Senior Housing is an attractive investment asset and whether you’re in it as an operator for the passion and dedication of caring for the elderly or simply as an investor that has a diverse portfolio of different types of real estate holdings - or both, there is no doubt that someday your Real Estate holding may have a change of hands or be refinanced throughout the course of its existence.
Whenever that time does come though, you want to ensure you are able to maximize the value of your Senior Living property.
A higher valuation for your Senior Living business would enable you to leverage what you already have built and extract equity from within your business enabling you to have the cash flow to pursue other endeavors.
While there are many external factors such as location, competitive supply, broader economic conditions, and demographic trends that can all have bearings on the value of your Senior Living property, for the purpose of this article we are going to hold all of those constant and assume an existing Property in place and how you can enhance its value from within.
Below are some of the critical components that determine and maximize the value of your Senior Living Business:
1.EBIDAR
2.Maintenance and Upkeep
3.The Value (and importance) of Reputation
4.Continuity of Operations
5.Capitalizing on Growth Opportunities.
1. EBIDAR
Let’s start with the basics. If Value could be quantified, it would be in terms of dollars and cents.
EBIDAR is a simple accounting term, that stands for Earnings Before Interest, Tax, Depreciation, Amortization and Rent.
Your EBIDAR is a key measure of success and ultimately a big deciding factor on the value of your Senior Living business. A higher EBIDAR usually means more value but it’s important to note that it is relative to the size of your Senior Living property.
A larger property with more units available for rent is expected to have a higher EBIDAR than a smaller operation.
Going deeper into the equation, EBIDAR can also be known as Net Operating Income i.e. the income you generate from your operations alone not withstanding Rent, Interest Depreciation and Amortization.
This is important because from within this value we can derive your Operating Margin which is in its simplest form is how much income is generated from every $ of revenue a property is able to bring in.
In other words, how much of the revenue is turned into profit.
How you can increase EBIDAR
There are two ways to increase EBIDAR of your property. First involves generating more revenue either by way of renting out more units or selling each one of units for more. Other times, where possible ancillary service fees can also help generate extra Revenue.
The other way is to efficiently manage your expenses. Payroll, Utilities, Food, Supplies are all major cost components within a Senior Living business and its important to be able to manage each one of these strategically and efficiently in relation to the occupancy within your property.
If you are able to successfully do both, you are guaranteed to boost your EBIDAR thereby enhancing the value of your Senior Living property.
2. MAINTENANCE & UPKEEP
A Senior Living Property, just like any other form of Real Estate requires regular maintenance and upkeep.
As your property ages, maintenance issues are bound to come up.
Dinged up furniture and fixtures like doors, rails, worn out tiles, dented walls (hello wheelchairs), inconsistent or lumpy paint, etc. you name it.
Not only does an unmaintained property turn away perspective residents but it also diminishes the value of your Senior Living property when the time does come to put it up for sale.
A well-maintained property is a much easier sell and more attractive to any future buyer of your Senior Living business.
A property that is kept up-to date is not only much easier on the eyes, but also because who wants to spend a lot of time and money on repairing a property that could otherwise be replicated nearby elsewhere?
Think “Replacement Value.”
A potential investor is always looking to strike the balance between building / renovating any given property versus acquiring an existing one that needs minimal effort and can start generating income sooner.
Replacement Value is the term Real Estate Investors utilize to determine what it would cost to repair your property at today’s prices of building and material supplies.
Consider establishing a fund or escrow towards repairs and maintenance that you can contribute to every month with profits generated from your property. This is useful especially if you plan on holding your property for the long run, as it will allow you to address maintenance concerns sooner as they come due and also enable you to make enhancements to your property along the way.
3. THE IMPORTANCE OF REPUTATION
A Senior Living Community’s reputation is sacred. Especially if you are local self-owned operator that is operating in a relatively smaller town local to your area.
As families trust the care of their loved ones at your community, you should understand that it’s a big decision for them to place a member of their family at your community. Resultantly they are more likely to bring up and discuss this decision with other members of the community.
Word of mouth goes a long way for Senior Living communities and families are talking about you more than you may think. What they have to say can have a direct impact on future move-ins. Furthermore, as this is a very labor-intensive business, chances are you have a decent number of staff employed within your community.
How your staff reflects or speaks about working at your community is also equally important as it can determine the quality of future employees that choose to come work at your property.
If staff is subject to seeing any sort of poor treatment of the residents that reside in your community, you can be sure they will be letting others know of it as well.
This is why it’s also crucial to foster a positive and respectful work culture, notwithstanding the fact that by doing so you would be able to reduce turnover and enhance productivity.
And while achieving a stellar or impeccable reputation can be difficult in Senior Housing, given the nature of the business where emotions can escalate quite quickly. It’s important as an operator of the property that you actively work to manage your reputation.
Providing good care and quality of service is not only expected but a given but reputation goes beyond just doing what you are supposed to be in business for.
This involves being actively involved in the community, by working with other stakeholders within your area, such as with Schools, Fire & Police Departments, Local Churches, restaurants, and small businesses as well as any other other public institution to establish yourself as a cornerstone member of the community.
At the end of the day, we are all part of a broader social structure. The more you are able to stand out and gesture good will within your community, the more your community values you and ultimately this is a strong factor of enhancing the value of your Senior Living property because the indirect effects of a good reputation usually have a direct positive impact on your bottom line.
4. CONTINUITY OF OPERATIONS
At some point throughout the course of your business, one must contend with the difficult question of: “If I wasn’t around to manage it like I do, would it still be as good as it is?”
The fact is, more often than not when business owners / operators take a step back from the day-to-day grind things seem to fall apart. This is a testament to how well and smoothly your operations can run without the need for your direct involvement. While you are the star player and main character of your story, your business is also just a business and in order for it to be truly successful, it does not need to involve you - or rather should not be heavily dependent on you.
The more your business is self-sustaining and can function without your direct involvement, the more valuable it is.
One simple reason being it frees you up to focus on the more meaningful parts of your business that could create more value.
Another being it is more attractive to any potential investor to be easy about the fact that if you are removed from the equation the whole thing doesn’t fall apart.
By developing and establishing proper controls and procedures around your business that are streamlined for successful operations, you will not only have reduced dependency on your involvement but are likely to benefit from a leaner, agile and overall, more efficient operation. One that is not dependent on you working the floor, answering the phone, or helping in the kitchen and this ensures continuity of operations.
A successful business is one that functions like a well-oiled machine with all its cogs and components working together in harmony like clockwork.
This is a far more attractive proposition for any potential investor thereby enhancing the value of your business.
5. CAPITALIZING ON GROWTH OPPORTUNITIES
So you’re all leased up, with a well maintained property that has a great reputation within your community. Your staff loves you, your resident love you, the community loves you. What a superstar you are.
By now, you love you as well because of the great job you are doing operating a Senior Living community and caring for a vulnerable part of our population. Kudos to you!
Have you considered growing or expanding your Senior Living business so that you can provide that same – if not better – level of quality of care and service to more members of your community? To members of a nearby community?
Expansion and Growth opportunities can add tremendous value to your Senior Living Business.
If you happen to have vacant and available space on your existing lot or a nearby lot, you can add to your Senior Living property by creating a brand-new section.
By adding more units under your wing, not only would you be able to serve and house more residents but in certain (most) cases, you could benefit from economies of scale and bring operating costs down thereby boosting your profits to much higher levels.
You could also diversify your revenue stream by adding different components to your revenue structure for example by providing Memory Care services.
Timing is key when it comes to capitalizing on growth opportunities.
We encourage you to assess your current operations and structure to ensure you have the ability to successfully deliver on maintaining the kind of service you’ve been able to provide.
Secondly, when assessing whether to build an addition component within your existing property or acquiring or developing a new property, you are naturally going to have to consider the capital implications.
Leveraging your existing property is always an option but does it make sense in today’s economic environment?
How costly is developing a new property currently? Are you able to find a “good deal” on an existing building that you could possibly convert or re purpose towards Senior Housing?
All of these factors must be taken into consideration when deciding to capitalize on future growth opportunities.
However, if you are able to do so, you are likely to unlock and add a great deal of value within your Senior Living Business.
Conclusion
In summary as a Senior Living business owner, you inherently strive to serve a vulnerable population to the best of your ability while also having a well-rounded business.
Maximizing the value of your Senior living business requires a comprehensive strategy that encompasses various critical elements. By focusing on optimizing financial performance through EBIDAR, maintaining the physical condition of your property, and cultivating a positive reputation within the community, you lay the groundwork for enhancing its overall worth. Additionally, ensuring continuity of operations by implementing efficient systems and procedures ensures the long-term sustainability and attractiveness of your business to future potential investors.
Furthermore, seizing growth opportunities allows you to expand your reach, diversify revenue streams, and capitalize on emerging trends in the senior living industry. Whether through strategic expansions such as introducing specialized services, or exploring acquisition opportunities, embracing growth initiatives adds significant value to your business.
By consistently striving for excellence across all facets of operations, you not only maximize the financial value of your senior living property but also position it for sustained success in a growing senior housing market landscape.