Renting to a Residential Care Facility

11 Replies

Hi, 

I am in negotiations to purchase a property in Sacramento, CA which has an existing lease with a Residential Care Facility. The price and the rental income are good. I have looked up the license of the business with the state and they are in good standing with only small violations in the past (fixed in a timely manner). This will be my first pure investment purchase, my experience up to now has involved house hacking. That was what I thought I would do again, but then I came across this deal. I will have to scramble some to come up with a bigger down payment than I expected and that is making me a little nervous. Does anyone have any experience with these types of tenants? Have any advice? I am researching myself, but want to leave my question open ended to see if something is brought up that I have not thought of. I appreciate any assistance with this matter. 

Hi Fiona, just for my understanding, is this considered a residential property or commercial? From the way you are writing this I am assuming you are doing a buy and hold strategy? What’s your goal with the property? 

Hi Shea,

It is a residential property and, yes, my strategy is buy and hold. My goal is collect income from the property and I expect the value of the property to rise as well over the next few years.

@Fiona Humphrey

Just make sure the property cashflows if the owner of the business dies and you're forced to rent to a normal everyday tenant. Your agent in Sacramento should've brought this up and checked those rents for you prior to making an offer.

Often when renting to a residential care facility you'll get higher rent than normal, and if that's what making the deal work just make sure that it will still work if something happens to the facility and you need to rent to a regular tenant. You don't want to get stuck with negative cash-flow because you can't find another care facility tenant to rent it.

Also, probably want to check with your insurance provider and see if all those tenants who are likely to fall and break a hip are going to be an issue for them, and look into the legality of what happens in the care facility owner dies and you're stuck with 5-8 tenants in the home with no one to care for them and no living descendants. That would be a big no bueno.

Being that is residential . How much would take to bring make to it’s regular use as a sfr. Would confirm to the rest of the sfr in the neighborhood?

Hi Fiona!

I am late to your inquiry but wondered if you ever closed on that investment opportunity? We own several residential homes in San Diego that we only lease to operators of care facilities...They make amazing tenants if set up correctly.

Hi @Melinda Vaughn , I just now looked back at this conversation. As a matter of fact, I closed in September and so far it is going well. There are a few concerns that made me question going through with it, but I have a few contingencies for backup if anything goes wrong. I'd love to hear some of your experiences if you ever have the time.

Hi Mike! Happy to discuss. Please feel free to give me a call. Structure as a commercial lease, 5+ years, annual rent escalations, requirement to carry liability insurance (name you as additional insured), etc. You will need special Lessor policy. 

Questions for those who are leasing to care facilities.

How did you go about finding the care facility operators and get them interested in your properties?

Have any of you done this with mutli-family properties (whether 2-4 units or 5+)?

Thank you in advance.

I had a unique situation where a family member lived in a home. We made a proposal to them to help grow in a better area and they accepted the offer. 

You should contact the geriatric unit at the hospitals and ask if they could give you some operator contacts.