Creating a Sober House

Creating a Sober House

SITE SELECTION-----PROFIT CENTER FOR FINDER OR BROKER OF PROPERTY

Some important considerations in site selection are: zoning; size and layout of building; and access to public transportation.

Any residential zoning, even single family, is sufficient due to the provisions of the Americans With Disabilities Act

3500 Sq. Ft is generally considered to be the minimum size. Maximum size might depend on absorption limits in the community for beds or additional uses for space not utilized for sober house beds. Generally a large Victorian with an attractive entrance and central hallways is optimum. An adequate number of bathrooms is very important. Fairly large bedrooms are most economically efficient and there should generally be a minimum of 20 bedrooms. Amenities are of course desirable, but generally not at the cost of bedrooms. A coffee station in the halls is inexpensive and a great plus,

Public transportation is of some importance, but locations in some communities without public transportation but high demand are occasionally successful.

Proximity to employment, stores and entertainment is also of some importance.

SITE ACQUISITION-----PROFIT CENTER FOR SELLER OF REAL ESTATE//INVESTMENT OPPORTUNITY FOR BUYER OR OWNER OF REAL ESTATE

Average per bed cost of building acquisition is of some importance of course since a high cost results in a long term increased cost of operation. Since per bed annual revenue can approach $10,000.00 per year per bed, or something like $600.00 per sq ft of building, location is of far more importance.

Renting with an option to buy, even at a very high purchase price, is ideal, especially with a "kick out" clause": if the locations does not work the site can be abandoned and the beds moved.

BUILDOUT AND INFRASTRUCTURE-----MINIMAL $$$$ OUTLAY

Some buildings require some removal or addition of partitions or kitchens or the installation of bathrooms. Obviously such work can increase the capital investment in the building but is worth it for an excellent location where there is no question but that the extra cost can be quickly recovered. A building requiring no extensive modification is of course desirable.

Other than this the investment is pretty much limited to aesthetic improvement, usually just window treatments, painting and floor refinishing, and beds and bedding. Beds and bedding of course are easily moved to another site if the site has to be abandoned

ON SITE MANAGER----MINIMAL EXPENSE

As a practical matter, an on site manager with extensive addiction experience is necessary to handle any problems as they come up and to prevent recurrence of addictive behavior. Addictive behavior if not immediately checked will eventually destroy the value of the business. Weekly rent collection of course requires fairly constant attention to detail since the paying guests are in and out.

RENT UP-----MIINIMAL EXPENSE

Occupants can usually be obtained at no cost by referrals from governmental and non governmental agencies. Some networking and relationship development is required however and this is best done by experienced third parties. Usually a property can be fully occupied within 60 days

OWNERSHIP OF BUSINESS-----EXTREMELY HIGH IRR ON SMALL INVESTMENT

While bottom line profitability varies enormously depending on such things as cap cost and interest or rental expense, number of rooms, and efficiency of operation, an assumption of $50.00+- per week per bed is not unreasonable. Obviously great care should be used in the choice of projects and the soundness of the individual business plan. Profitability and ownership of the business is not dependent on ownership of the real estate: a long term else is as good as ownership!!

Note that the sale of there eal estate does not affect the profitability of ownership of the business!!!

SALE OF THE REAL ESTATE----PROFIT CENTER FOR OWNER OF REAL ESTATE

After the building has been rented up and operated for some period of time the value of the building has been greatly increased from the acquisition price. The cap rate is often cut in half and the NOI is very robust. A doubling of value is probably a conservative exception. Selling the property to a passive investor for maximum value in a reasonable short per of time and leasing it back is probably of primary importance SINCE THIS ALLOWS THE ACQUSITION OF ANOTHER LOCATION AND A DOUBLING OF CASH FLOW.

Note that the sale of there eal estate does not affect the profitability of ownership of the business!!!

FRANCHISING/CONSULTING----MINIMAL EXPENSE

Buying a franchise or at least retaining an experienced consultant is critical important since the franchisor will provide needed expertise in acquisition, rent up, manager selection and operation. The cost of these services is relatively modest compared to the large NOI.

Wedgestone finances the acquisition of sober house real estate and can arrange franchising or consulting throughout the New England States (other than Vermont).

PL Goduti

[email protected]. 781 608 7306