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Look Before You Leap: The Truth about Level II Recovery Residence Profitability

The reality is that Level II Recovery Residence operators (recovery landlords) rarely breakeven renting two beds per room to 8 people in a 4/2 house. At first glance it looks very profitable: $195 per bed weekly x 8 beds = $1,560 x 4.33 weeks per month appears to generate a very healthy gross revenue of $6,755 monthly. However; several facts missing from this equation.

  1. Residents are often homeless, jobless and flat broke when they arrive at the front door of a Level II recovery residence. The operator (landlord) voluntarily takes on the responsibility to support them until their first paycheck. This support comes directly out of the operators own pocket. It often requires as much as 45-60 days for that resident to transform into a “paying tenant”.
  2. Someone onsite (senior resident) is generally provided free use of one of the bedrooms in exchange for assuming some of the “monitoring” responsibilities. We’re now down to the potential for six paying tenants when all those residents are employed, clean and sober participants in their recovery.
  3. To ensure that remains the case, there is a monthly cost of somewhere in the neighborhood of $300-$500 for drug screening tests which is generally absorbed (and administered) by the operator. Add to this expense the cost of general liability insurance. Operators new to this space are frequently surprised to discover that the standard homeowner’s policy is grossly inadequate as coverage for a recovery residence. Dollars are not the only cost consideration. The operator often acts as a chauffeur for residents who need transportation to doctor appointments and other time-sensitive commitments. Conducting weekly house meetings is yet another necessary time investment. Operating a Level II Recovery Residence isn’t an absentee landlord opportunity. It requires hands-on participation.
  4. Quality operators must evict even paying tenants for certain rule violations (primarily relapse into active addiction, theft or violence). Taking whatever steps are necessary to maintain a healthy environment is a commitment the operator makes to all residents at intake. Generally; it’s prudent to assume at least one vacant bed when forecasting revenue. I’ve personally witnessed instances wherein the operator was forced to evict all their tenants and rebuild the community over a period of three months. This is a very real financial challenge that often tests the operator’s integrity. Maintaining an alcohol & drug free environment when operating on a financial shoestring is simply not possible. Operators who enter this space must have adequate financial reserves. Imagine having to evict employed, paying tenants for cause when the remaining tenants have yet to assume responsibility to carry their own weight. Justification & rationalization can enter the operator’s decision matrix due to harsh financial realities and influence the operator to “make an exception in just this one instance”. That decision nearly always produces negative results in a community comprised of persons in early recovery. Frequently; it guarantees more tenants will relapse and those who don’t will move elsewhere in order to protect their own recovery.
  5. Residents who remain sober for six to twelve months while residing in a Level II program are typically ready to “transition onto the next phase of their lives”. By choice and with purpose, Level II operators encourage these long-term residents to spread their wings and fly; thus exchanging a stable, paying tenant for an unstable, unemployed, non-paying tenant. Clearly; this is not a successful business formula. However; it is a highly successful formula for building an effective Recovery Support Program. It’s for this reason that many Level II programs are non-profits. The ideal “business model” for a level II is structured in such a way that the principle operator purchases the property independently, then leases it to their 501c3 to operate as recovery residence. Fundraising is utilized to cover operational shortfalls, including payroll for credentialed staff who focus on improving outcomes for the population served. Twenty years down the road, the operator may elect to “cash out” their initial investment in the real estate. No one gets rich doing this work; but they do receive many altruistic rewards and the real estate can serve as a kind of “retirement plan”.

FARR applauds those who choose to make Level II Support their life’s work. It’s a noble endeavor that restores lives and gives hope to many families. For those intimately familiar with the daily grind of this mission, it is certainly not an appropriate calling for the weak of heart. You will attend far too many funerals of people for whom you grew fond. You will do what you can to console grieving Moms, Dads and siblings. Often the very people you serve will defiantly rebel against your efforts to help them gain freedom from the addiction that enslaves them. People you seek to help will abuse that relationship and cause you harm. Then there will be those “moments” that erase all heartaches instantly. Moments when a former resident drops by to show you their Master’s Degree and thank you for playing an important role in restoring their future. The Christmas card from a Mom who included a photo of her new grandchild whom she considers a gift you helped make possible. That incredible moment when you witness one of the previously most defiant residents genuinely sharing with the new guy why it’s so important to comply with house rules for the health of the entire community. These rewards are not accepted for deposit by your bank, but they are, without question, the most valuable.