Adult Family Homes

Rental Property Investor · Marysville, WA · Member since 2010 · 46 posts · 40 votes

Who on the site owns and/or operates adult family homes? I've done a lot of research and found that as investments their cash flow can be great.

I'm looking to gain insight into the strategy or either building new construction to be adult family homes or rehabbing large homes and converting them while hiring out the management.

Some of my research shows that the private home rent is $4500-$8000 per month per room, which also depends on the facility and care that is provided. Staffing seems to be the biggest expense along with the insurance & licensing.

I'd appreciate any more information!

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Michael HaasBusiness Member

Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes

@Rey Orinion when Rich says "10CAP" he just means the CAP rate was 10%.

CAP RATE = Property Value / Net Operating Income

Net rental income takes into account your expenses, but doesn’t factor in your financing / loan payments

[email protected]408-439-7873

HouseHack Seattle | Michael Haas & Team572 Reviews

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
As mention, heavily regulated, that also translates to very political, perhaps investing would be easier at the build, the operations would be very difficult for a new investor.
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Rich Lathrop
Realtor · Spokane · Member since 2018 · 2 posts · 1 vote
8y
We are about to close on a 9,000 square foot home that we think would be ideal for an adult family home or assisted living facility. Based on our research thus far we think we can eventually have up to 30 rooms ( after much modification ) .. the home is on 3 acres of nice flat ground but cannot be sub divided - however we have ample water and sewer ..
We are open to financing the operations but are not equipped or inclined to actually run the operation. Just curious if anyone has experience actually hiring or partnering with an operator in such an enterprise - thank you
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Maria Nyago
Member since 2019 · 1 post · 0 votes
7y
@Rich Lathrop
Hi, are you looking to partner with someone licensed to manage the facility or perhaps nurses equipped to operate the facility?
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Rich LathropPro Member
Coeur D’Alene idaho · Member since 2015 · 16 posts · 7 votes
7y
Maria - sorry for the delayed response ... we ended up converting the home and leasing it out to an operator. We were able to rent at about a 10cap. I may do another if after a few more months I still feel good about it
I’m a little unclear what an eviction would look like should this operator not honor the lease. Hopefully I don’t learn the hard way
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Rey Orinion
Investor · Renton, WA · Member since 2014 · 68 posts · 25 votes
6y
@Rich Lathrop Hi, just curious, what do you mean by 10 cap?
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Omid A.
Flipper/Rehabber · Portland, OR · Member since 2014 · 119 posts · 121 votes
6y
So in my state there is a difference between assisted living facility and an adult foster home. Assisted living is WAY more regulated with a ton of zoning codes that must be met, it usually will only make sense to do an assisted living if you are building ground up. Adult foster home on the other hand is less strict but also demands less money from the residents, adult foster is great if you are converting an existing home.
Also, it's not very management-intensive at all, assuming you are leasing the property to an operator. If you lease to an operator, you'll still get a fair bit of a premium above market-rate rents and usually on a longer-term lease (3-5 years). I just went through this recently with one of my projects and it worked out great.
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Rey Orinion
Investor · Renton, WA · Member since 2014 · 68 posts · 25 votes
6y
@Omid A.How is your rent broken down in 1-5 years? Who constructs the home(bath, ramp, window height, etc..) to ensure it is in compliance with State guidelines/building codes?--You as landlord/owner or the operators? Any input is greatly appreciated. TIA.
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Omid A.
Flipper/Rehabber · Portland, OR · Member since 2014 · 119 posts · 121 votes
6y
@Rey Orinion In my case I made the improvements to made it ada accessible and meet the requirements for an operator to get the property licensed.
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Omid A.
Flipper/Rehabber · Portland, OR · Member since 2014 · 119 posts · 121 votes
6y
@Rey Orinion Rent is a fixed amount on a 3-year lease
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Joseph Spada
Member since 2020 · 1 post · 0 votes
6y
to Jennifer B.
This is an old post and I imagine you got your answers, nonetheless...
New to this site, but I have operated high-end Adult Family Homes for nearly 3 decades in Seattle, and recently "retired" from the operations (but still hold the RE). I teach others how to start, operate, invest in, and profit from this incredible opportunity. I also teach the Adult Family Home Administrator certification program and have written an Amazon best-seller book on the subject. If you have specific questions let me know and I'll answer them or look me up by name to find me.
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Michael HaasBusiness Member
Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
6y
@Rey Orinion when Rich says "10CAP" he just means the CAP rate was 10%.

CAP RATE = Property Value / Net Operating Income
Net rental income takes into account your expenses, but doesn’t factor in your financing / loan payments
[email protected]408-439-7873
HouseHack Seattle | Michael Haas & Team572 Reviews
Website View Page
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Nghi Le
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
6y
We've started financing these assisted living / adult family homes on 30-yr commercial loans and can confirm they get some pretty amazing and stable cashflow. Much easier to put a DSCR loan on them than most of the rentals you see on the west coast, where you rarely find the 1% rule.
A lot of investors have had to get creative on their rental strategy because LTRs simply aren't that feasible here. Things like short-term rentals, corporate rentals, boarding houses, recovery homes, supported living, rent by the room, etc.
@Omid A. I've been wondering why it was called Adult Foster Homes in Portland. Thanks for the insight.
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Nghi Le
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
6y
@Omid A. Sorry I had tagged you on my previous post but it didn't register correctly; BP doesn't always work correctly on smartphones.
You mentioned you had a fixed 3-yr lease on the AFH? I've typically seen long leases (3-10 years) with built-in rent increases of 3-5% per year.
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Rey Orinion
Investor · Renton, WA · Member since 2014 · 68 posts · 25 votes
6y
@Nghi Le
Hi,
Can you give a real life example on how you apply DSCR on your AFH client? I know a few aspiring AFH operators who's looking for alternative financing. TIA
Sincerely,
—rey
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Nghi Le
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
6y
@Rey Orinion We typically underwrite actual rents to 1.1 DSCR, but with AFH we need to see a 1.35 DSCR minimum, which isn't hard to achieve with the high rents from this strategy. The limiting factor may be the market rent itself, which needs to meet a 0.8 DSCR. This is still a lot better than most DSCR lenders, who usually take the lower of market vs actual rent and subject them to the same DSCR.
Also be careful how different commercial lenders calculate NOI and DSCR because it will vary from lender to lender; that's the nature of working in a (commercial) realm where every lender makes their own rules (as opposed to having conform to Fannie/Freddie). There's always some kind of built-in expense ratios for things like vacancy, property management (even if you're not using one), reserves, etc.
The other problem I see may be the appraisal. A lot of people think that a AFH should be worth more than similar SFRs in the area, or that its value should be based on its income and not comps. Unfortunately, if it is a residential property, it needs to comp, and oftentimes there aren't enough comps around, so the value could be all over the place.
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Dan T.
Member since 2021 · 12 posts · 2 votes
4y
AFH's in Washington are not passive investments its takes an owner who knows adult care or at least has hired one. Staffing is key. The cash flow can be very lucrative. As an example I know one with main home 6 residents + ADU on property for full time manager. 6,500/6,800, 40k per month 15k exp. Net 25k
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