Tips for Buying an Assisted Living Facility
Author Rod Khleif: Top Multifamily Real Estate Mentor, Best Selling Author & Host of Top Real Estate Investing Podcast
I own assisted living and memory care communities in Texas, and I bought them from a national operator that was shedding properties. Everything on this list came from that process, from the deals my Warriors have closed since, and from the mistakes that cost us money. These are my tips for buying an assisted living facility, written for the investor who already understands apartments and is looking at the first community. Every tip stands on its own, so skim the bold lines first, then go deep where your deal is weakest.
You are buying a licensed, staffed healthcare business that happens to own real estate. The license transfers on the state’s timeline, not yours. The revenue is only as real as the census report. Labor is half the cost. The operator decides the margin. And in a growing number of states, including Minnesota since January 1, 2026, you inherit the residents’ contracts as written. Verify all five before you price the building.
Apartment investors tend to underwrite a community like a building with expensive rent. That is how people overpay. A 60-unit assisted living community can collect $5,500 to $7,500 per resident per month, but it spends 38 to 45 percent of that on wages, operates under a state license that can be suspended, and serves residents whose families signed contracts with the seller. The senior housing due diligence checklist covers the full list. This post is the 15 that matter most, in the order I would run them.
If three or more of these are true, the price needs to reflect a turnaround, not a stabilized asset.
I organize assisted living due diligence into five gates. You do not pass through a gate until the tips inside it are answered in writing, and you do not spend money on the next gate until the current one is closed. Licensing comes first because a problem there kills the deal regardless of the numbers. Contracts and capital come last because they only matter once you know the business is real. Each gate has three tips, which gives you the 15 below.
In every state the license does not transfer with the deed. You apply for your own license and the state decides when you can operate. Texas, for example, asks for the complete change of ownership package at least 30 days before the transfer date and issues a temporary license that expires in 90 days unless the health inspection goes well. Miss the window and you close on a building you cannot legally run, with the seller still responsible under their license. Pull the state’s change of ownership rule on day one, put the filing deadline in the purchase agreement as a condition, and make the seller’s cooperation with the survey a covenant.
Every licensed community has a public inspection history. Request the last three annual surveys, every complaint investigation and every plan of correction. You are not looking for a clean record, because almost nobody has one. You are looking for repeat deficiencies in medication management, staffing ratios, resident rights or fire safety, because those tell you the operator cannot fix what the state keeps finding. A repeat citation in the same category two years running is a culture problem, and culture does not transfer to you at closing. It comes with the staff, and you will be paying to change it.
Licenses are issued for a specific building, bed count and care level. If the seller converted a wing to memory care, added beds, or moved the medication room without updating the license, the state will find it at your change of ownership inspection and you will be the one correcting it. Walk the building with the current floor plan the state has on file. Count licensed beds against actual beds. Check that fire barriers, sprinkler coverage and emergency power match what the license type requires. Minnesota, for example, now requires two-hour fire barriers between differently licensed areas in the same building. That is a capital expense if it is missing.
The census report is the only revenue document that cannot be dressed up. Ask for 24 months of weekly census with move-ins, move-outs and deaths, then multiply occupied units by the collected rate including care level charges. Compare that figure to reported revenue. A gap of more than 3 percent means concessions, unpaid balances or a rate card that families are not actually paying. NIC reported assisted living occupancy of 88.4 percent nationally in the second quarter of 2026, so a seller claiming 95 percent in a market with new supply needs to prove it week by week. My post on assisted living profit margins shows the full revenue rebuild.
Every community has a published rate and an actual rate. The difference is move-in specials, legacy residents who have never had an increase, and care level charges that were waived to close a sale. Pull the resident ledger and calculate the average collected monthly rate per occupied unit for the trailing twelve months. Then look at the last three rate increase letters and the move-out notices that followed. A community that cannot raise rates 4 to 5 percent a year without losing residents is a community that cannot keep up with wages, and that shows up as margin erosion in year two of your ownership.
Private pay is the whole thesis for most assisted living investments, but residents run out of money, and some states now limit what you can do when they do. Minnesota’s 2025 changes bar a facility from terminating or refusing to renew a contract because a resident moves from private to public funding, if the facility has ever advertised that it accepts public funds. Review the seller’s marketing for any mention of Medicaid waivers. Review each resident’s financial assessment and length of stay, because a building full of residents in year four of private pay is a building about to change its payer mix. Price the Medicaid rate into your downside case.
Labor is the largest expense in assisted living and the one most likely to be understated. Ziegler’s 2026 survey put compensation at 56.2 percent of provider budgets, and public operators run wages and benefits at 38 to 45 percent of revenue. Get the full payroll register for 24 months, including overtime, benefits, workers compensation and agency invoices. Then re-staff the building on paper at state minimum ratios plus a realistic cushion, at the wages your local competitors are posting this month. If the seller’s number is more than three points of revenue below yours, the seller is understaffing, underpaying, or both, and your first year will fix it at your expense.
Agency nurses and aides cost 50 to 100 percent more than employees and tell you the community cannot hire or keep its own people. Ask for agency hours as a percentage of total care hours by month. Anything over 3 percent sustained is a problem. Anything over 10 percent means the margin on the statement is not real, because the day you replace agency with employees you will pay signing bonuses and retention bonuses to do it. Build the cost of converting agency hours to employee hours into your year one budget and your price.
Two people run an assisted living community: the executive director who runs the business and the director of nursing who runs the care. If either one leaves in the first 90 days after closing, your census will follow, because families bond with the people, not the owner. Make a confidential conversation with both a condition of your due diligence. Find out what they are paid, whether they have been promised anything by the seller, and whether they will stay. Put retention bonuses for both in your closing budget. This is the cheapest insurance you will buy on the whole deal.
You have three choices: keep the seller’s management company, bring in a third party operator, or operate yourself. The wrong answer is deciding after closing. A third party operator needs 60 to 90 days to take over systems, payroll, pharmacy contracts and state notifications, and the state will want to know who the administrator of record is on your license application. My guide on how to vet a senior housing operator covers the selection. The tip here is timing: the management agreement is signed, the operator is named on the license application, and the transition plan is written before the purchase agreement goes hard.
The pharmacy agreement, the dietary vendor, the therapy provider, the medical director, the hospice relationships, the software, the phone system and the state Medicaid waiver enrollment are all in the seller’s name. Some assign. Some do not. Some, like the Medicaid provider agreement, require their own application. Build a transition matrix with every contract, who holds it, whether it assigns, the notice period, and who is responsible for the replacement. The one that bites most buyers is the pharmacy, because residents need medications on the morning after closing and the pharmacy will not deliver to an entity it has no contract with.
Families hear about a sale from a caregiver long before they hear from you, and what they hear is “the new owners are going to cut staff.” Within 48 hours of the purchase agreement going hard, write the letter to families, the talking points for staff, and the town hall agenda. Introduce the operator, name the executive director who is staying, and say what will not change. The census you protect in the first 60 days is worth more than any renovation you do in the first year. I have watched a buyer lose eight residents in a month because the first announcement came from a competitor’s marketing director.
This is the tip that changed in 2026. Minnesota’s revised Chapter 144G now requires a new licensee to honor existing assisted living contracts until they expire, for contracts signed on or after January 1, 2026, under section 144G.19, subdivision 5. Other states are moving the same direction, and several already require formal notice before any change in terms. The practical consequence is that the rate increases, care level charges and termination rights you were counting on may not be available until each contract renews. Read every resident agreement. Build a schedule of expiration dates. Underwrite the first year on the contracts you are buying, not the contracts you plan to write.
Apartments need a capital reserve. Assisted living needs two. The capital reserve covers roofs, HVAC and the kitchen equipment, and $750 to $1,000 per unit per year is a reasonable starting point. The working capital reserve covers the 45 to 60 days between closing and your first full month of collections, plus the first payroll, plus the retention bonuses from Tip 9, plus the agency conversion from Tip 8. Lenders will ask to see both. The senior housing financing guide shows how HUD, agency and bank lenders size them. Buyers who skip the second reserve end up funding it from the first, which is how deferred maintenance starts.
After Tips 4 through 14, you have a normalized net operating income: census-based revenue, market labor, real agency costs, a management fee at 5 percent, both reserves, insurance at a current quote and taxes at the reassessed value. Divide that NOI by the segment cap rate, which CBRE’s 2026 survey put at 6.5 percent for assisted living and 8.0 percent for memory care, to get your price. Then run debt service coverage at today’s rate. If coverage falls under 1.25 on normalized NOI, the deal does not work at that price, no matter what the seller’s broker package says. The senior housing cap rate guide covers the segment math.
If you want the fundamentals behind every number in this post, my free book covers NOI, debt coverage and value creation from the first chapter. Click the cover below to download it.
Most purchase agreements give you 30 to 45 days of due diligence. Here is how my team sequences the five gates inside that window so licensing never becomes the thing that blows the closing date.
The first community is a stabilized 60-unit assisted living building at 90 percent occupancy with employee staffing and a tenured executive director. The 15 tips confirm the seller’s numbers within two points, the normalized margin is 28 percent, and you pay close to the ask at a 6.5 percent cap. The second is an 80-unit assisted living and memory care community at 82 percent occupancy with 12 percent agency hours and a new director of nursing. Normalized margin drops from the seller’s 27 percent to 19 percent once labor is corrected, and the price comes down 25 percent or you walk. The third is a 100-unit community at 74 percent occupancy with repeat survey citations and a Medicaid waiver mix the seller never disclosed. That is a distressed purchase priced on the real estate plus a turnaround budget, bought only with an operator who has done it before.
Every broker package for an assisted living community tells the same story. The table below is how each line in that story gets tested against the 15 tips, and it is worth printing and taping to the inside of your deal folder.
| Seller’s Package vs What You VerifyThe claim in the broker package and the document that tests it | ||
|---|---|---|
| Occupancy | 92 percent stabilized | 24 months of weekly census with move-ins, move-outs and deaths (Tip 4) |
| Revenue | Rate card times units | Resident ledger, collected rate per occupied unit, last three rate increase letters (Tip 5) |
| Labor | 38 percent of revenue, fully staffed | Payroll register, agency invoices as a percent of care hours, re-staffed at local wages (Tips 7 and 8) |
| Compliance | In good standing with the state | Three years of surveys, complaint investigations and plans of correction (Tip 2) |
| Management | Experienced operator in place | Confidential interviews with the executive director and director of nursing, tenure, retention terms (Tip 9) |
| Contracts | Standard resident agreements | Every signed agreement, expiration schedule, state rules on assumption such as Minnesota 144G.19 (Tip 13) |
| Value | Priced at a 6 percent cap on seller NOI | Normalized NOI with management fee, both reserves and current insurance, at the segment cap rate, tested at 1.25 coverage (Tip 15) |
Notice the pattern. Every item in the right column is a document the seller already has. A seller who hesitates to produce any of them is telling you something, and the thing they are telling you is usually in the margin.
I came to senior housing from apartments, and the habits that made me successful there were the ones most likely to hurt me here. This table is the shift I had to make, and the one every Warrior moving into this asset class has to make with me.
| Apartment Buyer Habits vs Owner HabitsWhat works in multifamily and what replaces it in assisted living | ||
|---|---|---|
| First document requested | Rent roll and T12 | State survey history and change of ownership rules |
| Revenue check | Rent roll times 12 | Weekly census times collected rate including care charges |
| Biggest expense | Taxes and insurance | Labor at 38 to 45 percent of revenue, with agency hours tracked monthly |
| Key person risk | Property manager, replaceable in a week | Executive director and director of nursing, retention bonuses at closing |
| Closing day | Keys and bank account change hands | Temporary license issued, pharmacy contract live, families already notified |
| Tenant contracts | Leases roll in 12 months | Resident agreements may be assumed as written, with expirations scheduled |
| Reserves | One capital reserve | Capital reserve plus a separate working capital reserve for the first 60 days |
None of this means the apartment skills are wasted. Underwriting, debt, asset management and raising capital transfer directly. The senior housing investing types guide explains which segment fits which skill set, and why most apartment investors start with assisted living rather than skilled nursing.
When my firm bought our Texas communities, the seller’s financials were close on revenue and badly wrong on labor, because agency staffing had been covering open shifts for months. We caught it because we rebuilt the payroll line ourselves, which is Tip 7, and we priced the agency conversion into the deal, which is Tip 8. What we did not do well enough the first time was Tip 12. The staff heard about the sale before we were ready to talk to families, and we spent the first 60 days doing damage control on a census that should have been stable. Every tip on this list is on it because either I or someone I coach learned it the expensive way.
The investors in my program who have moved into senior housing are not finding it easier than apartments. They are finding that the work in the 15 tips is exactly what keeps the competition out, and that a community bought through all five gates produces income per unit that an apartment building cannot match. You can hear those conversations on the Lifetime Cash Flow podcast, where I regularly bring on the operators who are doing this at scale.
Rod Khleif: “In apartments the building is the asset. In assisted living the license, the staff and the residents’ trust are the asset, and the building is where they live. Buy the first three carefully and the building takes care of itself.”
Q: What is the first thing to check when buying an assisted living facility?
A: The license. Request the state’s change of ownership requirements and the community’s last three years of survey history on day one. The license does not transfer with the deed, the state sets the timeline, and repeat survey citations tell you more about the operator than any financial statement.
Q: How long does a change of ownership take for an assisted living facility?
A: It depends on the state. Texas asks for a complete application at least 30 days before the transfer date and issues a temporary license that runs 90 days pending inspection. Other states take 60 to 120 days. File as soon as the purchase agreement is signed and make the timeline a closing condition.
Q: Do resident contracts transfer to the new owner of an assisted living facility?
A: Increasingly, yes, as written. Minnesota requires new licensees to honor existing assisted living contracts until they expire for contracts signed on or after January 1, 2026. Even in states without that rule, residents and families expect continuity, so underwrite year one on the contracts you are buying.
Q: How do I verify occupancy when buying an assisted living facility?
A: Ask for 24 months of weekly census reports with move-ins, move-outs and deaths, then multiply occupied units by the collected rate including care charges. Compare that to reported revenue. NIC reported 88.4 percent assisted living occupancy in the second quarter of 2026, so claims well above that need weekly proof.
Q: What is a normal labor cost for an assisted living facility?
A: Public operators run wages and benefits at roughly 38 to 45 percent of revenue, and Ziegler’s 2026 survey put compensation at 56.2 percent of provider budgets. Rebuild labor at state staffing ratios and current local wages. If the seller’s number is more than three points below yours, the margin is overstated.
Q: Should I keep the existing operator when I buy an assisted living facility?
A: Only if the survey history, agency usage and staff tenure say the operator is good. Decide before closing, sign the management agreement before the purchase agreement goes hard, and name the operator on the license application. Changing operators after closing without a plan is how census drops.
Q: How much working capital do I need to buy an assisted living facility?
A: Enough to cover 45 to 60 days of operations before your first full month of collections, plus the first payroll, retention bonuses for key staff, and the cost of converting agency hours to employees. Keep it separate from the capital reserve, which should be $750 to $1,000 per unit per year.
Q: What cap rate should I pay for an assisted living facility in 2026?
A: CBRE’s 2026 investor survey puts assisted living cap rates near 6.5 percent and memory care near 8.0 percent. Apply the cap rate to your normalized NOI, not the seller’s, and confirm debt service coverage of at least 1.25 at current rates before you commit to a price.
Q: What are the biggest mistakes when buying an assisted living facility?
A: Trusting the seller’s labor line, ignoring agency staffing, closing without a signed operator, letting staff learn about the sale before families do, and assuming you can change resident contracts on day one. Each one shows up as a census loss or a margin loss in the first year.
Q: Is buying an assisted living facility harder than buying an apartment building?
A: Yes, and that is the point. The license, the staffing and the resident relationships keep most apartment investors out, which is why a well bought community produces roughly double the net operating income per unit of a Class B apartment. The 15 tips are the work that earns that income.
If you are serious about buying your first community, the Senior Housing Bootcamp is where I walk through all five gates on real deals, with the operators and lenders who are doing this now. Seats are limited and the waitlist opens first.
Join the Senior Housing Bootcamp waitlist →
Want the full checklist behind these 15 tips? The AL/MC due diligence checklist is available as a download inside the senior housing due diligence checklist post.
Not ready for a live event yet? Start with the free book. It covers the underwriting fundamentals that every tip in this post builds on.
Download the free book: How to Create Lifetime Cashflow Through Multifamily Properties →
Disclaimer: This article was written with the help of AI and reviewed by Rod and his team. Licensing and contract rules vary by state and change often; the Texas and Minnesota examples are current as of October 2026 and are not legal advice. The scenarios are illustrative and do not describe any specific property. Nothing here is investment, legal or tax advice.
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