Can a 2 or 3 Bed Care Home Actually Be Profitable?

assisted living business assisted living investment care home profitability residential assisted living starting a care home Dec 10, 2024

Welcome to the Assisted Living Investing Blog. I'm Brandon Gustafson, and I own and operate two assisted living facilities. I created this blog to help people like you learn the ins and outs of assisted living.

In this blog, we're diving into a common question: Can a care home with just 2 or 3 beds be profitable?

Check out the video too:

Understanding the Small Care Home Model

Many of you might have extra rooms or a house and wonder if you can turn it into a profitable care home. Let’s explore whether such a small-scale care home can generate income and provide value.

The Living Caregiver Model

A successful approach for small care homes is the "living caregiver model." In this model, the caregiver, often the owner, lives in the house with the residents. This setup allows you to reduce labor costs significantly because you're providing care and managing the home simultaneously. Alternatively, you can hire someone to be the live-in caregiver, but we'll assume you are the caregiver for this discussion.

Reducing Labor Costs

Labor costs are the largest expense in operating an assisted living facility. Being the live-in caregiver eliminates the need for additional staff, drastically cutting down on labor expenses. The savings remain substantial even if you need respite care or occasional help. This model allows for more control over day-to-day operations, leading to better cost management and higher profitability.

Cost Management and Profitability

To achieve profitability, you must manage expenses effectively. Focus on key areas like groceries and supplies, ensuring efficient shopping to reduce costs. Handle cleaning and maintenance yourself if possible to save money. With fewer residents, your insurance premiums will be lower since you’ll need property, liability, and worker's comp insurance, but smaller facilities often pay less. If you own the house, traditional mortgages often have better terms than SBA loans, reducing debt service payments. By addressing these areas, you can effectively manage costs and enhance profitability.

Legal Considerations and Licensing

Before starting, consult an attorney about forming an LLC to protect yourself legally. This separates your personal assets from the business, offering a layer of protection in case of legal issues.

Licensing Types

Understanding the different types of licenses is crucial. Care homes typically accommodate 4-6 beds and are regulated differently by each state. Residential assisted living facilities can have up to 16 beds, providing a more home-like environment. Commercial assisted living facilities have more than 20 beds and are usually in larger, more commercial settings. Check your state’s regulations to ensure compliance and choose the appropriate license for your facility.

Benefits of the Small Care Home Model

Running a small care home has several benefits. Acting as the caregiver reduces the need for hired staff, significantly reducing labor costs. With fewer residents, you benefit from lower insurance premiums. Financially, you receive payments both as the caregiver and the owner, offering potential tax advantages. Additionally, traditional home mortgages often have more favorable terms than commercial loans, helping reduce debt service payments. These factors collectively enhance the profitability and viability of the small care home model.

If you're interested in diving deeper into the assisted living business, make sure to download our free underwriting calculator from Assisted Living Investing to help you navigate your investment journey. And, if you need help getting things setup, check out our mastermind program to get the support you need.

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