Increase Profit Margins
As the economy improves, senior housing facilities are experiencing increasing expenses. These rising costs cut into profit margins and operators are left trying to find ways to recover lost profitability.
In the past year alone, margins were reduced to an average of 32 percent in assisted living and Alzheimer’s care facilities. Some operators may be tempted to throw in the towel and list assisted living properties for sale, taking a moment to assess this situation as an opportunity that may provide a competitive edge might be a better option.
Expenses Rise as Economy Improves
Current operators should understand where these increased expenses are derived, while operators looking to buy assisted living facilities should take into consideration these increasing costs. The largest factor in rising costs pertains to labor, which is commonly the single largest expense line item on any profit and loss statement.
Specific to California, minimum wage is increasing over the next five years which has put upward pressure on all brackets of pay. In addition, the Affordable Care Act mandates that employers contribute to the costs of healthcare plans for their employees. These two changes alone account for significant increases in expenses which equates to a drop in profits.
With more job opportunities available, caregivers and other employees have positions with higher pay and better incentives available to them. This means operators are not only compete against each other but outside industries to hire the best staff possible.
Another area of increased costs is raw food and utilities. These expense line items are now averaging about $6-7 per resident per day.
Capital expenditure investments have also surged. These include improvements and repairs to existing facilities, which cost between $3,000-5,000 per unit, per year. This is a rather dramatic increase, but necessary in order to keep the physical plant clean and attractive, particularly for older assisted living facilities for sale.
Remedy Shrinking Margins by Increasing The Revenue Line
To keep up with shrinking margins and increasing expenses, there must be an increase in the revenue line through rental rates. An increase of eight to ten percent is projected to keep profit margins where most senior housing operators are comfortable.
Because a higher level of care justifies a raise in rental rate, need-driven facilities fare best with these increases. Families are willing to pay for services their loved ones need, no matter the cost. Assisted living facilities that offer a wide range of care services usually experience the least resistance from residents when raising rates.
The JCH Group Gets You through It
The changing environments of the economy and senior housing marketplace can pose a number of challenges. The JCH Consulting Group is a skilled nursing and assisted living brokerage that has succeeded in guiding operators through difficult times.
As a healthcare brokerage specializing in complex transactions, the JCH Consulting Group is your resource for real-time information and expert insight. Our team consults with individuals searching to buy skilled nursing and assisted facilities as well as those listing skilled nursing and assisted living properties for sale to find and build the best opportunity for your vision.
To learn more about how the JCH Group can assist you, contact one of our expert team members at your convenience.