Are group home businesses profitable? What are the pros and cons of starting a group home business? Here is everything you need to know.
A group home is generally used to refer to a site, building or location that provides twenty-four hour non-medical care in a structured environment.
One of the main objectives of group houses is to accommodate the elderly, people with mental or physical disabilities, or those dealing with substance abuse and need some level of help.
The U.S population is getting older, with an estimated 20% of the population expected to be over the age of 65 by 2030. Break that down and it comes out to 10,000 Baby Boomers hitting the age of 65 every day.
Getting old comes with certain problems which can be in the form of disabilities. Certain disabilities require more care than independent living can provide. Small group homes are a good answer to this. They provide some social structure which is as important as personal care and safety.
If you are trained in this area, you can decide to open a group home in the United States. For commercial real estate investors with an eye on emerging markets, group homes are clearly an opportunity for serious investors interested in hopping on a trend expected to last for a minimum of 30 more years.
But before you get started, you need to educate yourself on the pros and cons of starting a group home business. Although it is certainly an industry with a high potential for growth, there are also strict regulations and licensing requirements, as well as high staff turnover.
In fact, owning a group home is less like owning real estate and more like running a very demanding full-time business, unless you hire an experienced management company. If you are thinking of owning a group home, you should know that there are pros and cons inherent in the business. We would highlight some of these advantages and disadvantages for you.
Pros of Owning a Group Home
1. Rapid growth industry
One of the major advantages to opening a group home for the elderly is the fact that the market for such services will continue to grow at an above-average rate. The Bureau of Labor Statistics points out that the health-care industry will be one of the fastest-growing industries in the United States in the period from 2008 to 2022, with wage and salary jobs growing at a rate of 22 percent.
One primary reason for this rapid growth will be the increased number of individuals entering the elderly population. As this trend continues, those seeking to open a group home will be in a good position to benefit from this growth.
2. The business is quite profitable
Another advantage of a group home business is its profitability. The earning potential in the health-care-administration field is another potential advantage for starting a group home. According to recent reports, residential care homes make over $6000 per resident annually before taxes.
So if you have more customers, you can make a sizable profit from the business. However, the business must be done right for it to thrive and be effective. Reports suggest that most group homes tend to sacrifice care in their quest for profits.
If you are unable to strike a balance between care and profit margins, you will end up performing poorly as a caregiver or business owner.
3. Career satisfaction
Perhaps one of the major advantages to running a group home or another type of care home is the level of job or career satisfaction that you may experience. Knowing that you provide a much-needed service for those who are in poor health or in their declining years can be an extremely gratifying way to make a living.
The National Care Planning Council notes that group homes are a cost-effective way for many patients to recover from illness and injury. Therefore, not only do you get the satisfaction of providing a needed service, but you also get to provide one that helps alleviate the financial hardship often associated with the health-care industry.
4. Requires lesser startup cost than others
Group homes typically have a lower monthly cost than a nursing home as continuous medical care is not provided. There are also some forms of financial assistance available through long-term insurance and veteran’s programs. This can help cushion the finances of the business.
5. It Is an Opportunity to Restore Human Dignity
The tragedy of life is that a parent can take care of two or more kids until they are adults, but then it becomes hard for the two adult children to take care of their ailing parent.
Residential care homes help cover that gap by offering care to people who need it at a time in their lives when they are truly helpless. Therefore, you should pursue this business if you want to change the world, as it gives you the chance to restore human dignity.
Cons of Owning a Group Home
1. Very stressful to run
One potential disadvantage of starting up a group home is the level of responsibility and work you may have in the initial stages of starting the home. Until you have adequate staffing that will allow you to delegate responsibility, you may be required to carry much of the burden associated with running the facility.
Unless you have deep pockets or sponsors with deep pockets, which would allow you to hire a well-qualified administrator and full-time staff who can work around the clock, you may find yourself bearing the brunt of the workload.
Group homes have significant workload, and most owners agree that this is perhaps the biggest problem they have to deal with. You are not the only one who will get fatigued; your team will also struggle with keeping up with the care demands.
When that time comes, you have to bring in more people to help (which will reduce your profit margins). If you are not careful, you might end up in losses. The stress can also bog you down. Exhaustion might be the least of your worries once the numbers stop making sense.
2. Payment bureaucracy
The monetary side of the equation can prove to be another disadvantage of starting a group home business. Given the expensive nature of various types of health-care equipment, the rising cost of insurance and the dependence of many elderly patients upon government insurance programs like Medicare, finances can fall short.
Having to deal with all of the government and insurance-industry red tape to receive payment can be one major disadvantage. Medicare does not cover the costs of an assisted living facility. In addition to a monthly charge, personal care is typically treated as an add-on charge.
3. Stiff competition
One of the most difficult and nerve- racking aspects of the group home business is getting your first client. In some states, new providers are given a year to get their first client. If they are unable to obtain a client within that year, their license is taken. Keep in mind that during this time they often still have a mortgage and utilities to pay while waiting to get a client.
Competition from larger more established agencies can make it difficult to break through and get new clients. Case managers often get comfortable with the well-known provider and don’t think about new providers who could provide good services as well.
Competition from other residential services such as Sponsored Residential services and Community Based residential services have also cut into group home profits. These services are allowing people to stay home with family serving as the provider or getting another provider to come into the home to provide the support services.
4. Frequently changing regulations
New regulations can also impact the success of a group home. Changes in the amount of billable days and changing reimbursement rates can significantly impact the amount of revenue that is generated.
Some states have moved to a system that uses an assessment such as the Supports Intensity Scale or SIS to determine the amount of funding that the client receives. In most cases, individuals who are higher functioning and require the least amount of support receive a lower reimbursement rate.
5. Unexpected client turnover
Clients leave for a number of reasons. Families can decide to move a loved one for any reason due to provider choice. Clients also get older and can require a more medically –focused facility such as an Intermediate Care Facility or ICF/IID.
Clients also pass away. It’s an unfortunate reality that a resident lost for any reason is a loss of close to $100,000 in annual revenue that needs to be replaced. This can be a major hit to small providers who might not have those funds on reserve.
6. It comes with a lot of mess
To run a group home, you will need to stomach all kinds of messes and odors, as not every old person will be able to take care of their business. Some will throw up, soil their clothes, and other things that you naturally don’t expect from grown-ups.
Furthermore, you might pick relatively healthy candidates for your group home only to discover that their situations worsen with time. For example, people with developing mental problems will worsen with time.
7. It is financial intensive to run
Care businesses have one dilemma, they must provide quality care, even when it means sacrificing their profitability. That said, you have to hire professional caregivers, support them with volunteers, and ensure that they have medical professionals around.
All of this will cost money. The average cost of care also goes up every year because the cost of this labor is also increasing. So you will be forced to pick a smaller group that is profitable rather than a large group that will not be profitable.
8. High staff turnover
Because of the stressful nature of the business, one of the problems group home owners usually face is high staff turnover in the business. Staff very easily burnout with all the stressful care they provide and easily thrown in the towel leaving the owner of the business in a dilemma.
9. Stringent licensing requirements
Government of the United States is always very protective of its people, and as such any business that takes care of people is highly regulated. This means that to start this business, you need to procure licenses that come with stiff requirements. If you do not complete these requirements, or fail at any point to update them, you can risk getting shut down.