Investing in Real Estate as a Sober Living Facility

I recently had a discussion with my husband regarding one of his listings and a potential buyer who was looking at the property for a unique purpose.  The property was perfectly setup for a sober living home or what some call a halfway house.

Investing In and Opening a Sober Living Facility (Halfway House)

As investors, we often focus on the traditional way of renting property, having a long-term renter. But as we have seen recently, there is a paradigm shift and other options for rental property are emerging. Airbnb is one example, another alternative rental investment option is group homes, including sober living facilities. Opting for one of these strategies for investment property is often more like starting a business than just owning a rental unit.

What Is Needed to Invest In/Open a Sober Living Facility?

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Costs Associated with Operating a Sober Living Facility

Finding  a property with a large enough home and the right setup and location to suit the needs of a sober living facility may require you to pay a higher purchase price. Many facilities use the 2 to a room approach.  So, if you have a three-bedroom home (preferably with three baths) you could have a 6 bed facility, for example. There are times that an additional room will be necessary for the house administrator. You may also want to look into zoning laws prior to your purchase.

As mentioned above, this is more of a business than an investment property so there will be costs above and beyond the purchase price. Some of the costs you’ll need to plan for are: furnishings, staff, therapy, licenses, marketing and, of course, utilities just to name a few. Some of these costs can be passed on to the tenant.

Entity Structure

Personally, I feel real estate investments are best held in an LLC (Limited Liability Company).  This is especially true a sober living facility because, once again, you are not only owning a real estate investment but also operating a business.  An LLC will give the structure and liability protection needed to grow the business.  An LLC for a sober living facility also provides: limited personal liability, ease of transferability and ability to add additional/new owners.

Insurance Coverage for a Sober Living Facility

Insurance is a necessity and, unlike a simple rental property, the insurance needs are greater for a sober living facility. For example, from the aspect of the property alone, general property coverage with liability coverage is necessary. In fact, it might be a good idea to increase the amount of liability coverage since there will be more activity and more than the typical number of renters. For the business aspect, the following insurance is necessary: workers comp, disability insurance and health insurance.

Do You Need Professional Certification to Run a Halfway House?

Depending on services offered, you may be required to obtain a certification to run a sober living facility. Certification gives credibility to the business’ owner and is also helpful in the licensing process.  Requirements can vary by state and even municipalities. CA, for example, requires a license if the following services are provided (according the CA Dept of Alcohol and Drug Program):

  • Detox for physical dependence upon any substance

  • Group therapy sessions

  • Personal therapy sessions

  • Educational workshops to aid in a better understanding of addiction, recovery, and drug-related issues

  • Treatment planning for ongoing recovery from dependence upon drugs and alcohol

Common Certification Programs for Sober Living Homes

  • AADNS Certification

  • QAPI Certified Professional

This isn’t an endeavor which can be taken lightly. It will take a great deal of research on various levels to start a sober living business but there is an easier alternative.  Invest in property which fits the general requirements for a sober living facility and rent it to an operator.  This is an easier way to increase your profit potential and limit risk. There’s still a need to do a great deal of the due diligence regarding the best location for a sober living facility and market the property to potential operations, however.

One of the key things I want to convey in this article is that thinking outside of the box with your investments can open the door to greater profits.

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