I work for a multifamily development/investment firm in Los Angeles, and after studying up on Sober Living Facilities as well as Drug Rehab Centers, I've come to the conclusion that I should be in the business of successfully charging $20,000 for a shared bedroom. That being said, I want to know other peoples experiences with owning/operating these facilities.
Is it common to be an owner/operator? What are the average NOI/IRR/Cap rates for such product? Any information or thoughts on this would help my research.
Thank you
I'm not intimately familiar with the structural or economic nuances of sober living facilities, but I would guess they would get valuations and treatment similar to other medically oriented, operationally intensive products like skilled nursing facilities or continuing care retirement communities.
There is sober living and then there is inpatient rehab. The two are very different. Most investors picture inpatient rehab quality tenants but are only capable of obtaining sober living tenants.
I have a buddy that owns 5 houses here in San Diego and has been running them as sober living for 8 years. On the 5 houses he grossed $600k last year. He spends a ton of his time getting food donated and driving over town all day everyday to meet the food consumption requirements of the 80 people that live in these homes. Can you staff that? Yes, but they aren't going to do the job right, or at least that's what he tells me.
The operation is not profitable unless you get your food cost way way down.
Inpatient rehab is heavily regulated as insurance is the one footing the entire bill. Typically you'll see a doctors office anchoring a large rehab facility. His/her patients are right upstairs a lot. The fee is closer to $40,000mo.
A significant portion of sober living tenants are fresh out of incarceration whereas a significant portion of inpatient rehab are middle to upper middle class folks trying to clean up.
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