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Drug Rehab Investing: What Investors Need to Know Before Getting into the Business

Drug rehabs are popping up everywhere, and although it is relatively easy to buy or start a rehab center, making it profitable and sustainable is a lot harder.

To make sure that your investment in the drug and alcohol treatment industry is a success, you need deep industry knowledge. You need to find out what you don’t know.

At Addiction-Rep, we’re experts in building and growing successful rehab businesses, from finding the right facility, to staffing, to dealing with insurance, to marketing and sales.

With all of the competition out there, only the best will survive, and you have to be able to hit the ground running. We’ve worked with hundreds of rehabs of all sizes and types, so we know from firsthand experience what works, what doesn’t, and why.

And of course the market is always evolving, so count on Addiction-Rep to keep up with those changes because this is what we live and breathe every day.

Frequently Asked Questions About Rehab Investing

This is a very specialized niche, so investors can’t afford to go in not knowing the ins and outs of how to make a rehab center profitable. There are dozens of decisions to make before you invest a single dollar.


We’ve compiled some of the most frequently asked questions we hear from investors looking into this industry. Click on any question below to see our answer.



Should I open an inpatient rehab, or outpatient rehab, or both?

In a perfect world, it is helpful to offer multiple levels of care. However, if you are buying a rehab facility, some places are strictly set up as either inpatient or outpatient. If that is the case, there would be no reason to change the levels of care until you have seen many months or a year of success.

From a marketing standpoint, it makes sense to have multiple levels of care. You will receive inquiries and calls for interventions, detox, outpatient, inpatient and aftercare. Ideally, you would want to place these individuals in your facility rather than someone else’s. The big challenge is to be able to manage all of these levels of care, and do so effectively.

Should I build or buy a rehab?

As with most business decisions, the answer to this question depends a great deal on the specific circumstances. However, generally speaking, whatever will get you up and running quickly and without tying you down more than necessary is your best bet.

Buying land and building from the ground up is very costly, and there’s no guarantee you will get your money back if insurance companies don’t reimburse you at the rates you expect.

In fact, rather than building or buying, I usually advise my clients to find an appropriate property to lease, and put an option to buy into the contract. This gives you a quick way out if things don’t go as planned, and the opportunity to buy the property if you determine it is going to work for you in the long term.

For more insight into making smart property decisions, read this article on the Top 10 Drug Rehab Real Estate Insights to Follow.

Where should I buy a rehab? Florida, California or some other state?

The answer to this question is, “It depends.” Many people (both addicts and businesses) are drawn to the sunshine states of California and Florida. I personally would look at the business opportunity, and not geography, as the determining factor when deciding to buy.

At the same time, if I live in California and don’t want to travel to Kansas every week, it would make sense to stay in California. In 2017, Florida drug rehabs have been under heavy scrutiny from the state attorney’s office for patient brokering and fraudulent testing practices.

I would be cautious about opening up in The Sunshine State at the moment, because even if you are legitimate, you’re going to have many hoops to jump through.

What prices do rehabs typically sell for?

There are two ways that people value businesses: One is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and valuing on a multiplier of the EBITDA. If the business is making $1 million, it might be able to see a return of 3 to 5 times the EBITDA.

Another way that Wall Street values treatment centers is using a “per bed” pricing method while also factoring in the EBITDA. A rehab facility can sell from $100,000 per bed up to $2 to 3 million per bed, and there are many factors that go into the calculation of these values – too many to be listed here.

What is the right-sized rehab?

To answer this question, you have to ask yourself:

  • What does my exit strategy look like?
  • Do I wish to sell the rehab after three to five years?
  • Or do I want to add additional facilities under the same brand?
  • Am I looking for a long-term play and plan to sell 10 years down the road, or do I just want to own a six-bed facility?

So the answer to this question is if your strategy is to sell the treatment center at some point, we recommend you enter into the rehab business with 20-plus beds, if it is an inpatient facility. The reason we recommend so many beds is for economy of scale.

We know that investors down the road will be looking for larger headcount facilities because more and more rehabs will be going “in network” with insurance. And what that means is lower reimbursement rates.

What is the best reimbursement type: in-network, out-of-network or cash pay?


That is a good question. Again, it depends! Out of network has the highest reimbursement rate; however, more investors are looking to buy rehab centers that are “in network” with the insurers because the insurance companies do not want to pay the out-of-network rates.

Cash pay is great, but usually people do not have the funds and so reimbursement is usually less than an insurance company payment.

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Use Our Industry Expertise to Set Your Rehab Investment Up for Success

Addiction-Rep was founded by Jim Peake so that investors and rehab owners alike could benefit from the wealth of industry experience he gained while helping his clients succeed in this unique industry.

The rehab space is a very tight-knit community. Jim is highly connected with the right people in the industry to help clients who are seeking to buy a facility or better market their existing treatment center.

Addiction-Rep can help with:

  • Advising on whether this type of investment is likely to meet an investor’s goals
  • Connecting rehab owners and investors who are ready to buy or sell
  • Writing drug rehab business plans and pro formas
  • Partnering investors with marketing agencies that are experts in the rehab industry

Bottom line: We help you understand the most important factors in buying and growing a successful drug rehab business, and we introduce you to the key industry players you’ll need to be successful.

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How to Get Started in Rehab Private Equity

There’s a lot to know to be successful in the rehab industry, but here are a few key areas in which you can get started.

1. Plan to Start with One Facility – Even if your goal is to invest in 20 drug rehab centers, start with one first to get to know the business, then scale what works. Trying to do too much at once is a recipe for disaster.

2. Get Educated and Do Your Homework – You’ll need to understand the legal and health insurance requirements for your state. You’ll also need to learn about zoning and licensing, HIPAA compliance, real estate requirements, staffing and what type of marketing can keep the beds filled.

3. Start Building Your Team Now – As with all businesses, the team is just as important as the investment itself. Start making connections with key players and experts now, so you’ll be ready to move quickly when the time is right.

4. Plan on a Big Marketing Budget – Because there’s a lot of competition in this space, you can’t afford to skimp on the ad budget. Having a marketing partner who knows this industry well will also go a long way toward making sure that your money is spent wisely.

Still Want to Move Forward?

If we haven’t scared you off yet, then it’s time to talk. Send us some basic info about your investing goals and questions you have, and we’ll set up an initial consult with Jim.

Jim PeakeKind Regards,

Jim Peake
President, Addiction-Rep
781-405-5815

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