How to Start a Group Home: A Step-by-Step Guide
Thinking about opening a group home? It can be one of the most rewarding businesses you will ever run. You provide safe, affordable housing for people who need it, and you build steady monthly income at the same time.
I'm Felicia Edelman. I have been a California real estate attorney for 25 years, and I spent 15 years running group homes. With my husband, Uncle Dave, I built a shared housing business with 17+ homes and 200+ beds. This guide walks you through the same steps we followed, and the mistakes to avoid along the way.
Prefer to read it offline? Download the free PDF guide with all 10 steps, checklists and a sample budget.
What is a group home?
A group home is a house where several unrelated people live together and share the kitchen, living areas and often bedrooms. Each resident pays for a bed or a room instead of renting the whole house. Common types include:
Sober living homes for people in recovery from addiction
Transitional housing for people leaving homelessness, jail or prison, or treatment
Independent living homes for adults who can live on their own but need affordable rent
Co-living and shared housing for students, workers, seniors and veterans
Licensed care homes that provide care or supervision, such as homes for the elderly, people with disabilities or youth
Step 1: Decide what kind of home you will run
Your first decision is the biggest one: will your home be licensed or unlicensed? As a rule of thumb, if you provide care or supervision, such as help with daily living, handing out medication, or treatment services, most states require a license. If you provide housing, house rules and a supportive environment, many homes operate without a care license.
Rules are different in every state and city, so check with your state licensing agency and your city planning department before you open. Most of the operators I coach run unlicensed shared housing, because it is faster to open and costs less to run.
Step 2: Choose who you will serve and who pays the rent
Pick the population you want to serve, then figure out where the rent money comes from. Group homes are usually paid by:
Residents themselves from a job, savings or family support
Residents' benefits, such as SSI or SSDI
Agencies and programs that refer clients and pay rent for them, such as reentry programs, treatment centers, veterans programs and homeless services
Contracts and grants, which usually require a nonprofit
Knowing your payers early shapes everything else: your location, your house rules, your paperwork and your marketing.
Step 3: Set up your business
Pick your structure. An LLC works for most for-profit homes. If you want grants and government contracts, you will likely need a nonprofit with 501(c)(3) status.
Get an EIN from the IRS and open a separate business bank account.
Get insurance. At minimum, general liability and property coverage that fits a shared housing use. Tell your agent exactly how the house will be used.
Set up simple bookkeeping from day one so you always know your income, expenses and profit per bed.
Step 4: Run the numbers before you sign anything
Do the math before you sign a lease or buy a house. Add up your monthly costs: rent or mortgage, utilities, internet, insurance, food or supplies if you provide them, a house manager, and repairs. Then multiply the rent per bed by the number of beds you can realistically keep full.
Plan for start-up costs too: deposits, beds and furniture, linens, kitchen supplies, cleaning supplies and smoke detectors. Never build your budget on 100% occupancy. Leave room for empty beds while you fill the house. You can read more in Can I Make Money With a Shared Housing Business?
Step 5: Find the right property (you don't have to own it)
Many of our homes were leased, not owned. You can lease a house with the owner's written permission to use it as shared housing, sign a master lease, or partner with an investor who owns the property. Learn more in You Don't Have to Own a House to Start a Group Home and Should You Buy or Lease Your Group Home?
When you look at houses, check:
Bedrooms and bathrooms. More bathrooms make a house much easier to fill and manage.
Location. Close to public transportation, jobs and services your residents need.
Local rules. Some cities limit how many unrelated people can live together or require registration. The federal Fair Housing Act protects people with disabilities, which can include people in recovery who are not currently using illegal drugs.
The owner. Be honest about how you will use the house, and get permission in writing.
Step 6: Put your paperwork in place
Your documents protect you, your residents and your business. Before your first resident moves in, have:
A resident application and screening process
A written resident agreement with clear house rules
Intake procedures for new residents
A grievance policy and a fair, written process for asking someone to leave
Rent receipts and a rent tracker
Chore lists and house manager procedures
A clear resident agreement matters more than anything else. Every document in our Entire Library of Documents was written by me, an attorney, from what worked in our own homes.
Step 7: Furnish and set up the house
Residents and case workers judge your home in the first minute. Keep it clean, safe and simple: sturdy beds, fresh linens, a stocked kitchen, working smoke and carbon monoxide detectors, a fire extinguisher, and the house rules posted where everyone can see them.
Step 8: Fill your beds
An empty bed earns nothing. The most reliable referrals come from people who place clients every week:
Case workers and social workers
Treatment centers and detox programs
Hospital discharge planners
Probation and parole officers and reentry programs
Veterans programs and homeless service agencies
Visit them in person, leave a simple flyer, and answer your phone like a professional every time. Post your rooms online too. If you need help filling beds, book a private marketing coaching session.
Step 9: Run it day to day
A profitable home runs on systems, not on you being there 24/7. Hire or appoint a house manager, hold a weekly house meeting, collect rent on the same day every month, inspect the house regularly, and keep written records of everything. Good systems are what let you open your second and third home.
Common mistakes to avoid
Signing a lease before you know your local rules and your numbers
Using a generic rental lease instead of an agreement written for shared housing
Taking anyone who calls because you are nervous about empty beds
Running the house without a manager or written rules
Mixing personal and business money
Get help starting your group home
You don't have to figure this out alone. Here is how I can help:
Download the free PDF guide to keep and print
Book a free 15-minute call to talk about your plans
Work with me one-on-one through my coaching programs
Get every document you need in the Entire Library of Documents
Join our community of operators on Skool
This article is general information, not legal advice. Laws for group homes vary by state and city. Check with your local agencies or an attorney in your state before you open.
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