The gap I keep seeing in RAL income claims: revenue gets mentioned, running costs don

The gap I keep seeing in RAL income claims: revenue gets mentioned, running costs don

Boston, MA · Member since 2026 · 34 posts · 7 votes

What I want to flag is a pattern, because I see it enough that it's worth naming on its own.

A lot of pitches into residential assisted living lead with income potential built off gross revenue per resident. The national median cost of care is around $6,200 a month per resident, from the CareScout/Genworth Cost of Care Survey. Multiply that by a handful of beds and the number on the slide looks great.

What usually gets left out is what it costs to actually run the thing. Labor alone is commonly cited as running up to around half of revenue in senior care operations, and once you add food, medication management, and compliance costs on top, net margins in the operator data I've seen cluster somewhere in the 10 to 35% range, not the gross number people lead with. Size and how tight the operation is run move that a lot.

None of that makes RAL a bad business. It just means the honest version of the pitch is net margin after staffing and care costs, not monthly revenue per bed. If someone's showing you income potential and the conversation never gets to staffing hours per resident per day or food and supply cost per resident, that's the question to push on before you push on anything else.

Curious if others here have seen the same gap in how this gets pitched.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1mo

    Joena, I think the distinction you’re making between gross revenue and actual operating margin is the part prospective RAL operators need to focus on.

    A high monthly rate per resident can look impressive until you layer in staffing, food, utilities, insurance, licensing/compliance, medication support, maintenance, marketing, vacancy, and the cost of replacing employees. In this model especially, labor assumptions can move the numbers very quickly.

    If I were underwriting one, I’d want to see the business in two separate pieces: the real estate economics and the operating-business economics. Does the property itself make sense at the purchase price and financing terms, and does the care operation still produce acceptable profit after a realistic staffing model?

    From the tax side, I’d also think about entity structure early. The operating company and the real estate may be better kept separate depending on the facts, because the active business income and the rental/depreciation side are treated differently. If the operating business becomes consistently profitable, an S-Corp may also be worth evaluating based on profit level, payroll, and reasonable compensation.

    And if the owner controls the real estate, depreciation and potentially cost segregation can improve the after-tax return, but that should come after the care business works operationally.

    Revenue per bed is a useful starting point. The number I’d really want is profit per occupied bed after fully loaded staffing and care costs.

    Happy to connect!

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    • Boston, MA · Member since 2026 · 34 posts · 7 votes
      2w

      Ashish, splitting it into the property and the operating business is the cleanest way I’ve seen to test one of these deals. It also exposes a trap. A house can pass the real estate test on price and financing and still fail the operating one, because the care side has to carry its own staffing cost.

      The question I’d push any pitch on is staffing hours per resident per day, and then food and supply cost per resident. If nobody can answer those two, the margin number isn’t real yet.

  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    6d

    The staffing and food cost gap is real, and it's where most RAL projections fall apart on paper.

    The numbers that get left out of most pitches: a well-run RAL typically runs $180-250 per resident per day in direct care hours alone, depending on acuity level and your state's caregiver-to-resident ratios. Food and supplies add another $25-40 per resident per day on top of that. On a 6-bed home at 100% occupancy, that's $35k-45k in annual operating costs that never make it into the revenue slides.

    The pitch usually shows gross revenue (6 beds x $4,500/month = $27,000/month) and stops there. The operator who actually ran one of these for two years will tell you EBITDA margins run 15-30% on a well-run house, not the 50%+ the top-line math implies.

    Questions worth pushing on before any LOI: What's your staffing model (agency vs. W2 vs. 1099)? What's your food cost per resident per day? What does a 90-day vacancy in one bed do to the P&L? Who covers overnight shifts and what's that cost?

    If they can't answer those in dollars, the projection isn't a projection. It's a best-case scenario built to get a signature.

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    • Boston, MA · Member since 2026 · 34 posts · 7 votes
      4d

      Thanks Ryan, those are the right questions to ask. The vacancy one is a good test: at $4,500 a month, one empty bed for 90 days is about $13,500 of lost revenue, and the staffing bill doesn’t shrink with it.

      One thing I’d want to understand before using your per-day numbers as a benchmark. $180 to $250 a day per resident in direct care works out to $5,400 to $7,500 a month, which is more than the $4,500 rent in your example. Are those figures built on higher-acuity residents or an agency staffing model?

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