Residential Assisted Living Development: Build vs Retrofit

If you are weighing residential assisted living development against another round of flips, the first decision is whether to retrofit a large existing house or build from the ground up. Melanie Claborn, a St. Louis rehabber building a four-home assisted living campus in Wentzville, Missouri, priced both. The retrofit came out close enough to new construction that the conversion stopped making sense.

This article walks through the decisions that actually determine feasibility: the cost drivers that kill most conversions, how entitled land pricing moves in an early market, how bed counts tie to Certificate of Need approvals, which licensed people you must contract before you can open, and how the money works when every resident is paying out of pocket.

None of it is theoretical. The numbers below come from a project currently under construction, including the ones that did not go the owner’s way.

From the Real Estate Pros Show

This article draws on an interview with Melanie Claborn of Thousand Springs Senior Living on the Real Estate Pros Show, hosted by Dylan Silver.

Why Retrofitting a Big House Usually Loses to Building New

Claborn ran the numbers on converting a large home in Creve Coeur, Missouri sized to hold 12 to 15 residents. The retrofit came out close to the cost of new construction, and she walked away.

Two line items drove it:

• Sprinklers. A licensed care home needs a full fire suppression system. In a finished house that means opening ceilings and walls across the entire structure, installing the system, then putting the finishes back. You pay twice for the same square footage.
• Bathrooms and plumbing. Resident capacity drives bathroom count, and a standard single-family floor plan is nowhere close. Adding that many fixtures means running new supply and waste lines through a structure that was never stubbed for it.

On a ground-up build, both of those go in during rough-in while the walls are open. There is no demolition line item and no rework. That is the whole difference, and on a 12 to 16 resident program it is enough to flip the decision.

Geography changes the math. Claborn points out that Phoenix converts far more easily: large single-story sprawling ranches, no basements, and a market where you can drive a neighborhood street and spot a care home behind a small sign on the fence. Missouri housing stock does not cooperate the same way. Before you price a conversion in your own market, look hard at whether the typical large house near you is single-story and wide, or multi-story with a basement. That one fact moves the retrofit number more than anything else on your spreadsheet.

Land, Zoning, and the Timing Advantage in an Early Market

The deal came out of her existing acquisitions machine. Claborn mails postcards for her rehab business. A seller called about a piece of land, and her first reaction was that she does not buy land. Then he mentioned it was already zoned for senior living.

She bought it in 2022 at $2 per square foot. Less than a mile away, a new development in Wentzville is now contracting senior-living pads at $22 per square foot, and buyers are signing.

That spread is the argument for moving early in a market where residential assisted living is still unfamiliar. Missouri’s existing homes are mostly under three years old. Claborn’s campus will be only the second in St. Charles County, with a handful more scattered across St. Louis County and Washington, Missouri, 30 to 60 minutes away. Elder care in the region is still dominated by big-box operators and skilled nursing facilities.

Two practical implications for an investor in a similar market:

• Entitlement is the asset. A parcel already zoned for senior living saves you a rezoning fight that could take longer than the build, and it is the thing that reprices as developers arrive.
• Your existing seller lead flow will surface these parcels. Claborn would have passed on the call if the seller had not volunteered the zoning. Train whoever answers your phone to ask.

If the small-home model has not reached your county yet, that is a timing signal, not a red flag. The land is cheap precisely because nobody else is competing for it.

I think the key for anyone building one of these is finding the people who know what you don’t know, and who have the skills you don’t have, and who’ve been where you have not been.

— Melanie Claborn, Thousand Springs Senior Living

Sizing the Home: 16 Residents, 8,750 Square Feet, and Bed Approvals

Each of Claborn’s four homes is 8,750 square feet and houses 16 residents, with memory care mixed into the assisted living population. Four homes sit on a mini-subdivision street, two per side, on a real named street.

The bed count is a regulatory output, not a design preference. Missouri requires a Certificate of Need for beds, and her project is built around 48 beds plus 16 already approved, for 64 total. A nearby operator with two 12-bed homes already built has applied for 12 more beds to support a third home, which would bring that campus to 36. Approvals are sequential, and Claborn is already working the CON for the second home while the first is under construction. If you are planning multiple phases, start the next application well before you need it.

The interior program follows the small-home logic: a large open central living area with the kitchen on it, so residents can walk up to the island and get coffee or a short-order breakfast at any hour. Across from that sits an activity room with double doors that close or open depending on the activity. There is an outdoor patio and a van for outings.

One budget item worth copying into your own pro forma: the city of Wentzville classified Thousand Springs Court as a city street, which triggered a requirement for city-grade streetlights at tens of thousands of dollars apiece. That was not in her plan. Municipal infrastructure conditions on a private-feeling subdivision street can add a six-figure line item you never underwrote.

The Team You Have to Hire Before You Can Open

Claborn is not in the medical field and does not pretend to be. She contracted around it. Before opening, she has under contract a licensed administrator and operator, Amy Hill, with more than 25 years of experience, and a director of nursing. On top of that she retained two consultants who are waiting for the go signal: one for marketing and one serving as an executive director consultant.

She also assembled an advisory board of people who have owned care homes or run senior placement businesses. Those are the people who tell you what a state surveyor actually looks for and how referrals really come in.

For an investor with no medical contacts, her sourcing advice is specific: start attending the senior resource team meetings in your area. She describes them as the senior living equivalent of a REIA. Administrators, directors of nursing, placement agents, senior move managers and specialty vendors all show up. It is the same networking motion you already run for contractors and lenders, pointed at a different industry.

Worth noting where the good operators come from. The administrator and director of nursing she is hiring are both leaving skilled nursing facilities owned by a roll-up buyer. They were being pressured weekly to fill empty beds while being told they could not hire additional staff. Operators in that situation are actively looking, and an owner who will actually fund staffing is a compelling pitch.

Build this bench while you are still in design, not after you have a certificate of occupancy sitting empty.

Underwriting, Payer Mix, and Lease-Up Reality

The pro forma on a project like this is more complicated than a single-family underwrite, and Claborn hands it to the partner running her capital stack rather than carrying it herself. That is a reasonable structure, but it does not excuse you from understanding what drives the number.

EBITDA is the one she names. Buyers of these assets price off it, so salaries cannot be allowed to run away from you. On a 16-resident home where care staffing is the point of the model, that is a real tension: you are selling a low caregiver-to-resident ratio while protecting the earnings number a future buyer will underwrite.

Payer mix in her market is simple and worth stating plainly. The business is all self-pay. Assisted living in Missouri is newer and far less state-regulated than skilled nursing, which cuts both ways: less oversight, but also no government reimbursement stream supporting your rents. Memory care sits under assisted living in that same bucket. Rules differ by state, so verify your own before you model revenue.

On demand, Claborn cites the NIC report showing occupancy at 90.4%, up from the high 80s in prior quarters. She is explicit that the figure covers a region rather than residential assisted living specifically, so treat it as backdrop, not as your lease-up curve.

Her actual lease-up evidence is more useful anyway. A website and light marketing have produced a five-person waiting list before the first home opens, against a target of late first to early second quarter. Full marketing is deliberately held back until closer to opening. Eight committed residents would be half the first house.

Sequencing Four Homes and Funding the Build While Still Flipping

Homes one and two run together. Claborn pours the foundation on home two before home one opens, so the first residents are not living next to earth movers breaking rock. It sounds like a courtesy; it is actually a lease-up decision. Prospective families touring a home with excavation happening forty feet away do not sign.

The capital side is where she is most candid, and it is the part most single-family operators underestimate. She still rehabs to fund herself and holds about seven rentals. Several of her private lenders moved their money out of her flip deals and into the assisted living project when she offered it, so she has leaned harder on hard money for the rehabs. Her phrase for it: she shot herself in the foot.

The rehab income is not reliably covering the gap either. A recent flip she underwrote for $40,000 closed at $10,000 because the market shifted to a buyer’s market in the fall and her summer pricing strategy no longer worked. She paid her investors and kept moving, but a $30,000 miss on your funding engine while a multi-home build is drawing capital is a genuine squeeze. She is not taking distributions from the project; all funds go to construction.

Longer term she plans to franchise the four-home campus model with the education packaged into it. On that point she is unambiguous about sequence for anyone starting out: get the education and the coaching first, then go looking for property. She credits her coursework with stopping her from buying the Creve Coeur house.

Frequently asked questions

Is it cheaper to convert an existing large house into a residential assisted living home or build new?

In most markets, building new is close to the same cost or cheaper. When Claborn priced converting a large Creve Coeur, Missouri home sized for 12 to 15 residents, the retrofit came out almost as expensive as new construction. The two drivers were installing a full sprinkler system, which required tearing out finished space and putting it back, and adding enough bathrooms to serve the resident count, which meant extensive new plumbing.

On a ground-up build both systems go in during rough-in with no demolition and no rework. Conversions pencil better where the housing stock cooperates, such as the large single-story ranches without basements common in Phoenix.

How many residents can one residential assisted living home support?

It depends on your state’s bed approval process and the size of the building. Claborn’s homes are 8,750 square feet each and house 16 residents, with memory care mixed into the assisted living population. Other operators in her county run 12-bed homes.

In Missouri the count is governed by Certificate of Need approvals. Her campus is built on 48 beds plus 16 already approved, for 64 total across four homes. Check your own state’s licensing and bed approval rules before you fix a floor plan.

Do you need to be a medical professional to own a residential assisted living home?

No, but you have to contract the licensed people before you can operate. Claborn is a rehabber with no medical background. She holds contracts with a licensed administrator and operator with more than 25 years of experience and with a director of nursing, and she retained a marketing consultant and an executive director consultant on top of that.

She also built an advisory board of people who have owned care homes or run senior placement businesses. The ownership role is capital, land, construction and assembling that team.

Is residential assisted living self-pay or covered by government programs?

In Claborn’s Missouri market it is entirely self-pay. Assisted living there is newer and receives much less state attention than skilled nursing, which the state regulates heavily. Memory care falls under the assisted living category as well.

That means your revenue model rests on private-pay rates with no reimbursement backstop. Payer rules vary significantly by state, so confirm how your own state treats assisted living before you build a pro forma around it.

Where do you find a licensed administrator or director of nursing for an assisted living startup?

Start going to the senior resource team meetings in your market. Claborn describes them as the senior living version of a REIA, attended by administrators, directors of nursing, placement agents and specialty vendors serving seniors.

Also look at operators working inside roll-up-owned skilled nursing facilities. The administrator and director of nursing Claborn is hiring both came from facilities where they were pressured weekly to fill beds while being blocked from adding staff. Those people are looking.

The bottom line

Before you shop for a building, price the two scenarios side by side in your own market and find out whether entitled senior-living land exists near you and what it costs today, because that single comparison will tell you whether your project is a conversion, a ground-up build, or not a deal at all.