemary.

      Mike

  6. Hey Mike,

    Wondering if you ever got around to the follow up article that answers the question you posed at the end of the article?

    -Okenna

  7. Angela Hardaway says:

    Hey Mike, I live n Arkansas. Two of my dear friends & I are looking to start an ALF n our area. A social worker, an LPN & a CNA. The area we live in doesn’t have ALF of this kind n our area. We’ve spoken with the GPD PROGRAM. They are waiting for the 2016 NOFA. We’ve asked & researched the most asked questions. We r infact having trouble registering with the IRS as a non profit organization. Please help with this & any other suggestions. Thanks in advance

    • Why do you want to register as a non-profit? You may just want to create a small business and get started. It’s only half joking that many small businesses are non-profits anyhow. Of course, if you’re part of an organization that meets all the IRS qualifications and you have no intention of selling for a profit later, then keep pursuing the non-profit. Connect with a good CPA that works with non-profits and assisted living facilities – they’ll be able to help your situation. The assisted living trade associations in your state would be a great source of a local CPA that could help – check Arkansas Residential Assisted Living Association or the Arkansas Assisted Living Association.

      • sasha blake says:

        good morning mike. i live in maryland and my passion is opening a 6 bed assisting living in waldorf md. i already have my 80 hour management and cpr, cna,medtech certification. I need an investor who can help me with funding do you know where i can start the search.

        • Sasha – One place to start is with owners/sellers of an existing assisted living. Sometimes, a seller is willing to provide financing or lease their property to you. Or, if the property is listed with a real estate agent, ask the agent if they have any real estate investors that might want to own a property that you lease. Those are some unconventional sources but they might just work…they have for others. Mike

  8. Very good blog post. I definitely appreciate this website. Keep it up! We offer Independent and Assisted Living in surroundings that are elegant, comfortable, and affordable.

  9. I’m in California ,please give me advice i like to open in home care but I’m confused between home care and assisted living at home which one have less cost for me to open and which one easy to open please give me some advice. Thanks

    • Sandy – That’s hard to say. With home care, you don’t have the upfront cost of real estate. Perhaps you would start up by offering services to clients in their home. So, the costs to get started in home care would probably be less. Mike

  10. For small assisted livings or residential care home facilities, what is required from a medical staff perspective? I see most are categorized as non-medical but do you still need to have a delegating nurse or ED as you would with a larger ALF? This is the part that is confusing for me. Well, actually, a lot is confusing for me. I live in Maryland. I have a house already but just need to make updates to care for residents – handicap bars, etc. Another thing I’m not clear about is furniture and if it’s better to do private rooms or shared rooms. I know we’ll need to provide all common space furniture but should we be prepared to also furnish all the bedrooms? I’m asking a lot but as I began to type, the questions just started flowing. I’ve been doing a lot of research and can’t really find a good blueprint. Any help or guidance is appreciated.

    • Kay – That’s a lot of good questions! I’m not going to say for certain as to the RN requirements in your state. I need to do more research but I’m working on an article for Maryland licensing that should be ready soon. Private vs. shared? Private is usually preferred but it also depends on what residents expect and what is offered in your market. Having unrelated people sharing a room can bring extra challenges but, on the other hand, it may also bring needed revenue for your program. It really depends on your market and what is expected. I would be ready to furnish a few rooms and always keep one set up as a ‘model’ unit so that it shows better to prospective residents and you’re ready if someone needs furnishings. Always check your regulations to confirm what furnishings, if any, you’re required to provide in the resident’s unit. Good luck and check back with updates on your progress. Mike

  11. Hi MIke. My name is Anthony and I am currently working as an LVN. I have had the dream to start a small 3-5 bedroom assisted living facility for some time now. I have done a bit of research and will be attending AALNA classes to get certified when classes are open next month. My question is would it be possible to continue working 12 hour shifts at my current job while maintaining a small assisted living facility?

  12. Mohammed Raheem says:

    I like to start assistance living facility on small 4 bed room single family home, I have liquid cash 200k. Is this coptial enough? I need help to find a patience And how do I get paid? Can someone help me out?

    • Mohammed – It appears that you are starting with more capital than most so you should have many options available. Starting in assisted-living facility from scratch is a big challenge. I often recommend looking for and established facility that you can purchase to lower the risk of a start up. Take over the property, policies and procedures of someone who has done it before, and then add your own touch as you gain experience. Require the seller to provide training during the ownership transition process and many of your questions should be answered. Good luck! Mike

  13. Hi, I live in South Florida and have been doing countless research into opening an Assisted Living Facility. I am an RN of 30 yrs and have a piece of property that I want to construct a 15 bed facility as that is what my zoning will allowed. The question I have is have you ever built a facility from off the ground and what were the steps taken. Like I said I own the land but that is about all the collateral I have. I did some homework and know that the size will allow me to construct a 15 bed unit with 2 levels.
    please advise.

    • Brenda – Yes, I’ve been involved with ground up development many times. We’re in the middle of a 44 unit expansion right now. Many steps to answer your question but I would go talk to an experienced assisted living architect for ideas and contacts. Check with the Florida Assisted Living Association for builders and architects in your area. Stay in touch and get back to me with any specific questions. Plus, stay tuned for more resources here to answer this very popular question from my readers. Mike

  14. Hello mike I’m in Dallas tx I want to open a small home and provide like non medical care. I have 75 thousand of my own money to start with I’m 27. Just need guidance or do you think trying to provide home care to patients at their own home would be a great thing to do? Opening a home health agency is much harder?

    • Nikki – You have a big head start compared to others with $75,000 in capital available. I don’t have a lot of experience with home health business but I think you’re right – it’s a big challenge. One of the challenges is recruiting, hiring, training, and managing a staff. Same thing with assisted living but probably even more so. There are many smaller assisted living facilities for sale – with a $75k down payment you should be able to find one. Mike

  15. Susan Cochran says:

    Hi Mike–I am a senior, medical and mental health social worker, who has worked with seniors for about 20 years in their home and most facilities in our area. I take care of a lady who is 73 years old and has Alzheimer’s. She resides in a small facility with 13 current residents. I am unhappy with the running and care of this facility and am looking to start my own 4 resident family care home in southern Indiana. I have a good amount of capital and own vacant property, next to my own home. I am not sure if I should explore putting up a home on my property or buy an existing property in our area. First I want to know if there are any care homes for sale in our area and, if so, what might one cost. Would I be better off to acquire a loan and use my capital for managing the facility or pay for the facility and operate on income? I do not yet know the zoning in my area and will explore that as a first step to building. Thanks for your help

    • Susan – Thanks for connecting with us. Your situation is so familiar – you’re not satisfied with what you see in the market so you’re going to go do it yourself. Great job! That’s how our company started in 1988 and I always love to see others taking action to bring a better solution to the market and all we serve. Now, on to your questions.

      Are there care homes for sale in your area? I have a few questions for you: how far are you willing to travel? where are you located? and would you consider a size other than 4 residents? There may be some good options if you’re flexible. If not, it may take some time to track down what you’re looking for.

      Should you get a loan and use your capital for operations? Another good question. I like to be debt free but I like to be liquid, too. If you use up most or all of your capital to purchase a building, then you may be in a cash crunch later. I think a blend is a good idea if you’re able to do it – that is, make a substantial down payment on your building so you don’t have as much of a debt load to carry but keep plenty of cash on hand to cover two to six months operating expenses. You’ll sleep better at night!

      Hope that helps. Please stay in touch.

      Mike

  16. olga Garcia says:

    Mike good morning very grateful for your suggestions. but I have a few questions I am a registered CNA I’ve been taking care of seniors for 25 years I need some advice I want to buy a 4 bedroom house. and start my own ALF I’m very passionate and caring seniors I love what I do for a living .. please advise me what would be my next step thank you

    • Olga – I’d start by trying to find a house already being used as an ALF. It may cost a bit more at the beginning but be worth every penny if you have an immediate based of business from current residents and you don’t need to go through all that’s involved in starting from scratch. So that’s my advice about the next step — find one that’s for sale. If you have questions about that, let me know. Good luck! Mike

  17. Great article Mike. The way you answered every one’s questions considering all types of contengies and different situations shows me that it’s clear that you know this business in and out. This is my first time landing on your site and your blog looks like a great resource. P.S. Thank you for your mentioning of ALFA and LifeSpan Network as other education resources as well!

  18. I am starting a Residential Care Home with about 6 to 8 residents about how much start up costs I need it’s a family business

    • Jondra – Great question. Starting with enough capital is critical to your success – start with too little and you may be out of business before you’re ever profitable. The best that I can offer you for now is a range based on your budget — you have a budget, right? If not, start there. And maybe that’s your question – what are the costs of running a residential care home for 6 to 8 residents? If so, that also depends on the cost of your property, the cost of staff you plan to hire, payroll taxes and benefits, utilities, property taxes, insurance, food, supplies, license, training, activities, etc, etc. I have a small facility budgeting tool that will be available soon and I’ll post it here. For now, think through all those things I listed and the others that aren’t on the list. Be conservative and make sure you’re not banking on the best case scenario – keep a contingency line or miscellaneous expense in your budget to have some cushion for the things you miss when you’re starting out. Good luck and please keep checking back here for more help later. Mike

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