Buying a halfway house / sober living house
Kenosha, WI · Member since 2017 · 93 posts · 21 votes
Buying a halfway house / sober living house
Most Popular Reply
New York City, NY · Member since 2014 · 1 post · 10 votes
9yThis is a long one, but hopefully I can shed some light here. Of course, there are always multiple ways to overcome any challenge, but this is how we have done it so far...
My partner and I currently own and operate transitional living houses in a Midwest city, and it is definitely a different business than owning or managing standard rentals. We are for-profit and currently have about 150 beds, most of which are in large single family homes located within city limits (no suburban living for us). We used to own all of our houses but are about 50/50 lease vs. own, mainly because leasing allows us to move faster when opening additional houses.
The main difference here is your clientele/residents. Because of their background (95% of our residents are recovering heroin addicts) and payor status (50% are paid for by their treatment centers, the rest split between family or self-pay), standard 1 year leases with monthly payments do not work. We accept cash, credit, check at any time of the month, for any period of time. While the treatment centers generally pay monthly by check, the families usually pay weekly. If the resident is self-pay, it could be a few days rent at a time, which is fine too. To solve this, I built a custom mobile app to handle rent payments and due dates because no other management software can handle the payment schedules or turnover. It also tracks who is in what house and all other resident info I might need, and is absolutely vital to our operation.
Each of our houses has a live-in manager who, for free rent, ensures all residents are following a strict set of rules and guidelines that is enforced quantitatively with a points system to ensure objectivity and uniformity between managers and houses. All rules infractions have a point value, and if a resident accumulates X points in a certain time frame, there are several steps the manager takes to remediate the behavior i.e., curfew, no nights out, extra chores, eviction, etc.
AH, eviction. Not only eviction, but how about occupancy or location? No one would ever be caught saying they don't think transitional living houses can be a great resource...as long as that house is across town. NIMBY syndrome is perhaps one of the largest challenges any sober house will face. Luckily, there is a long trail of litigation under the Fair Housing Act 1934 and the AFH Amendments of 1988 which established the legal grounds for those in recovery (by definition "disabled") to live together in a single family home. As far as eviction, we as a management company do not evict anyone. All of our rules are guidelines for the men to use, and they police themselves. If one resident relapses or brings drugs into the house, the residents resolve the situation themselves, usually by requiring the offending resident to leave for 2 weeks before reapplying for residency. That said, we do monitor the managers, who have final say in all house decisions (for free rent, remember?).
We also have several levels of housing. Initially, all new residents stay for about 6 months in our largest home. Because they are so new in their sobriety, the risk of relapse is highest so rules are the tightest. Nightly meetings are mandatory, and there is not much personal space. After about 6 months, they transition to a more traditional sober living house. Residents are welcome to stay here for much longer periods, but still must obey the house rules, which are more lax than the initial house. Finally, we offer apartments for the men to rent which more closely resemble your standard apartment. They maintain access to the house managers and meetings, and while we make the transition to independent living as seamless as possible, they are essentially on their own.
Outside of the inherent challenge of managing heroin addicts (by definition some of the most manipulative and difficult personalities on the planet, especially when it come to money), the business can be quite good. Because we charge by the bed, returns are significantly higher than market rental rates, even when considering our rent covers ALL housing costs ex food.
With today's opioid epidemic rampaging across the US, there is a massive need for well run transitional living facilities everywhere, but it is easy for good intentions to sour when the houses are not run properly. Addiction is the disease of chronic relapses and heroin is a monster, so issues do occur. A whole lot of work is required to successfully run just a single house, and the clientele can be very difficult. But if you can handle the challenge, it is definitely worth the work!
There you have it...I am happy to answer any questions!
30 Replies
- Investor · Birmingham, AL · Member since 2016 · 446 posts · 305 votes9y
I want information on this also.
- Rental Property Investor · Fond Du Lac, WI · Member since 2016 · 215 posts · 136 votes9y
following for info.
- Co-Owner · New Berlin, WI · Member since 2017 · 224 posts · 71 votes9y
@Edgar Perez I can help provide information for you from a conventional lending perspective if you think it would help. Conventional financing for this type of property is going to depend in large part on what the purpose of the purchase is as well as the specifics behind the property type. Is it a single family home you are purchasing for investment? Or a two family investment etc...?
- Kenosha, WI · Member since 2017 · 93 posts · 21 votes9y
@Ham Merritt Well this idea is something I am considering for a future investment. Normally these homes start out as large single family or maybe even duplex. Then (at least to my understanding) you find an agency that wishes to use it as one of the aforementioned categories and they use it find the individuals to place there and they also act as a "property manager." So I guess I could consider it as an investment but if the property was a duplex I could house hack for a year and then pursue this strategy. Not sure if this helps, I don't know much about this rei niche
- Co-Owner · New Berlin, WI · Member since 2017 · 224 posts · 71 votes9y
@Edgar Perez so you would be purchasing residentially zoned 4, 3, 2, or single family homes followed by converting them into sober living? If this is the case, the purchase can be made with a conventional loan. If it is already a sober living home I would have to do some digging. Let me know if there is anything you want to know specific to conventional lending on a residential purchase and I would be happy to provide you with further information. I would not be a good resource to you unfortunately for providing information from an investor stand point with these types of transactions.
- 9yJason BottPro MemberInsurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
@Edgar Perez, @Chad Nagel, @Anastasia Jordan the insurance for these types of properties is specialized. So you will not find that the State Farms of the world do not want anything to do with these/.
There are insurance companies who will do these. You will have higher premiums if the property is not operating within a formalized 503c nonprofit entity.
- Investor · Lawrenceville, NJ · Member since 2016 · 64 posts · 6 votes9y
I too have been interested in owning sober living properties. One of my commercial tenants is a substance abuse counseling clinic. Ill reach out to them and find out more how it works. Stay tuned. Best
- Rental Property Investor · Oconomowoc, WI · Member since 2016 · 996 posts · 431 votes9y
Hi Edgar,
I worked for management company in Janesville that handled a half-way house. In this particular situation the rents were guaranteed by a local organization that placed the ex-convicts so that was a nice setup. Yes, your insurance will be higher. You probably won't be able to waive the terrorism rider or any crime riders on the insurance as well. The owner had a strict no former gang member placement clause with the organization because those most consistently present problems, regardless of the convicts desire to rehabilitate.
Consider what type of ex-convicts you will take (including gender and crime). I wouldn't recommend doing this with a property that is larger than 4 units as these do take more time than others. You will need to help them cross back into normal society, its not a situation where you sit back and collect the rent. For it to work for both parties you will have to do a little more hand holding and one on one involvement than you would for a normal rental. You will probably be handling more tenant disputes, talk the tenants through gaining their footing in the world again with money, bill paying, interacting with the general population, etc.
All that being said. it is rewarding if you invest the time with not only the rental but the tenants. Seeing them "graduate" out of the halfway house to a non-halfway house rental (or even a home) is the best feeling you can have. You know at that moment you did make a difference in someone's life. When many others wouldn't of been willing to help, you gave them shelter and a fresh start. The payoff isn't just monetary, it's much more than that.
- Rental Property Investor · Running the Earth, watching the sky · Member since 2013 · 64 posts · 18 votes9y
I own a nice, large home in Laguna Hills, Ca that we could no longer afford to live in. We became "accidental landlords"...it just happened. After a few sh*tty tenants, we weren't so sure we wanted to keep doing it and almost sold the house. Then I met a friend who's hubby had been looking for an appropriate house to open his sober living biz in. He runs it via the Archdiocese on a very religious platform.
All we do is collect the rent and come by to do the pool and small repairs. We're there a lot, but we chose to be, as we like the guys and keeping the place up nice. It's a 5 bedroom in a non HOA, quiet, family neighborhood. They have 8 "patient" beds and 1 bedroom is the house dad's. We have a tropical backyard with pebbletech pool, and allow a doggy (great therapy!)
We charge about $1000 over comparable properties. WELL, at least, we DID! Now the rents have skyrocketed over the past year and we find we could be renting to a regular sized family for about $200 less than what we get now! SO this upcoming July we renegotiate the rent and will be increasing it. Not sure by how much yet; still researching that. That's the tough part...we really like them and want them to stay, but we got creamed on taxes this year, so we do need to charge more to make it balance. Hard to know how much more to ask!
- New York City, NY · Member since 2014 · 1 post · 10 votes9y
This is a long one, but hopefully I can shed some light here. Of course, there are always multiple ways to overcome any challenge, but this is how we have done it so far...
My partner and I currently own and operate transitional living houses in a Midwest city, and it is definitely a different business than owning or managing standard rentals. We are for-profit and currently have about 150 beds, most of which are in large single family homes located within city limits (no suburban living for us). We used to own all of our houses but are about 50/50 lease vs. own, mainly because leasing allows us to move faster when opening additional houses.
The main difference here is your clientele/residents. Because of their background (95% of our residents are recovering heroin addicts) and payor status (50% are paid for by their treatment centers, the rest split between family or self-pay), standard 1 year leases with monthly payments do not work. We accept cash, credit, check at any time of the month, for any period of time. While the treatment centers generally pay monthly by check, the families usually pay weekly. If the resident is self-pay, it could be a few days rent at a time, which is fine too. To solve this, I built a custom mobile app to handle rent payments and due dates because no other management software can handle the payment schedules or turnover. It also tracks who is in what house and all other resident info I might need, and is absolutely vital to our operation.
Each of our houses has a live-in manager who, for free rent, ensures all residents are following a strict set of rules and guidelines that is enforced quantitatively with a points system to ensure objectivity and uniformity between managers and houses. All rules infractions have a point value, and if a resident accumulates X points in a certain time frame, there are several steps the manager takes to remediate the behavior i.e., curfew, no nights out, extra chores, eviction, etc.
AH, eviction. Not only eviction, but how about occupancy or location? No one would ever be caught saying they don't think transitional living houses can be a great resource...as long as that house is across town. NIMBY syndrome is perhaps one of the largest challenges any sober house will face. Luckily, there is a long trail of litigation under the Fair Housing Act 1934 and the AFH Amendments of 1988 which established the legal grounds for those in recovery (by definition "disabled") to live together in a single family home. As far as eviction, we as a management company do not evict anyone. All of our rules are guidelines for the men to use, and they police themselves. If one resident relapses or brings drugs into the house, the residents resolve the situation themselves, usually by requiring the offending resident to leave for 2 weeks before reapplying for residency. That said, we do monitor the managers, who have final say in all house decisions (for free rent, remember?).
We also have several levels of housing. Initially, all new residents stay for about 6 months in our largest home. Because they are so new in their sobriety, the risk of relapse is highest so rules are the tightest. Nightly meetings are mandatory, and there is not much personal space. After about 6 months, they transition to a more traditional sober living house. Residents are welcome to stay here for much longer periods, but still must obey the house rules, which are more lax than the initial house. Finally, we offer apartments for the men to rent which more closely resemble your standard apartment. They maintain access to the house managers and meetings, and while we make the transition to independent living as seamless as possible, they are essentially on their own.
Outside of the inherent challenge of managing heroin addicts (by definition some of the most manipulative and difficult personalities on the planet, especially when it come to money), the business can be quite good. Because we charge by the bed, returns are significantly higher than market rental rates, even when considering our rent covers ALL housing costs ex food.
With today's opioid epidemic rampaging across the US, there is a massive need for well run transitional living facilities everywhere, but it is easy for good intentions to sour when the houses are not run properly. Addiction is the disease of chronic relapses and heroin is a monster, so issues do occur. A whole lot of work is required to successfully run just a single house, and the clientele can be very difficult. But if you can handle the challenge, it is definitely worth the work!
There you have it...I am happy to answer any questions!
- Professional · Knoxville TN · Member since 2015 · 6 posts · 2 votes9y
Thanks Winslow for the informative post.
I would think that one could find the house managers from the pool of recovering addicts, and could potentially pay a part profit from the rentals, so the manager is getting free room and board, and some income. Your program sounds spot on, I like the "graduating" to less restrictive properties, but initial intake into the most tightly controlled home.
The NIMBY factor is certainly an obstacle, but can be overcome with persistence (of legal action to enforce one's property rights, assuming one is in a correctly zoned area).
something that could be added is work outreach program, as the ability to find work after recovery is obviously critical.
- Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes9y
http://mnsoberhomes.org/ This is an organization of over 20 sober houses in Minnesota run by private people. they formed a organization to help each other.
this is a interesting part of a growing need for assisted type of housing.
Just thought I'd pass the info along..your state might have a similar organization that could give assistance in figuring out how to start a similar type of housing situation.
- Investor · Seattle, WA · Member since 2017 · 34 posts · 16 votes8y
Hello!
Hopefully you have had your questions answered by now. But if not, I own a halfway/transitional/clean and sober house in WA and would be happy to answer your questions. We bought at 375k, are currently renovating the basement, and have income of $4725 (before utilities, insurance, and debt service) right now. When the basement is finished, we will have about $6500 per month. I would 1000% recommend having an in-house manager. I'm not sure it would be possible to even run one without a good manager. I manage the rest of it, namely rent and evictions. It did take a commercial loan, and only one bank in our area were willing to do it, but the interest wasn't terribly high (though we do have to refi in 5 years). It's been a good experience, very eye opening for me as well as financially nice, and of course, there have been unexpected issues (ie, no matter how sad a situation seems to be, have a 1 strike late payment policy!) I have most of my tenants through local mental health/addiction services, and those tend to be better than the randoms from craiglist, as they typically have a case manager to check up on them occasionally...
- Member since 2018 · 3 posts · 0 votes8y
I am looking to sell my property which includes large home, stand alone cottage, barn, etc. for the specific purpose of someone to open a halfway house. It doesn't matter to me could be sober living, prison release, sex predators, etc. I am in rural Maine. Does anyone have any ideas on finding someone to broker a sale such as this.
- Member since 2017 · 3 posts · 0 votes6y
@Ham Merritt
I'm looking at a single family home that's already an established sober home. Has 6 beds in it. I need to start a LLC. I may have a partner too.
- Contractor · Revere MA · Member since 2019 · 15 posts · 11 votes6y
@Edgar Perez
Go with a sober house, zone it as a lodging house to circumvent any state regulations that may dictate what you can and can’t do. Your biggest expense will be adding a sprinkler system since this type of zoned property has to have one. Have a house manager to administer drug tests and chore assignments. A halfway on the other hand cannot be for profit. They are heavily regulated as well. My gf and I have one but we got creative. She is a licensed psychologist and she is the director. There are a couple of other members on the board of directors who also draw a salary. The foundation that she directs does not own the house. I own the property assigned it to an llc and the halfway house foundation rents the house from my llc and I deal with all maintenance issues. It’s not tremendously profitable but I collect a steady rent . The property is in a highly desirable area just outside Boston in walking distance to rapid transit. She draws a six figure salary. The house has appreciated substantially over the six years I have owned it. I have borrowed against the property to fund other development projects via a heloc. It is all done legally. You must dot your I’s and cross your T’s with a halfway house state regulators will be sure to look into the books since she gets federal grant money to run the house. I have no part in it other than owning the property and performing property maintenance. We are not married when we get married it could be a potential problem and conflict of interest. I will have to have my lawyer look into it when that time comes. If it’s a problem I will just sell the house to my gfs hwh foundation. The house has appreciated a lot.
- 6yLien VuongBusiness MemberReal Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
@John Stetson Thanks for sharing this in detail! Ive never really explored this investment route but it's great to hear about your journey in specifics and how you've been able to overcome a lot of those challenges.
The Elle Group5154 Reviews - Contractor · Revere MA · Member since 2019 · 15 posts · 11 votes6y
@Lien Vuong
Honestly we don’t really even do it for an investment it’s more my partners passion in helping people seek recovery. If you’re in the halfway house business for profitability you’re doing it for all the wrong reasons. It’s not really a business per se, it’s a nonprofit providing a community service.
- Member since 2022 · 2 posts · 1 vote4y
There are several posts in this thread that suggest sober living homes are a not for profit business... Nothing could be further from the truth. Granted in is imperative that one has a heart for helping those in the throws of addiction, I don't believe you could or would even want to pursue this business otherwise... But it is absolutely a for profit business... And properly managed, it can be an extraordinarily profitable business. I suppose one could start a 501c3 but I couldn't imagine why you would do that.
- Member since 2023 · 1 post · 0 votes2y
Quote from @Edgar Perez:
Good day everyone,
Hoping to find out more about investing in a halfway house/sober living house/shelter care house. I work in the social services field and have become aware of these types of places and am wanting to learn more about them from the investors perspective. Has anyone had any experience with these types of properties and have any tips, stories, advice about this niche. I live in south eastern Wisconsin (Kenosha) which is on the boarder located about an hour from both Milwaukee and Chicago. Thanks people.
I live in in the Orlando Fl and have 2 sober houses that I own and manage. I am working on a third one now. The positive cash flow per house potential is definitely higher than a traditional rental, but I would not call it passive. Our model is basically 2 people to a room, each individual pays $175 a week, each house has a manager (who lives free of charge)that handles intakes, discharges, accountability, checking chores and collecting the rent. We have a house that holds 9 and 1 that holds 7, so when there both full they gross over 11 k a month. Both of my houses cash flow close to $2000 per month after all expenses when fully occupied, however you do get some of the occasional chaos you would expect from such a venture. I have friends who have more houses than me that have had actual overdose deaths occur in their homes, which is why it’s important to have a good house manager and a gl policy as well. As far as the legality of sober living homes they have a good bit of protection at the federal level from local government discrimination since people in recovery from addiction are a protected class, however some cities and counties have occupancy laws and certain codes that conflict with the sober home model and oftentimes the neighbors are not keen on having one next to them. Because I have been in recovery myself for 12 years now I have a network of people who work in treatment centers and detoxes and most of our residents are referrals from such places.
- Member since 2023 · 3 posts · 1 vote2y
Currenly selling a Sober Living facility on the MLS located in Peoria ILLinois contact me
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes2y
Maybe my man @Brad Stegall knows someone who is interested in a Sober living facility in Peoria @Ken Look at this!
I'd be able to help more if it was in Chicago.
Quality Builders4.966 Reviews - Rental Property Investor · Peoria, IL · Member since 2018 · 79 posts · 56 votes2y
Quote from @Ken Look at this:
Currenly selling a Sober Living facility on the MLS located in Peoria ILLinois contact me
What is the address?
- Member since 2023 · 1 post · 0 votes2y
My Stevin burrows I’m trying to open up sober living house and support and help at same time I’ve being sober now for 12 years now
What is the address?
- Rental Property Investor · Member since 2019 · 137 posts · 42 votes2y
Quote from @Winslow T.:
This is a long one, but hopefully I can shed some light here. Of course, there are always multiple ways to overcome any challenge, but this is how we have done it so far...
My partner and I currently own and operate transitional living houses in a Midwest city, and it is definitely a different business than owning or managing standard rentals. We are for-profit and currently have about 150 beds, most of which are in large single family homes located within city limits (no suburban living for us). We used to own all of our houses but are about 50/50 lease vs. own, mainly because leasing allows us to move faster when opening additional houses.
The main difference here is your clientele/residents. Because of their background (95% of our residents are recovering heroin addicts) and payor status (50% are paid for by their treatment centers, the rest split between family or self-pay), standard 1 year leases with monthly payments do not work. We accept cash, credit, check at any time of the month, for any period of time. While the treatment centers generally pay monthly by check, the families usually pay weekly. If the resident is self-pay, it could be a few days rent at a time, which is fine too. To solve this, I built a custom mobile app to handle rent payments and due dates because no other management software can handle the payment schedules or turnover. It also tracks who is in what house and all other resident info I might need, and is absolutely vital to our operation.
Each of our houses has a live-in manager who, for free rent, ensures all residents are following a strict set of rules and guidelines that is enforced quantitatively with a points system to ensure objectivity and uniformity between managers and houses. All rules infractions have a point value, and if a resident accumulates X points in a certain time frame, there are several steps the manager takes to remediate the behavior i.e., curfew, no nights out, extra chores, eviction, etc.
AH, eviction. Not only eviction, but how about occupancy or location? No one would ever be caught saying they don't think transitional living houses can be a great resource...as long as that house is across town. NIMBY syndrome is perhaps one of the largest challenges any sober house will face. Luckily, there is a long trail of litigation under the Fair Housing Act 1934 and the AFH Amendments of 1988 which established the legal grounds for those in recovery (by definition "disabled") to live together in a single family home. As far as eviction, we as a management company do not evict anyone. All of our rules are guidelines for the men to use, and they police themselves. If one resident relapses or brings drugs into the house, the residents resolve the situation themselves, usually by requiring the offending resident to leave for 2 weeks before reapplying for residency. That said, we do monitor the managers, who have final say in all house decisions (for free rent, remember?).
We also have several levels of housing. Initially, all new residents stay for about 6 months in our largest home. Because they are so new in their sobriety, the risk of relapse is highest so rules are the tightest. Nightly meetings are mandatory, and there is not much personal space. After about 6 months, they transition to a more traditional sober living house. Residents are welcome to stay here for much longer periods, but still must obey the house rules, which are more lax than the initial house. Finally, we offer apartments for the men to rent which more closely resemble your standard apartment. They maintain access to the house managers and meetings, and while we make the transition to independent living as seamless as possible, they are essentially on their own.
Outside of the inherent challenge of managing heroin addicts (by definition some of the most manipulative and difficult personalities on the planet, especially when it come to money), the business can be quite good. Because we charge by the bed, returns are significantly higher than market rental rates, even when considering our rent covers ALL housing costs ex food.
With today's opioid epidemic rampaging across the US, there is a massive need for well run transitional living facilities everywhere, but it is easy for good intentions to sour when the houses are not run properly. Addiction is the disease of chronic relapses and heroin is a monster, so issues do occur. A whole lot of work is required to successfully run just a single house, and the clientele can be very difficult. But if you can handle the challenge, it is definitely worth the work!
There you have it...I am happy to answer any questions!
Thank you for sharing the information! It is very helpful. I read in another post that if tenants found cook drugs in it, such as meth, it will affect the price the house significantly. Is this true? Thanks!
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