Understanding Occupancy and Revenue in Care Homes

Introduction

If you own or are considering buying a Residential Care Home, two numbers will define almost every financial conversation you have: occupancy and revenue. They are deeply connected — but they are not the same thing, and understanding the distinction matters enormously when it comes to valuing a home, preparing it for sale, or evaluating it as a purchase.

What Is Occupancy?

Occupancy refers to the percentage of available beds that are filled by residents at any given time. A 10-bed CHO home with 9 residents is operating at 90% occupancy. Full occupancy — all beds filled — is the operational ideal, and it is what buyers and lenders want to see.

High occupancy tells a buyer several important things: the placement agency actively uses and trusts the facility, the home meets the standards required for resident placements, and the operator is running the business effectively. Chronic vacancies, by contrast, raise questions that a buyer will want answered before they proceed.

In CHO homes, occupancy is largely managed by the designated service provider — residents are placed by the agency, not recruited by the owner. This means a well-run CHO home with a strong agency relationship should, in most cases, maintain near-full occupancy consistently.

What Is Revenue — and How Is It Structured?

Revenue in a care home comes from one or more sources depending on the type of home:

• Government-funded beds (CHO/HWS): Rent and care fees paid directly by the service provider or municipality to the homeowner on a monthly basis. The rate is set by the funding body and is consistent and predictable.
• Private-pay beds: Fees paid directly by residents or their families. These are typically higher per bed than government rates, but they carry more market risk — vacancies affect revenue directly.
• Mixed revenue homes: Some homes operate with a combination of funded and private-pay beds. The funded beds provide a revenue floor; private-pay beds offer upside.

The Pro-Forma: How Revenue Is Presented to Buyers

When a care home is marketed for sale, the financial case is presented in a pro-forma — a structured summary of annual revenue and expenses. A typical pro-forma for a CHO home looks like this:

• Revenue from CHO beds (e.g. 10 beds × government rate)
• Revenue from private-pay beds (e.g. 2 beds × private rate)
• Total Revenue
• Variable Expenses: food, wages and salaries, utilities
• Fixed Expenses: property tax, maintenance, insurance, general and admin, supplies
• Total Expenses
• EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)
• CAP Rate (EBITDA ÷ Asking Price × 100)

The CAP rate is the single most important metric buyers and lenders use to assess value. A CAP rate of 8–12% is generally considered healthy in the Ontario RCH market — the higher the rate, the stronger the return on investment relative to the asking price.

What Affects Revenue — and How to Protect It

• Vacancy: Empty beds mean lost revenue. Maintaining occupancy through a strong agency relationship is the best protection.
• Rate reviews: Government funding rates are periodically reviewed and adjusted. Understanding when rates were last updated and whether an increase is anticipated can affect how the pro-forma is interpreted.
• Expense creep: Rising staffing costs, insurance premiums, and utility rates all compress margins over time. Owners who manage expenses carefully preserve their EBITDA and maintain a strong CAP rate.
• Undocumented income: Revenue that is not properly documented — even if real — cannot be used in a pro-forma. Buyers and lenders can only rely on figures that are supported by records.

Why This Matters When You Are Selling

A well-documented, well-maintained revenue record is one of the most powerful tools a seller has. It gives buyers confidence, satisfies lender requirements, and supports a realistic asking price. Sellers who have kept clean financial records throughout their ownership are in a significantly stronger position than those who have not.

If you are thinking about selling and your financial records are not as organised as you would like, the time to address that is now — well before the sale process begins. I work with sellers to ensure the financial picture presented to buyers is accurate, credible, and as strong as possible.