How much Money do you need to start an assisted living

So, how much money do you need to start an assisted living facility?

The amount you need will depend on a many factors.  What is the cost of real estate in your area?  How many changes, if any, are needed to your property?  Will you be working in the facility, or hiring staff or managers to do all the work?

The exact amount is something you need to calculate for your own circumstances.  But here is a list of things to keep in mind when you do the math.

• Down Payment.  You may be buying, building or converting your new assisted living facility.  In either case, you will probably be financing most of the price.  Lenders will normally require a down payment equal to 20% to 25% of the cost.  Yes, there are many ways to reduce that percentage but this is what most will need.

• Start Up Costs.  So now that you have your building, it’s going to need furniture, equipment, supplies.  Some estimate this amount to be $3,000 to $5,000 per unit after accounting for both resident unit and common space furnishings.   Your facility may be more or less based on its size and on both the quantity and quality of the furnishings you provide.

• Working Capital.  This is an area where many undershoot their estimate.  Working capital is basically the cash you have in your checkbook to fund operations after you’ve bought, furnished and supplied your facility.  If you’re buying an existing facility that is producing positive cash flow, it will be much easier to estimate the amount you need:  often that’s 30 to 60 days of operating expenses, including all payroll, mortgage payments and all other costs.  If you’re starting from scratch with no residents in a facility that you build or convert, then it gets more complicated:  how long will it take to lease up? when will you reach break-even? will the rates you expect to receive turn out to be those you do?  You will learn more on this site soon about estimating your working capital needs during a start-up, but for now plan to fund operations for at least three to six months before reaching break-even and maybe longer for larger facilities.

Let’s look at the following example.

Jane is buying a 40 unit assisted living facility at a cost of $4 million.  The facility generates $120,000 a month in revenue but expenses and debt service amount to $90,000 a month.

First, Jane will need at least a 20% down payment of $800,000.  Second,  since the facility is already operating and comes with furnishings, she only plans to make about $50,000in improvements to the furnishings and equipment.  And third, with expenses running at $90,000 per month, Jane sets aside $180,000 for working capital to make sure she isn’t stressed financially.

That’s a grand total of $1,030,000 needed for Jane to get started in her own assisted living facility.

Using Medicaid to pay for Assisted Living

From the consumer perspective, there are pros and cons to each of these approaches. Waivers usually allow participants to have much higher income eligibility limits than regular / State Plan Medicaid. In 2016, Waivers usually allow monthly income limits of $2,199 while Medicaid State Plans may limit income to $733 / month. Note these are very general numbers, they vary by state, marital status and with other factors. Waivers are almost always enrollment capped. They have a limited number of “slots” available and waiting lists are common. Regular / State Plan Medicaid is an entitlement and therefore these programs cannot limit enrollment. Finally, Waivers almost always require the participant to have “nursing home level of care needs”. Regular Medicaid can be less restrictive with the care requirements of program participants.

Forty-six states now provide some level of financial assistance to individuals in assisted living. However, the term "assisted living" is not used consistently across these states, nor are their definitions or benefits the same. Other terms which are used include: residential care, adult foster care, personal care homes, supported living and several other variations. Some states pay only for personal care services received in assisted living, others include nursing services. Coverage for medication administration, chore and homemaker services even recreational activities varies by state. No state is permitted to pay for room and board costs in assisted living, but states have other means of controlling these costs such as by capping the amounts the residences can charge, offering Medicaid eligible individuals supplemental assistance (from general state funds) to cover room and board and paying for meal preparation and serving but not actual food costs.

The past ten years have seen a dramatic increase in the number of states whose Medicaid's programs provide financial assistance for assisted living residents. We expect this trend to continue until all 50 states and D.C. are included.

long-tem care numbers

At least 60% of home health agencies, hospices, nursing homes, and residential care communities were for profit, while about 40% of adult day services centers were for profit (Figure 4). The majority of nursing homes and residential care communities were chain-affiliated, while the majority of adult day services centers were not chain-affiliated