Inside the Assisted Living Model That Nets $40K/Month

0:00So we were looking into it for no joke probably almost two years before we pulled the trigger because everything that I was being told as here is the path was not making sense in my mind. And regarding the path right what I saw was was two options. You had the big smelly facilities right like 60 beds 100 bed big corporate. Yeah. And then you had these small little owner operated ones where they buy a house and convert the garage and have like six beds or eight beds. And that was what I was told like, "Hey, go do that.

0:32You can make, you know, $10,000 a month and you can scale this all over." And I'm like, "Okay, cool." That sounded awesome. I was really intrigued by that. But then I started learning more and diving into it. I'm like, "Okay, well at 5,000 bucks, you know, a a person times six rooms, I got 30 grand, which is great." Okay. And then I started adding up 24-hour care and overtime and chef and a manager and everything. And I'm like, well, I just added everything up and it's more than 30,000 in expenses. I'm like, how is this supposed to work, right? What happens when one of these ladies die, right?

1:03Like that happens. And so I'm like, ah man, I don't see how this is is going to math out. And so we drove our feet on it trying to figure this thing out. And I would say that what we pioneer now, I would say, is a different model. And we call them assisted living mansions. And the niche of it is that we offer all of the same care and amenities that you could get at a big smelly facility, but we do it in a custombuilt 10,000 foot mansion. Everyone's got their own private rooms. They have our own private bath. We have a chef. We have a salon. We do memory care.

1:34We have hospice nurse, doctors. Everyone comes in and and takes care of our our grandmas and grandpas in this big gorgeous home. And so with that in mind, our pricing is pretty high, right? We're we're in the $8 to $10,000 a month range. And because of that, we can therefore have all of the income to afford all of the expenses for managers and all of the things that really give myself and my wife the time freedom we want because now we we we scale this and I mean we work probably 2 to four hours in our business and that wasn't you know like initially right off the bat, right?

2:15We spent a good year building out our team and our systems and everything like that, but just continue to pull further and further back. So, I would say that that that the deal structure of what you're going to do in this space is probably the most important because a lot of the times people jump into this because, you know, everyone's talking about, hey, this is the biggest opportunity. You have all these baby boomers were short, you know, half a million beds for end of life care, so I should get into it. But if you do a small deal, the expenses are greater than the income potential and you're just stuck with a new job, right?

2:49You might have a real estate play, but you're a slave to your business. And so you you have to have the right, you know, structure for this. Got it. That makes a ton of sense. So what what's that tipping point in terms of number? Is it number of beds that or number of rooms that that you kind of calculate the where it does make sense or doesn't? Yeah, it it's secondarily number of rooms cuz really the biggest thing is your income, right? So, I think that I I love the number around 120,000 $120,000 a month of of topline income and then everything will pencil from there, right?

3:25I can have my staffing which is about 40k. I can have my my mortgage and and PITI which is about 20. I can have all my opex stuff about 20 and then it will leave a net profit of about 40. You can also do it with, you know, at least a hundred 100 grand. So, I guess with that in mind, if we're at 16 residents times about $8,000 a month, even with vacancy, I can get to that topline number about 120 grand. And that's still that's like full-time two full-time managers, 247 caregivers, chef, all the things.

3:57And it gives me what I want most, right, which is my time freedom. Wow. And that includes all the food and everything that they're eating. They're they're eating that the 8,000 a month that each resident's paying. Okay. Yeah. Exactly. And does this Cool. Cool. Yeah. And and does this only work in certain areas because of that premium price point or or does this work across the country? Across the country. I don't know any state that it does not work in. And really where people get stuck on this is kind of two things.

4:28They get stuck first and foremost with the zoning and then with the license type. So, a lot of times people will be in a state and say, "Hey, you know what, Brett? I I can't do what you're doing because my state only allows me to do six beds." And I'd say that's that's not true at all. Right? In every single state, there is 60 bed facilities. Right? Brookdale's in every state, right? There is a zoning type that they can be in. Right? You're considering, "Hey, I'm going to buy a house and convert it." Well, that house is most likely residential zoning. And 99% of the time the city says no, you cannot do an assisted living that's business use in residential zoning.

5:05So that's really the first hurdle, right? Like just think bigger than that, right? Go do commercial, go do multif family, go do mixeduse, go and talk to planning and zoning and find out what are the appropriate zoning types that I can do this in. I've done places where all my buildings are either in a non-zoned area or I've bought an agricultural land and had it reclassified into commercial to do this kind of stuff. And so you can for sure do it in any city in any state. The second component why people get stuck and think they can't do a bigger deal is because of the license type.

5:40And state by state license types are different, but usually there's two different ways that that they'll classify you. It is either by size and they may say, "Hey, seven and above is a certain license type or 16 and above is a certain license type." You just go and do the bigger license type. Just because it has more hoops doesn't mean you shouldn't, right? Like don't be scared to do a profitable deal because there's more paperwork. Go and do a bigger better deal. Right? So that's one thing is by size or the other thing is really by level of care.

6:12There's kind of in assisted living, there's kind of beginning assisted living where you're there and you can take care of yourself and and you can, you know, egress by yourself in a fire and then you decline and you get to end of life care and that's really our niche that you're there the last stop. You don't move from us into a nursing home. People are here to pass in in my assisted living. And so what is that license type that allows you to take care of people all the way through end of life to have hospice and home health come into the building and provide those services.

6:45And the other component to it is memory care or dementia. We also do that. And honestly the need nationally is crazy. So many people are getting early Alzheimer's or dementia and it's a huge opportunity because it's a huge problem. There there is a lot of people that that need this kind of care. So modestly most of the calls that we get for potential residents are because they have memory care or dementia. And so what is that license hype that allows you to do that too?

7:17So in any place in the country you can get the right zoning and you can get the right license because the big facilities are in every city and every state and you just need to look hey what are they doing? Okay let me not be scared. Let me not think like a dinky little kind of deal. Let me do a bigger commercial deal. Yeah. Yeah. Yeah. And I I would imagine it's not that much more difficult to make it nice enough to justify the top tier pricing. You know, if you're already do going to the length of creating this facility, why not make it a premium facility?

7:51It makes a ton of sense, right? And and what what's the average time that a resident stays with you then if if it's, you know, designed toward end of life? Is it, you know, a few months that that typically is or a few years or what what does that look like? It's usually 2 years or so is kind of a median. There are some people they move in, it's just a couple months and and and that's not who we're trying to move in, but honestly, they're fragile and sometimes a cold or a flu or a fall and then, you know, they spiral and go downhill.

8:23But then there's on the opposite side, some some of our grandmas and grandpas and our our assisted living have been with us four or five years and they're not going anywhere. They're they're alive and kicking. But again, sometimes you get people who are in their mid70s with early dementia and they have a long 10 plus years of them before the disease fully catches up with them. Yeah. So, it's not like a hospice house, right? Like there's some of those terms kicked around where people are literally there to die like in the next couple weeks. That's not our model. At least half or more of our residents are on hospice and that's just a resource the state provides, you know, for us.

9:01That doesn't mean they're immediately about to to pass, but you can be on hospice for years and a lot of our people are on for years because they get extra state services. I see. Okay, that makes sense. And I'm I'm curious too, are you when you describe these facilities, are are you building most of these from scratch? And then what makes it a a mansion? Because that you don't typically hear assisted living and mansion together you know mansion is kind of like you think of like luxury like you know so is there something that qualifies it as that or what what does that look like?

9:35So that's our niche is we build new construction there each of our our mansions are 10,000 ft. There's 16 private rooms. They're they're large rooms. Huge ceilings, chandeliers, everyone has their own fireplace in their room. Full bathroom. We have a library. We have a garden room. We have a chef. We have a salon. Our our we have I mean our our vaulted ceilings are almost 20 foot high. It's just like glass wall. And so it's super elaborate and it's gorgeous. And it it literally is a mansion. You walk in and and that's what it feels like.

10:06And so we built out a neighborhood of these mansions. We bought 8 acres and we developed we we're halfway done so far. We built two of our four that we'll have on this neighborhood. And so there's no like red curb and parking lot, right? It doesn't look like a facility. You you look like you're in this private upscale community and we have this big green belt in the front and they're like the staff parking's hidden in in the back and so it looks like four next door neighbors with, you know, different roof colors, different stone on the outside, just four houses, right, with mailbox, front yard, all that kind of stuff.

10:37And so we just designed it to look residential even though it has all the bones of a commercial building. We have commercial fire suppression. We have the the fire suppression hood. We have commercial dishwashers. All this stuff. We checked all the wi the B bells and whistles. We had to. But then we wrapped it with a skin that looks upscale residential and and just made our site plan look like it's a little neighborhood instead of a big parking lot full of facilities. Wow. That's awesome.

11:09That that makes a ton of sense. I can see why that would be so much more inviting for a resident who's, you know, pulling up there as opposed to like more the institutional type look. So what what does it cost you to build one of these 10,000 foot facilities? And then where do you get the money for that? Yeah. So that's that's one of the awesome parts is we're building for about $3 million total development cost per building. And so I can break it down in this way. The the actual building itself costs about $2 million or about $200 a square foot and and then that's plus the land, right?

11:47And we bought 7.6 acres and then it's plus all the site work. So that's plus our our roads and infrastructure and utilities and all that kind of stuff. So when you take our our total project, we're we average out because we have four buildings to about 2.5 million per mansion on these things and then we went SBA and then so SBA will fund a lot of the soft cost as well. So they'll lend an extra several hundred,000 for your interest and your furniture and working capital, marketing dollars, all all of that.

12:20So really pretty much 80 we've been funded 85% of all of our capital. We just needed 15% even the working capital reserves. There's a couple hundred grand that we'll end up writing off the loan because we didn't use it. The the SBA funds a bunch of reserves and things. So appraisal came back at 6.1 million per building with that kind of broken down. They do an as complete appraisal and it's the real estate value which is 5.1 and then the operations business side came back at 1 million per building.

12:54So we're again about almost 50% of of build cost to the appraisal value. Wow, that's incredible. Yeah, and you mentioned SBA. So for those who don't know what that is, it's small business association. And those it's a governmentbacked loan and they're notorious for not funding real estate. I've gone down that path before and it's like, "No, you're real estate. Don't even talk to us," you know, and so how did you get them to play nice with you and fund all this?

13:30That is a great question. So SBA is perfect for this because we are first and foremost a business opportunity and that's what the SBA does. Is there for small businesses, for new businesses, for for startups. And that's essentially what we are. We are first and foremost a business opportunity that comes with a real estate play. And so as you are going through this loan, they are funding both sides of the deal. You actually will go and and sign Loan Docks as you know managing member real estate company and then right below it managing member operations company.

14:02So you get the fund, you you can do the deal because it's a business. And that allows you to have a much lower down payment than going and saying doing, you know, just a traditional commercial deal for real estate. They might do, you know, 20% down on a commercial deal, but it's just the real estate. No soft costs, no business costs, no working capital, anything like that. Where SBA will do 85 90% of the entire deal, both sides, the business and the operations.

14:34Wow. And so there's several banks that are national that are in this niche and really great at the assisted living space. And yeah, so it's it's an awesome deal because it really makes a deal like what we do, a $3 million project, for most people that's unattainable. That's just too much capital that they'd have to raise or they'd have to do a different deal structure, get into syndication, give away, you know, 80% of the deal. With our model, I mean, you can raise investor capital. You can still keep 85% of the deal, 85% equity in the real estate and operations because you just need three 400 grand as a down payment.

15:13The SBA is, you know, you you do this loan through a regular bank, right? But that bank is using the SBA program. And that program pretty much guarantees that if you screw this thing up, the federal government's program here, SBA, will cover up to 85% of of the bank's capital. So there's very little little risks. So I mean, honestly, if your appraisal comes back strong, then honestly, the bank has zero risk. And so because of that, they are much more open than most banks to do a deal like this where they're funding at such high leverage.

15:50Wow. Did Did you have to prove prior experience or anything? What's the qualifications for the SBA loan? Experience is important. So they want to know, I guess, kind of two sides to this. They want to know your experience and some banks value the medical side, right? You're a nurse, you're you've worked in hospice or something like that. Some banks value the business side, right? You may have had some other type of business, you may have run a preschool or something else, but you can manage cash flow and employees and all those kind of things.

16:23We find great success when we find a couple and you know, one's a nurse and one is, you know, some type of maybe an investor, real estate person or a business person. But you don't necessarily have to have both sides of it, but that is valuable. But usually the banks are looking for some type of applicable experience medical or business. And then the next part is they're looking at you personally. How do you look on paper? These kind of deals, they are awesome because they are cash flow-based deals.

16:55Meaning that first and foremost, they put everything into the performer and they'll spit out here is my profit. That's the bottom line right there. And then it goes back to probably a 1.2 1.25 25 debt service coverage ratio and we're at 89 $10,000 a month of topline income. Our profit's very very strong. So you can do these deals. You don't have to have a net worth of a couple million in order to do it. The bank does want to see that you have some assets that you have some capital saved. But this is not like a millionaire only kind of deal.

17:27This is average person who financially speaking has their stuff together, who has good credit, who's got a, you know, steady W2 job and some applicable experience can come in and do a big deal like this.