If you are thinking increasing rates 3% to 4% is enough, you are probably in trouble.
We see many operators of Assisted Living, Memory Care or Skilled Nursing Facilities who have gotten their top line revenue, and gross revenue, back close to pre-Covid levels, but their bottom lines are lagging far behind due to their profit margins not keeping pace with their increased expenses.
When calculating your rate increases for this year consider the number of expenses that have disproportionately increased when compared to normal times.
Labor is a good example. Many states have mandated an increase in minimum wage. Often, operators of Assisted Living, Memory Care and Skilled Nursing Facilities do not believe this has a significant impact on the overall expenses of running a business. But the increase in minimum wage bumps the entire stack of wages, not just the entry-level people. If you hired a valued employee 2 years ago at $12/hr. and have given them merit increases to $13/hr. and new hires are coming in at the same wage, your valued employee will not be happy.
The rates that Senior Housing operators are paying for insurance have increased dramatically with no sign of improvement anywhere in the near future. The industry is seeing some of the craziest workers compensation cases in the history of our business. In some locations it is difficult, if not impossible, to get fire insurance. We have heard many people say that their insurance costs are up 20% to 50% and may go higher.
The cost of natural gas, electricity and other forms of power have increased well beyond what was anticipated. The cost of natural gas has doubled in many cities. The cost of trash collection and disposal has gone up dramatically; far more than normal inflation would account for.
As the cost of all the above-mentioned items increases this will naturally impact the cost of raw food and its delivery. We have heard estimates that raw food may go up as much is 20% this year. Consider that the biggest factor in the cost of food is labor and transportation to market and it is easy to see why the food companies will pass along their increased expenses to the consumers.
New or Higher Taxes
The new administration and state governments have promised higher taxes on corporations. These taxes need to be added to the expense equation of your facility’s profitability. The final number has not come out yet but use your best guess.
Take the time to add up all your known increases in expenses including labor, food, your various insurances and energy. Divide that dollar figure by your number of residents and it will give you what your rental rate increase needs to be to simply maintain your existing profit margin. Should you wish to see higher profitability than pre-Covid levels, you will need to account for this by further increasing your rental rate.
Work with The JCH Group for Your Senior Housing Investments
The JCH Consulting Group works with hundreds of operators, investors and specialists to successfully navigate the senior housing industry. With well-researched and informed decisions, our team routinely builds strong and solid portfolios.
No matter the size or type of senior housing asset, we are your top resource in making the most of your senior housing investments in the senior housing industry. By sticking to longstanding industry principles, our guidance in the sector has always weathered storms in the senior housing industry.
For expert guidance, work with the investment specialists at the JCH Group. Learn more about the senior housing industry and receive a free business valuation at your convenience.