With the pandemic having upended the CRE space, a lot of people are trying to figure out what to do with spaces that they may have planned to set up for co-living or smaller mixed use. They also might be looking for stable tenants for smaller multifamily rentals. Amidst this flurry of uncertainty, one thing that’s fairly sure: There are more elderly in need of care and comfort than ever before. And a lot of them (as well as their families) no longer feel large facilities are safe; hence, the surging demand for residential care facilities.
What is a residential care facility?
A not-so-well-known niche in supervised living for the elderly, care homes are often thought of as a happy medium in respect to large senior living communities, nursing homes, and regular homes. Typically, a care home houses between 8-15 people, though some family-style personal care homes may have only two to five residents. They are often set up in large private homes, although duplexes, triplexes, and quadplexes may also work well. Residents have their own quarters -- which they sometimes share with one roommate -- but the care facility owners provide board and services like housekeeping and transportation.
Overall, residential care is for people who can’t or don’t want to live alone but don’t need skilled nursing care. They could live in a larger assisted living community, but they prefer the cozy home-like atmosphere of…well, a home.
One thing very important to note is that while residential care facilities are sometimes called “adult foster homes,” the model is not entirely comparable to children’s foster homes. Seniors need a different type of care altogether than displaced children. They are not in school or attempting to reunify with family. They’re in the care home 24/7 unless there are scheduled activities, and it’s likely their mental and physical capabilities will deteriorate over time. They may have real trouble with activities of daily living (ADLs) due to cognitive or physical reasons, and it is the responsibility of care-home staff to assist.
How big does it need to be?
If you have a three-bedroom house or a duplex property where each unit has two bedrooms, you may be able to set it up as a care home. This somewhat depends on the state, since each has its own rules and regulations about minimum occupancy. More on that later. But the main point is, you do not have to have a full-on multistory apartment complex or fully equipped nursing facility.
That said, no matter the size, operating a care home requires set up and training, plus some expenses.
General requirements to own/operate a care home
The first thing to know is the defining characteristic of a residential care facility providing personal care: the care is nonmedical. Residents of these facilities don’t need round-the-clock care and in the event of an emergency could physically manage to evacuate themselves. These facilities are not staffed, licensed, or outfitted as nursing homes.
This immediately means fewer specialized staff and medical retrofitting of the facility. It also reduces the potential in monthly fees you’ll be able to collect, but this is a reasonable tradeoff for people who are new to the industry.
Hire an administrator
The most important factor in getting a facility approved by the state is finding a properly qualified and certified administrator. You may choose to hire this person if your expertise is more in building management. If you are trying to do a family business and want the administrator to be a family member (spouse, sister, etc.) then the would-be administrator will need to go through a training program (in the range of 40-60 hours, according to state) and pass an exam. Additionally, some states require administrators to have previous professional experience.
Secure a property…and make sure it’s set up to pass inspection
The fire department inspection is a biggie, but you’ll also need it to be handicap-accessible and otherwise compliant. Keep in mind that when applying, you’ll need proof that you have "control of the property," so don’t start your application while still shopping around.
Note, in some states, very small care homes don’t need to be licensed, but those facilities are not allowed to accept government funds such as Medicaid as payment. Also, long-term care insurance providers will typically only pay facility benefits to licensed facilities.
Who is a good person to operate a care home?
Typically, the people who operate successful care homes with happy, healthy residents and satisfied employees have a background in healthcare. Many of them have worked in nursing homes, assisted living facilities, or outpatient clinics. Perhaps they were nurses or CNAs, social workers, or occupational therapists. They have an affinity for caregiving and believe they can do a better job in an environment that they control. In many cases, this is because they don’t like the understaffing, low pay, and commensurate sloppiness of care that’s found in many large nursing homes. They prefer a setting with fewer residents/patients where they can establish personal relationships with each resident.
There might very well be a co-owner or business partner who specializes in accounts payable and receivable, insurance, and government compliance. Or, the other partner might be a great building manager who can handle all necessary repairs and upgrades, bringing in a part-time business manager for the paperwork aspect.
How much money can you make, and how do you get paid?
Each resident of a care home pays in the range of $3,000-$4,500 per month -- more if memory care is required. The funds are usually either private pay (from savings), from the patient’s long-term insurance plan, or sometimes through Medicaid if the resident qualifies and the facility is licensed to receive state funds.
What are the licensing requirements?
Licensing requirements vary from state to state, and some states don’t even have any. However, if you want your care home to be eligible for federal funds, it will need to be regulated by the appropriate state regulatory office, whether that’s the Department of Health, the Department of Elder Affairs, or some other state agency.
To get licensed, you will likely need to undergo an orientation, and possibly hire additional certified/trained staff. You will need to fill out an application, get insured and bonded, and the home will need to pass one or more inspections. You may also need to prove that you have a certain amount of start-up cash reserves, usually three months of operating expenses.
The specifics of how many hours of education, what sort of skilled staff are needed (if any), how rooms must be outfitted, and how often inspections take place vary according to the state and the size/scope of the residential care facility.
The bottom line
While operating a care home is more complicated than finding regular tenants, the money is much better -- especially since two to a room is acceptable. A three-bedroom home with four residents may bring in $15,000 a month. Granted, you have to pay for staff and board, but all in all, it can be a steady and reliable business, especially since the potential market will only grow over the upcoming decades.