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How Profitable is Owning an Assisted Living Facility?

Kelly Franks Evaluation

Baby boomers have and will continue to change the face of the US population. According to census.gov, there are around 73 million baby boomers today. This makes them the second-largest age group after millennials. And as they age, the big bulge will add to the American population’s general aging in the coming years. This only means one thing for investors in the industry – opportunity through an assisted living facility.

With about 10,000 seniors turning 65 every day, there’s a growing demand for senior care services. Friends and families are continually looking for ways to ensure their elderly are comfortable and well cared for. That’s why some of them hire caregivers to care for their loved ones at home. Others enroll their elderly in facilities that offer services for seniors, like assisted living homes. These services provide long-term solutions to senior care problems.

Projections show that the global home care services – a small segment of the industry – will see a rise in revenue from 100 billion in 2016 to $225 billion in 2020. This growth is fueled by the expanding elderly population, longer life expectancies, and modified federal regulations that allow for more flexibility in payment and service options for patients.

Other eldercare services like skilled nursing, continuing care, and assisted living facilities are also projected to grow – albeit at a slower rate. The National Center for Assisted Living/American Health Care Association reported an increase in their assisted living residents’ bed count by over 20,4000 to 251,108 in 2018.

What is an assisted living facility?

Assisted living is a residential option for the elderly who want or need help with day-to-day activities. This includes getting to the bathroom, cooking meals, traveling to appointments, keeping house, etc. It is an excellent option for seniors who need more personal care services than they can access in a home or retirement community – but don’t need 24/7 medical supervision and care of a nursing home.

 

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Assisted living facilities – a potential investment

The senior care industry in the US has never looked more promising than it does now. Thanks to the mass retirement of baby boomers and massive leaps in healthcare technology, we are experiencing the largest population of older adults than ever before.

The booming population of seniors means that it is a perfect time to invest in the senior care industry. But as a prospective investor, you probably are interested in knowing how profitable owning an assisted living facility can be. So, let’s look at some latest insights to help point you in the right direction.

A worthy investment

A single-family home can generate $36,000 of gross profits and $10,000 of monthly cash flow. This value varies based on a range of aspects, like its size, location, and amenities. A large facility with excellent amenities and maintains full capacity may have higher gross profits than a small one with fewer amenities and less occupancy.

If you build an authentic brand and open more facilities in different locations, you could make even more profits. A good assisted living facility should also be close to an upper-income area and the resident’s family. When seniors live nearby, their loved ones will have the peace of mind of knowing they can always drop by.

Providing auxiliary services on-site such as charging residents extra fees for optional niceties like entertainment events, cable TV packages, specialized care, and nuanced dining options, can also increase profit margins.

Industry insights

The US assisted living home market size was estimated at $73.6 billion in 2018, with a CAGR of 6.4% over the forecast period. Stable assisted living communities have a profit operating profit margin between 28 and 38% – though the margin decreases in facilities with a memory care component.

 

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Investing in the senior care industry

The senior care business has never been easy. And the Coronavirus has made it even more difficult. Unlike years back, occupancy levels are dropping as potential residents shy away from facilities that have been hit by the pandemic – and even those that haven’t. A New York Times post shows that over 46,400 staff and residents have died so far, accounting for about one-third of the country’s fatalities.

Investors in the assisted living industry are noticing that they are more than just landlords. They’re critical service providers dealing with increasing costs to disinfect and clear properties, offer protective gear and reinforce staff. According to experts, the cost structures of assisted living and other senior facilities are rising and will continue to do so. Soon enough, many investors won’t want to be in the business because the margins are compressed.

In a new report, facilities that are still open amidst a wave of closures are experiencing a decline in usage rates and plunge in operating margins. In Massachusetts, for instance, nursing home usage dropped 5.4% between 2013 and 2017. The average operating margins fell from -0.8% to -3.9% in the same year.

The numbers may not tell the whole story 

Analyzing all the major housing property types – including assisted living – the aggregate operating margin dropped in 2016 and 2017. This is in line with a recent report by the State of Seniors Housing. This data was submitted by about 1,700 US senior departments, assisted living residences, independent living communities, and continuing care retirement communities. The numbers indicated that the operating margin went down by 3.5%. The biggest decrease was for assisted living properties that posted a 10.2% drop.

But all these data doesn’t mean that assisted homes aren’t profitable – quite the contrary. There are thousands of assisted facilities that are making an impressive net profit from their facilities.

For instance, it is not uncommon for investors to build gross profits to a million dollars and more with senior care franchising. The initial cost involved with opening an assisted home franchise includes the franchise fee, training costs, and marketing fees. The median investment in an adult care franchise, including start-up fees, range from $92,847.71 to $315,122. But you should keep in mind that the franchise concept affects the price. An assisted living franchise, for instance, will cost more than a housing placement.

 

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Calculating the profitability 

This is a common valuation method used to estimate the value of a stabilized assisted living facility. It assesses revenues, expenses, and Net Operating Income (NOI). It looks at the gross revenue that the facility generates along with the cost of goods sold (COGS) to determine the financial gain or loss. You can use Net Operating Income to analyze an assisted living facility’s profitability because it reflects all reasonably necessary operating costs. NOI stands for earnings before interests and taxes. The business brokers at Buy or Sell Business can help you. Reach out to us today for more information.

 

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