Assisted Living Facilities in SFHs

2 Replies

While I have been looking for properties I have come across several SFHs that have Assisted Living Facilities operating out of them. I had didn't realize this was a trend. Some of the listings say the ALF is a tenant and has a multi year lease. Others specifically state the business is being sold with the property. I have no interest in running an ALF business. I have done some research and the state does allow these businesses in residential homes. 

My goal/focus is to find a passive income, cash flowing property. Should I steer clear of these properties or could this be a good investment if the numbers work out?  Are there risks involved if I am merely the property owner and not the business owner? The businesses are already established in the homes and the one I looked up has had regular state inspections each year.  What additional due diligence should I be doing? I am thinking this deal would be a hybrid of a commercial and residential purchase. Things I am thinking of....

  • Verify the city allows this business to operate in a residential neighborhood
  • Verify the house is up to code for the type of business 
  • Would I need a different type of insurance or higher limits
  • Who would be responsible for any upgrades to the property if code changes for their business
  • Is this any different than a commercial building leasing space to an ALF?
  • Are the properties altered significantly so that if the business decides to leave at the end of their lease it would be expensive to convert it back into a SFH?
  • How big of a concern is there if people were to die in the house? I know that has to be disclosed upon sale, but what, if any, would my responsibility be to know that information? How much could that potentially affect resale value?

I'm not sure this would fall into "passive income" cash flowing properties.  It is a good deal if the ALF stays in their lease for multiple years.  Else you will have an expensive turnover.

Am I misunderstanding the listing? Does the business generally come with the property? I understood it to mean the property was for sale and the tenant was an ALF who was willing to sign another 5 year lease when their lease expired. How would that be any different than buying an office building and leasing it out to an ALF? I have no desire to oversee a business (I already have 3 counting my real estate investing).

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