Financial Management Guide for Sober Living Homes

Rent Collection Best Practices

Setting Rent Collection Policies

Establishing clear rent collection policies is essential for financial stability and resident expectations.

Key Policy Elements:

• Clearly state the rent amount, due date, and acceptable payment methods in writing
• Include policies in the resident agreement signed at move-in
• Post payment policies in common areas for visibility
• Review and update policies annually based on operational experience

Affordability Guidelines:

• Aim to price rent at or below 50% of the area's median rent
• Compare rent against entry-level job wages in the community
• Keep rent low enough so residents can focus on recovery without financial strain

Payment Methods to Accept

Traditional Methods:

• Cash
• Personal checks
• Money orders

Digital Payment Options:

• Credit and debit cards
• ACH bank transfers
• Mobile payment apps (Venmo, Zelle, Cash App, Apple Pay)
• Online bank transfers

Best Practice: Accept multiple payment methods but encourage digital/card payments for better tracking and reduced collection issues.

Due Dates and Grace Periods

Standard Due Date: The 1st of every month is the standard rent due date in the U.S.

Payment Schedules:

• Monthly: Most common, due on the 1st
• Weekly: Helps break rent into smaller, manageable amounts
• Bi-weekly: Alternative for residents paid every two weeks

Grace Periods:

• Generally range from 3 to 5 days
• Can extend up to 15 days past the rent due date
• Grace period is NOT an extension of the lease; it is a window to pay late without penalty
• State laws vary: Massachusetts requires 30 days before late fees; Florida has no statutory grace period

Recommendation: Offer a 3-5 day grace period to allow for payment processing while maintaining accountability.

Late Fee Policies

Typical Late Fee Structure:

• Common late fee: 5% of monthly rent
• Flat fees range from $25-$100 depending on location and rent amount
• Some states cap late fees by law

Sample Policy:

• Rent due: 1st of the month
• Grace period: Through the 5th
• Late fee applied: 6th of the month
• Amount: 5% of monthly rent or $50, whichever is greater

Handling Delinquent Accounts

Collection Steps:

1. Day 1 past due: Friendly reminder via text/email
2. Day 5: Late fee applied, formal written notice
3. Day 10-14: Phone call to discuss payment plan options
4. Day 15-30: Written warning of potential discharge
5. Day 30+: Formal collection or discharge process begins

Payment Plans:

• Offer payment arrangements for residents experiencing temporary hardship
• Document all arrangements in writing
• Set clear deadlines and consequences for non-compliance

Eviction Considerations

Legal Requirements:

• Sober living houses are subject to landlord/tenant laws
• A landlord cannot change locks or shut off utilities without proper legal process
• Eviction typically requires proper written notice, often 30 days unless lease terms specify otherwise

Fair Housing Protections:

• The Fair Housing Act and ADA protect individuals in recovery
• Cannot discriminate based on disability status (substance use disorder is considered a disability)
• Evictions must be based on lease violations, not recovery status

Fee Structures and Pricing

National Average Rent Ranges by Region

Pricing by Level of Support (NARR Levels)

What to Include in Rent vs. Charge Separately

Typically Included in Base Rent:

• Shared bedroom accommodation
• Basic utilities (electric, gas, water)
• Internet/Wi-Fi access
• Common area access (kitchen, living room, laundry)
• Basic furnishings (bed, dresser)
• Routine drug and alcohol testing

Often Charged Separately:

• Private room upgrade (typically 30-50% premium)
• Meals/food (if provided): $100-$400/month
• Transportation services: $50-$300/month
• Additional drug testing beyond routine
• Specialty programming

Move-In Fees

Security Deposit:

• 31% of FARR-accredited homes require a security deposit
• Range: $25-$2,500, with $352 average and $200 median
• Returned within 30 days after move-out, less deductions

Administrative/Intake Fee:

• 63% of FARR-accredited homes charge an administrative fee
• Range: $25-$975, with $197 average and $160 median
• Non-refundable

Total Move-In Budget Example:

How to Set Competitive Pricing

Market Research Steps:

1. Survey 5-10 comparable homes in your area
2. Note their pricing, services, and amenities
3. Identify what differentiates your home
4. Price within the local market range

Competitive Positioning:

• Budget-focused: Match lowest local prices, minimal amenities
• Mid-market: Average pricing, solid services, good value
• Premium: Higher pricing, enhanced services, nicer facilities

Sliding Scale and Financial Assistance

What is Sliding Scale Pricing

Sliding scale pricing adjusts fees based on a resident's ability to pay, typically tied to income level. This model helps make recovery housing accessible while maintaining operational sustainability.

How to Implement Sliding Scale

Step 1: Establish Base Rate and Floor

• Set full market rate as the baseline
• Determine minimum fee to cover per-resident costs (typically 50-70% of base rate)

Step 2: Create Income Tiers

Step 3: Documentation Requirements

• Pay stubs (last 30 days)
• Tax returns (if self-employed)
• Benefits statements (SSI, SSDI, unemployment)
• Signed income verification form

Scholarship Programs

National Scholarship Programs:

Curran's Calling:

• Up to $750 for move-in costs and/or room and board
• Additional $500 after completing 30 days in the program

Herren Project Recovery Housing Scholarship:

• Financial assistance for rent at a vetted sober house
• Seven-week period coverage
• Recovery coaching mentors available

Face Addiction Now:

• Sober Living Scholarships for those who completed treatment
• Helps cover initial housing costs

Power Forward (Massachusetts):

• First three to six weeks of sober housing covered
• Currently available in Massachusetts only

Third-Party Payer Options

• Family Members: Common payers; establish clear billing and communication protocols
• Treatment Centers: Many refer and pay for initial housing; coordinate through case managers
• Employee Assistance Programs (EAP): Employer-sponsored plans may include coverage
• County/State Programs: Recovery Voucher programs in some states

Grant-Funded Bed Subsidies

HUD Recovery Housing Program (RHP):

• $30 million program providing grants to states
• Funds stable, transitional housing for individuals in SUD recovery
• Reauthorized through FY 2030

SAMHSA State Opioid Response (SOR) Grants:

• $1.575 billion allocated for 2026
• $43 million in supplemental funding for youth recovery housing (ages 18-24)
• Supports recovery housing expansion

Accounting Basics for Operators

Chart of Accounts for Sober Living Homes

Assets (1000-1999):

• 1000 - Cash/Checking Account
• 1100 - Accounts Receivable
• 1200 - Security Deposits Held (Asset)
• 1300 - Prepaid Insurance

Revenue (4000-4999):

• 4000 - Resident Rent - Private Room
• 4010 - Resident Rent - Shared Room
• 4100 - Administrative/Intake Fees
• 4300 - Late Fees
• 4600 - Grant Revenue

Expenses (5000-5999):

• 5000 - Rent/Mortgage
• 5100 - Property Insurance
• 5200-5230 - Utilities
• 5300 - Repairs and Maintenance
• 5500 - Drug Testing Supplies
• 5800 - Staff Wages/Salaries

Monthly Financial Statements Needed

1. Income Statement (Profit & Loss): Shows revenue, expenses, and net income/loss for the period
2. Balance Sheet: Shows assets, liabilities, and equity at a point in time
3. Cash Flow Statement: Shows cash inflows and outflows; critical for managing liquidity
4. Accounts Receivable Aging Report: Shows outstanding balances by age (current, 30, 60, 90+ days)
5. Occupancy Report: Beds available vs. occupied, revenue per available bed

Cash Flow Management

Best Practices:

• Keep sober living finances separate from other operations
• Maintain separate bank account for the sober living entity
• Review cash position weekly
• Project cash flow month-by-month

Managing Cash Flow Gaps:

• Build a reserve fund for slow periods
• Stagger major expenses when possible
• Negotiate payment terms with vendors
• Consider a business line of credit for emergencies

Accounting Software Options

Recommendation by Size:

• 1-2 homes, simple operations: Wave (free) or sober living-specific software
• 3-5 homes, growing operations: QuickBooks Simple Start or Xero Early
• 6+ homes, complex operations: QuickBooks Plus/Enterprise or Xero Growing

Tax Considerations

Nonprofit vs. For-Profit Tax Implications

For-Profit Sober Living Homes:

• Subject to federal and state income taxes on profits
• Can be structured as sole proprietorship, LLC, or corporation
• No access to tax-deductible donations
• Simpler to establish and operate

Nonprofit (501(c)(3)) Sober Living Homes:

• Exempt from federal income tax on related income
• Eligible for tax-deductible donations
• Access to government grants and foundation funding
• More regulatory requirements and oversight

501(c)(3) Requirements and Reporting

Obtaining 501(c)(3) Status:

1. Form a nonprofit corporation in your state
2. Obtain an Employer Identification Number (EIN) from the IRS
3. Apply for federal tax-exempt status via Form 1023 or 1023-EZ
4. Apply for state tax exemptions as applicable
5. Register for charitable solicitation in states where you fundraise

Ongoing Compliance Requirements:

• File Form 990 annually (990-N for small organizations)
• Failure to file for three consecutive years results in automatic loss of tax-exempt status
• Maintain independent board of directors
• No private inurement (profits cannot benefit insiders)

Employment Taxes

W-2 Employees (House Managers, Staff):

• Withhold federal income tax from employee wages
• Withhold employee's share of FICA (7.65%)
• Pay employer's share of FICA (7.65%)
• Pay Federal Unemployment Tax (FUTA) - 6% on first $7,000 of wages
• Pay State Unemployment Tax (SUTA) - rates vary
• File Form 941 quarterly, Form 940 annually
• Issue W-2s by January 31

1099 Independent Contractors:

• No withholding required
• Issue Form 1099-NEC by January 31 for payments of $600+
• Ensure proper classification (IRS scrutinizes misclassification)

Worker Classification Warning: House managers who work regular schedules under your control are likely W-2 employees, not 1099 contractors. Misclassification can result in penalties, back taxes, and interest.

Budgeting and Financial Planning

Creating an Annual Budget

Step 1: Estimate Revenue

• Calculate maximum occupancy revenue: (# beds) x (rent) x 12 months
• Apply realistic occupancy rate (budget for 80%, not 100%)
• Add secondary revenue (fees, grants, donations)

Step 2: Estimate Fixed Expenses

• Rent/mortgage
• Insurance
• Base utilities
• Loan payments
• Software subscriptions
• Staff salaries (if applicable)

Step 3: Calculate Break-Even

Total fixed costs / (rent - variable cost per resident) = break-even occupancy

Example: $5,000 fixed costs / ($800 rent - $100 variable) = 7.1 residents to break even

Sample Annual Budget (8-Bed Home, Moderate Market)

Key Financial Metrics to Track

Occupancy Rate:

• Target: 80-90%
• Calculate: (Occupied beds / Total beds) x 100
• A +10% occupancy increase can add $800-$1,000/month to profit

Turnover Rate:

• How often residents leave
• Lower turnover = more stable revenue
• Average length of stay: 3-9 months

Payment Arrears:

• Percentage of residents behind on rent
• Target: <10% of revenue in arrears

Profit Margin:

• Recovery housing typically generates 20-30% profit margins
• Calculate: (Net Income / Revenue) x 100

Reserve Fund Recommendations

General Guidelines:

• Aim for a reserve covering at least 3-6 months of operating expenses
• Set aside surplus from profitable months
• Target 10-15% of monthly revenue
• Keep in separate, accessible savings account

What Reserve Covers:

• Unexpected vacancy periods
• Major repairs or emergencies
• Bridge funding between grant periods
• Seasonal revenue fluctuations

Example Reserve Target:

• Monthly operating expenses: $5,600
• 3-month reserve: $16,800
• 6-month reserve: $33,600

Growth Planning

When to Expand:

• Sustained occupancy above 90% for 6+ months
• Waiting list of potential residents
• Strong cash reserves built
• Proven operational systems

Growth Options:

1. Add beds to existing home (if zoning allows)
2. Open additional homes in same market
3. Expand services (higher level of support)
4. Geographic expansion to new markets

Financial Considerations:

• Each new home requires startup capital
• Budget for 3-6 months of negative cash flow during ramp-up
• Diversify revenue sources before expanding
• Maintain strong occupancy in existing homes