Navigating the Costs of Starting an Assisted Living Business in 2024
May 20, 2024
Are you contemplating venturing into the residential assisted living industry? If yes, understanding the startup costs involved is crucial. Brandon Gustafson, an experienced owner of two assisted living facilities and the founder of Assisted Living Investing explains what you can expect financially when entering this rewarding yet challenging field.
Check out the video too:
Startup Cost Scenarios for Assisted Living Facilities
1. Rental Arbitrage Approach:
This method involves leasing a property to set up your assisted living business. The initial costs can range between $50,000 to $80,000, considering leasing and operational costs for a few months. This option is particularly appealing if you want to avoid the hefty upfront costs of property ownership, although it skips the tax benefits of owning real estate.
2. Purchasing an Existing Facility:
For those considering buying an already operational facility, the financial stakes are higher but come with less groundwork in setting up. Options like SBA loans can help finance this purchase. For a facility valued at around a million dollars, a down payment will typically be about $200,000, but consider that you may also want to have additional operating capital, pushing initial costs higher.
3. Buy and Convert:
Another route is purchasing a property and converting it into an assisted living facility. This could require significant renovation costs on top of the purchase price. For a $500,000 property, expect to put down around $150,000 and have additional capital for the renovations and other initial expenses, totaling perhaps around $190,000.
Financial Planning Tools and Resources
Understanding and planning for these expenses is vital, and tools like the free underwriting calculator available on Assisted Living Investing can be invaluable. This tool helps prospective business owners calculate various costs, including major recurring expenses like staffing, food, and insurance.
The Importance of Adequate Capital
Brandon emphasizes the importance of having adequate financial reserves. Depending on your chosen entry strategy, you might need anywhere from $60,000 to $200,000 to comfortably cover the initial phases of your business setup. This capital ensures you can sustain your business through its early stages without financial strain.
Making the Right Choice
Each method of starting an assisted living business has its pros and cons. Rental arbitrage offers a lower-cost barrier to entry, whereas buying an existing facility might be more straightforward regarding licensing and operations but requires more capital upfront. Similarly, buying and converting a property allows for a customized setup but involves complexities like renovations and additional financing.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Final Thoughts
Venturing into the assisted living industry in 2024 presents various pathways, each with unique financial implications. When choosing their startup approach, aspiring entrepreneurs in this sector should consider their capital availability, risk tolerance, and long-term business goals. Resources like Assisted Living Investing provide tools and mentorship that can help streamline this complex decision-making process and ensure you are well-prepared to embark on this fulfilling entrepreneurial journey.
Show full transcript 👇
Transcript
00:00:00
hey friend it's Brandon Gustafson in today's video we are going to be talking about Assisted Living business startup costs in 20124 if you want to know how much it's going to cost you to get started make sure you stick around for [Music] today's video hey friend I'm Brandon gusers and I own and operate two assisted living facilities and I created Assisted Living investing. net to help you learn the and outs of investing in assisted living welcome to Assisted Living investing in
00:00:35
today's video we're going to be talking about residential Assisted Living business startup costs what's it going to cost you to start your Assisted Living business before I get started though I want to remind you to get over to the website Assisted Living investing. net you can get access to our free underwriting calculator there I have a ton of other resources there on the website but that calculator is going to help you out with a lot of what we're talking about today there's a tab in
00:00:57
there that's even just about those startup expenses it's going to going to help you out through there so if you don't already have it make sure you get over to the website Assisted Living investing. net get access to that free underwriting calculator is going to help you on your investment Journey now let's get into it what are the startup costs for a residential Assisted Living business now I'm going to go through three different scenarios here number one that we're going to be talking about
00:01:19
is going to be rental Arbitrage with your assist residential Assisted Living business what is it what does it look like how does it work so I was having a conversation the other day with um a person that follows me on the channel and she owns a home and she's the landlord and has been doing single family rentals for a long time and she had somebody approach her with the idea of doing a care home out of the house and so she had found me uh through the the YouTube channel and she's like could you answer some
00:01:49
questions for me and see if this is going to work we had a really good conversation I actually did a a live on this um on the channel so we'll link that up above but make sure you subscribe to the channel and ring the bell so you get notified cuz I put this kind of content out that's super helpful and you can take action on it immediately so make sure you're subscrib and ringing the bell so you get notified when that happens anyways what we were talking about the way that this works is
00:02:11
she's going to set a lease amount for her for the person that's going to be leasing the space from her she's probably going to do it a little bit higher than what she would do with a single family home but that's okay especially for you as an operator you can handle a slightly higher rent cuz it's still probably going to be less than what you do would be paying to buy a home with your mortgage rate so if you're strapped for cash this is actually a really good way to do it so
00:02:36
let's say in this scenario you're going to be paying like between $2,000 and $5,000 per month for you to lease out a house so you can put your Assisted Living business your care home in inside of this house so $2 to $5,000 when you're starting this I would say you'd probably want to have a few months uh of money built up so that you know as you're getting things situated that uh you have a little bit longer lead time so let's say you need four months of that so that's $20,000 upfront that you
00:03:04
want to have just kind of in the bank ready to go for uh paying your lease amount next thing you want to have is going to be some of those bigger major expenses that you need uh to take into account as you get started on with your Assisted Living business and I've got a a video that goes over the four major expenses that you need to be aware of when you start an assisted living business so make sure you go watch that cuz that's going to help you out uh in understanding what this looks like but
00:03:30
the ones that you want to be aware of are going to be food so you need to have food for your residents you need to get your Staffing in place and make sure that you are paying your staff you're going to want to have your insurance in place as well so you're going to want to have all of those things in place plus that little bit of Reserve in place for uh your lease amount so I would say in this scenario you're probably going to need about $50 to $80,000 um in the bank ready to to just
00:03:54
go and it's not you're not spending that all at once on one thing which is not going to be the case with these other two options but uh it's something you want to make sure that you have available just in case you need it um so that you can operate your business successfully um and not feel too pinched for money as you get things up and running so 50 to 80,000 I think is is a really good range for you to have in the bank ready to go to start this type of a business going the re the rental
00:04:22
Arbitrage route again with this option you're not going to have the real estate so you don't get those tax benefits of having the real estate uh which is a bit of a bummer but you can get started a lot more quickly um for round numbers and for comparison sake let's just say this one's going to cost you 60,000 to start the second option is going to be purchasing an existing facility and let's say you're going to do this with an SBA loan and as we've talked about before in previous videos make sure you
00:04:46
go watch those your SBA down payment is going to be 15 to 20% down on on a home so let's say it's a million dollar and you need to put 20% down that's going to be $200,000 right right there um as your down payment that you want to do the other thing that you want to be aware of as you go with the SBA is you can actually get some extra operating Capital so that $60,000 that we talked about in the scenario where you're doing the rental Arbitrage you're still going to going to want to have that just in
00:05:16
your back pocket to make sure that you are ready so 3 to 6 months of operating expenses and on the the underwriting calculator that I have I have a way for you to kind of figure out what that's going to be so you know how much you can ask you should be asking for as you get that SBA funding so let's say that you wanted to have an extra $60,000 now what you need to think here is like oh crap now I have to have $60,000 extra dollars so now it's 260 that's not the case so you're purchasing
00:05:42
a home for a million do and you're adding $60,000 onto that loan so rather than you putting $200,000 down cuz that's 20% of a million now you need 20% of 1, 160,000 that's not that much more okay so let's just say for sake of argument you're keeping it at $200,000 down um for your payment there if you're purchasing an existing facility for a million dollars gives you an idea of what that's going to look like now the third option is the buy and convert so what does that look like so if you're
00:06:18
doing a buy and convert let's say that you need to get a house that um is $500,000 and you're doing a traditional conventional mortgage and you've got to put 30% down so that's going to put you 30% of $500,000 is$ 150,000 for that one but now you've also need to get some access to some Capital to do Renovations on the home and make sure you have that $60,000 that we've been talking about set aside for your operational budget for 3 to 6 months so you want to get an extra $200,000 but you can't get that
00:06:50
through the conventional mortgage so you actually need to do an SBA loan on that or some kind of a small business loan through a local bank or Local Credit Union and you've got to put 20% down on it so you're getting 200,000 you got to put 20% down on that amount so that's another $40,000 that you've got to put into this so now you're at 150 down on the house payment and you've got to put another $40,000 down to get access to the rest of that Capital to get you started and
00:07:20
now you're at $190,000 um that you've got to put into this into this so as it stands those numbers that I gave you as as examples just kind of quick examples so you get a feel for what that looks like um the cheapest way to do this is going the rental Arbitrage route you could do it on a Sho string budget and get started that way if you go the SBA route you're probably going to need you know 200,000 is um depending on the the purchase of the house more or less um it's going to be a percentage of that and if you're
00:07:48
buying a house to convert uh you're probably going to actually be in the same ballpark as if you're buying an existing facility now there's pros and cons for both of those one big Pro with purchasing an existing facility is you're you have a business you don't have to you're doing a change of ownership on the license you don't have to get it recertified or go through it's a much easier licensing process than starting from scratch and you know less headaches and things like that you have
00:08:14
more residents in there whereas doing the conversion you can get it exactly how you want it's nice it's newer uh it's kind of an exciting thing um and so you just kind of want to which of those are going to be better for you and I don't know what the answer is that's up to you to decide which one is going to be a better option for you and which one's going to meet your needs and which one are you most excited about that's what I would go with all that said what you're probably going to be looking at
00:08:39
is anywhere from $60 to $200,000 based off of this example that I gave you you could definitely go more than that I think bare minimum you are wanting to be at about 60,000 have that much money available to you in operating Capital if you don't have it you could probably get a small business loan for around 60,000 and then you're looking at you know 10 to 20% down so6 to $122,000 down um which is much more reasonable I think anybody could figure out a way to make that work those are just some of the
00:09:08
options that give you an idea of what those startup costs are going to look like as you look to start your residential Assisted Living business if you need help with that make sure you get over to the website Assisted Living investing. net get access to our free underwriting calculator and then if you scroll down um on the site you're going to see a bunch of other resources and courses our accelerator course the business planning guide all these things you can also send for mentorship if you
00:09:30
want some one-on-one coaching with me we can do a free Discovery call and I can chat with you about that and what that process looks like as well so if you need some help there make sure you do that uh if you are new to the channel make sure you subscribe ring the bell get notified every time we put this content out I'm I'm putting super helpful content out there to help you on your investment Journey that's what I'm here for and what I'm all about so make sure you are doing that uh share the
00:09:54
video as well to somebody that might be interested in in learning a little bit more about this I love when I get my reports from YouTube and I see that I'm I'm getting a lot of shares like it's it's really cool to see that so make sure you're sharing that uh with people does residential Assisted Living sound interesting to you but you don't know how to get started at Assisted Living investing. net we're here to help you through the process start to finish I want to thank you again for watching and
00:10:17
remind you that you just got to keep going keep making progress step by step by step consistent effort is going to be what brings you success and you can do it I promise you can thanks for watching and have a great day [Music]
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