In this article, I’m sharing one of my favorite investing strategies, where we are able to provide long term housing to people in need while lowering our operating expenses.
The supported living program consists of renting out your properties to people with intellectual disabilities. There is virtually no information online about it, and very few investors have ever heard about it, though I’ve helped several of my investor clients convert their units to supported living.
I’ve owned supported living rentals since 2015 and have worked with multiple providers, some were non-profits and others were for profit, but overall the program is the same.
The supported living program is available for landlords in all 50 states, and below are some of the details.
On June 22, 1999, the United States Supreme Court held in Olmstead v. L.C. that unjustified segregation of persons with disabilities constitutes discrimination in violation of title II of the Americans with Disabilities Act.
The Court held that public entities must provide community-based services to persons with disabilities when (1) such services are appropriate; (2) the affected persons do not oppose community-based treatment; and (3) community-based services can be reasonably accommodated, taking into account the resources available to the public entity and the needs of others who are receiving disability services from the entity.
The Investment Opportunity
The department of justice has been enforcing the Olmstead act by shutting down state-run mental institutions, thereby displacing those with intellectual disabilities who are now in desperate need for community-based housing.
The Benefits Of Owning Supported Living Program Rental Properties
- The Provider will pay for any room vacancies, so unlike regular rental properties, you will achieve a zero percent vacancy rate.
- All utility bills are paid for by the residents, through the providers who have checkbook control over the resident’s finances.
- Licensed and professionally trained caregivers are assigned to each resident and paid for by the state. Each caregiver works on shifts and they do not live at the property.
- Property management is not necessary as the rents are guaranteed, and the residents are placed by the provider.
- Each resident receives housing modification funds of up to $12,000 (may vary by state) to be used to pay to install modifications for that residents needs such as grab bars, walk-in shower, fenced yards, wheelchair ramps, etc.
- Depending on location, the per-room rates vary from $400 to $800 per room per month which may be higher than fair market rent for a property.
- There are no certifications, special zoning requirements or special insurance necessary for the property or the property owner.
- Bottom line: rents are often higher, and you can save at least 15%* in expenses by working with this program as a landlord.
Property Characteristics For The Program
- Single story building is preferred, but not required.
- No more than 4 rooms per unit, though multiple rooms in separate units are fine. For example, a duplex (2 units) with 4 bedrooms each side works great for the program.
- The location must be close to transportation, shopping in mid-sized cities (not rural small towns).
- The more bathrooms the better.
- Single-family homes or multi-family properties work great. In my local area, there is a 40 unit apartment complex that is used for supported living, and there is a 5-year waitlist.
Ideal Property Characteristics For Investors
- Single story multi-family buildings with 3-4 bedrooms per unit offer the highest return on investment and are easiest to staff and provide care.
- Single-family houses with 4 bedrooms in a lower cost of living area.
Downsides To The Supported Living Program
- There is more “wear & tear” to the property. However, most residents stay 10+ years so you’re also not paying turn over costs every few years. The damages that are more severe, such as holes punched in walls, the provider pays for these repairs and notifies us immediately.
- Staff turnover is high. This does not necessarily affect the investment, however, it can be frustrating to have a new manager every year.
- Some caregivers lack the knowledge of checking breakers, or how systems work. So some repairs are really minor.
- Some repairs are exaggerated, demonstrated by the photo below which I requested after I was told that “a staff member fell through the outside stairs”
I love working with the supported living program for several reasons.
The first reason is it feels good to know that we are making a difference for these residents who have such a need for housing.
The second reason being the many benefits such as long term tenants, zero percent vacancy rate, no turn over costs, not having to screen or place tenants and that the rents are often a little higher than what a normal tenant would pay.
So we have plans to convert all of our properties to supported living rentals since every property meets their criteria, and I love helping other landlords convert their properties and achieve higher cash flow.
*15% is assumed when applying a 5% vacancy rate and 10% for property management.