Inside a Grandfathered Assisted Living Facility: My Discovery
Sep 25, 2024
When exploring the possibility of buying an already-existing assisted living facility, you may encounter the term "grandfathered in." But what does this actually mean, and how might it affect you as an investor? We will explain grandfathering and discuss its ramifications in the context of assisted living facilities in this blog. It's important to understand this phrase because it can have a big impact on your financial results and investment plan.
Grandfathering is the term used to describe exceptions or exemptions for current facilities that satisfy specific requirements, even in the event that newer standards or rules are put into place. In this blog, you will learn how grandfathering can simplify your investing process and possibly save you a significant amount of money.
Check out the video, too:
What Does "Grandfathered In" Mean?
"Grandfathering" refers to a legal provision that allows an older facility to continue operating under the rules and regulations that were in place when it was originally licensed. This can be a huge advantage if you’re buying an existing assisted living facility, as it often means you won’t have to make costly updates to comply with newer regulations.
For example, suppose a facility was licensed 30 years ago under a different set of rules—perhaps fire suppression systems, the width of hallways, or the placement of restrooms were governed by less stringent standards at that time. If the facility is grandfathered in, these older standards will still apply to you as the new owner, saving you from expensive renovations that would be required if the facility had to meet current regulations.
How Do You Get Grandfathered In?
To benefit from being grandfathered in, you need to purchase an existing assisted living facility. This provision only applies to facilities that have already been licensed under older rules. If you're converting a new home into an assisted living facility, you won't be able to take advantage of this. New conversions are subject to the latest regulations and codes, requiring compliance with all current standards.
Once you’ve identified an existing facility to purchase, the next step is what is known in many states as a Change of Ownership (CHOW). This process involves transferring the facility's license from the previous owner to you. While this isn't a straightforward license transfer, it essentially allows you to continue operating the facility under its existing license, maintaining the same regulatory standards it has been operating under.
The Change of Ownership process will require you to submit an application similar to what you’d need for a new license, but with slight variations. It's crucial to understand that while the facility’s physical attributes might be grandfathered in, you’ll still need to meet all operational and care-related regulations that are in place today.
What If You're Not Grandfathered In?
If you can't take advantage of being grandfathered in—either because you're converting a new facility or because the existing facility isn't eligible—you could be facing some significant expenses. Upgrades such as installing a new fire suppression system can range from $10,000 to $80,000, depending on the size and complexity of the facility. You'll also need to bring the facility into compliance with all the latest regulations, which can involve everything from structural renovations to updated safety protocols.
These potential costs are why many investors prefer to purchase existing facilities that are already licensed and grandfathered in under older rules. It’s a way to minimize upfront costs while still providing a safe, regulated environment for residents.
The Financial Benefits of Grandfathering
The financial advantages of purchasing a grandfathered facility are clear. By avoiding the need for expensive upgrades and renovations, you can allocate your resources more efficiently, perhaps investing in other aspects of the business that will yield higher returns. Additionally, an existing facility may already have a steady stream of residents, which can provide immediate cash flow—another compelling reason to consider this route.
However, it’s important to weigh the pros and cons. While grandfathered facilities offer cost savings, they may also require updates in other areas, such as modernizing interiors or improving resident amenities. In contrast, a brand new facility, while more expensive upfront, may offer better potential for charging higher rates due to its modern amenities and compliance with the latest standards.
Final Thoughts
In summary, grandfathering in the context of assisted living can provide significant financial benefits, allowing you to operate an existing facility without the burden of costly renovations to meet new regulations. However, it’s important to consider all factors, including the age of the facility and any potential updates that may still be necessary, to ensure that you make the best investment decision.
If you help writing a business plan to purchase an existing assisted living facility, download our Business Plan Checklist to help you build a solid foundation for your business. In addition, consider applying in our Assisted Living Investing Mastermind program. This program focuses on the five fundamental concepts required for success when launching your assisted living business: creating a business strategy, locating land, securing finance, acquiring a license, and running and scaling your business.
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