When Leasing No Longer Makes Sense: A Reality Check for California RCFE Owners
Over the past several years, we have seen a growing number of Residential Care for the Elderly (RCFE) property owners reach a difficult crossroads. These are owners who purchased a home with the intention of operating—or investing in—an assisted living business, only to later discover that the financial realities of the market are far more complex than initially anticipated.
A common scenario unfolds when an owner decides to step away from operations and attempts to lease the property to another RCFE operator at a rate designed to fully cover their mortgage payment, property taxes, and insurance (PITI). On paper, this approach feels logical. In practice, it often fails to align with what the RCFE market can realistically absorb.
Why the Lease Numbers Don’t Pencil Out
The owner’s payment structure may have worked while they were operating the business themselves because they benefited from long-term mortgage principal reduction and potential appreciation. However, an incoming operator evaluates the property very differently. Their focus is on monthly cash flow, operating margins, staffing costs, regulatory compliance, and resident mix.
In many cases, the lease rate required to cover the owner’s PITI simply does not leave enough room for an operator to run a sustainable RCFE business. Even experienced operators—those with strong clinical oversight and proven management systems—will walk away quickly when a lease rate is clearly overpriced. They know the numbers, and they know when a deal creates unnecessary risk.
The unfortunate truth is that the only operator willing to agree to an inflated lease is often one who lacks experience. That scenario frequently leads to default, disruption to residents, and long-term damage to the property’s reputation.
The Operational Challenges That Lead Owners Here
Each year, our RCFE brokerage receives calls from owners in exactly this position. Many entered the RCFE space with the right intentions but encountered significant obstacles along the way:
- ALWP waivers that took far longer than expected, delaying census growth and revenue.
- Difficulty generating consistent inquiries, often due to ineffective marketing or poor market positioning.
- Entering the market as a loss leader, offering below-market rates to fill beds rather than focusing on residents with more complex care needs that justify higher monthly fees.
- Underestimating staffing and regulatory costs, which quickly erode margins.
When these challenges compound, owners often look to leasing as a way out—only to discover that the market won’t support the numbers needed to protect their original investment.
Design Decisions That Impact the Balance Sheet
Another recurring issue stems from property selection and renovation strategy. Many of these situations could have been avoided earlier with the right guidance.
For example:
- Purchasing a four-bedroom home that cannot be cost-effectively expanded to five or six private rooms.
- Allocating significant capital toward cosmetic upgrades rather than investing those same funds into permitting and creating additional bedrooms, which directly improves revenue potential.
- Selecting a property whose floor plan and footprint limit operational efficiency and long-term scalability.
Too often, these buyers worked with traditional residential real estate agents who lacked RCFE-specific experience. Without understanding how bedroom count, layout, and permitted use directly impact the balance sheet, buyers unintentionally position themselves for long-term financial strain.
Leasing vs. Selling: A Hard but Necessary Decision
When owners reach this point, they are often forced to confront a difficult reality: holding onto the asset may no longer be viable unless they can personally subsidize the gap between market lease rates and their mortgage obligation.
At that stage, the choices typically narrow to two paths:
- Sell the property and business together, or
- Roll up their sleeves and continue operating, with a clear plan to reposition and stabilize the facility.
Neither option is easy. The emotional, financial, and time investment required to acquire a property, obtain licensing, or transition an existing license is substantial. Facing the possibility of selling can feel overwhelming—but it is often the cleanest way to regain financial and personal freedom.
Why Experience Matters—Especially in RCFE Transactions
Purchasing or selling an RCFE—whether leased, owner-operated, or fully stabilized—comes with layers of complexity that are not always visible on the surface. Non-permitted modifications made after licensing, undisclosed changes to the home, and licensing transfer risks during a change of ownership can derail a transaction if not handled properly.
Knowing how to address these issues without exposing the seller to legal liability, while also protecting the buyer from financial harm if a license transfer fails, requires specialized knowledge. These are not problems that can be solved with generic real estate experience.
A Trusted Resource for RCFE Owners and Investors
This is precisely why working with an experienced RCFE broker is critical. Matthew Hustad of The Hustad Group is one of the few brokers in California who understands how all of these moving parts intersect—real estate, licensing, operations, valuation, and market dynamics.
Whether you are considering purchasing a property to convert into an RCFE, acquiring an existing licensed home, attempting to lease a property, or facing the difficult decision to sell, having the right guidance can mean the difference between a strategic exit and a prolonged financial drain.
If you are an RCFE owner or investor facing these challenges—or want to avoid them entirely—now is the time to seek experienced counsel. To discuss your situation confidentially and explore your options, contact Matthew Hustad of The Hustad Group.
Visit www.matthewhustad.com to learn more or schedule a consultation.
Making informed decisions today can protect your investment, your future, and your peace of mind.