His first property cost him $58 out of pocket, and now he's financially free

0:00How do you target deals? Like what's your price point? What type of income do you charge and how do you manage it and all that stuff? — Yeah, absolutely. I'll I'll take a step back if you don't mind and just kind of talk about the different ways that folks can get started in the space cuz that's going to impact, you know, what you're what you're looking at in terms of investment from that perspective. But yeah, we we talk about there's kind of four main ways you can invest in assisted living and I'll kind of talk about more passive ways to more active. So as we go, it's going to get more active, the returns are going to increase, but you're going to be involved significantly more in the operations.

0:33So the most passive way of course is going to be a limited partnership, right? Like hey, you're just investing in a syndication or you're providing capital for a deal. You know, like we're working actually with Aaron and me and Andrew and me and Brett on a home in Texas in Tomball Texas. We're doing a big development project out there and so that'd be like, hey, you just invest capital in a deal similar to that. That's going to be most passive. That's going to get you that exposure to assisted living. But you're not going to have those crazy returns. And folks have probably heard like the $10,000 per month in cash flow from just one home and that is possible and we'll talk about that as we keep going.

1:09But you're not going to get that invested passively, but we're talking like 20, 25% IRRs, which is a pretty substantial return and and a great opportunity from a limited partnership perspective. Next would be lease to operators. So this was how we got started and it's a great way for folks who, you know, maybe really want to get exposed to assisted living. They They see the demographics, they understand the silver tsunami, but they don't have the time to be involved in the operations. And so that would mean you purchase the real estate. So you purchase a home that can be renovated or retrofitted or already is a licensed assisted living home and then you lease that out to an operator on a commercial lease and then they provide all the day-to-day care.

1:49That's typically 20, 25 to 30% down payment depending on what your financing vehicle is. Some people will purchase those as single family homes and primary residences, live in them for the minimum, you know, time frame, the year or more, start renovating as they go, and then they'll lease that out when they move out. That would get you the lowest down payment, of course. But typically you're looking at 20 to 30% down payment if it's not going to be a primary residence. Then you bring that operator in. Of course, the the key part is going to be vetting that operator really well.

2:21Does that culture align? Do the goals align? Does the goals of care align? And make sure that's the case. So really important to interview them, interview them well. And then typically that would be a 3-to-5-year commercial lease, kind of a double net lease. So you're responsible for mortgage, taxes, and insurance. And then we typically provide a home warranty for them to help them with any maintenance issues. But technically that's their responsibility. And so that can be a more passive way to get involved. We have five homes in the kind of Phoenix, Arizona area. And that cash flows anywhere they cash flow anywhere from $2,500 up to about $4,000 per month per home.

2:57and that's paying investors first. So that's kind of net in our pocket. And so that's a great way to do it as well and still still be fairly passive in the space. Next would be you're an operator and you want to operate, but you can't afford to purchase a home. So you're essentially leasing out a home from us, for example, in that previous one. So you're operating the business, you're doing all the day-to-day care, and you don't own the real estate. So that's another way to do it, especially if you don't have that 10, 20, 30% down payment that would be needed to own the real estate.

3:31And then last would be owning and operating. That's going to be the most lucrative. That's where you're hearing the $10,000 per month with just one home or more. And so that's of course you own the real estate and you also own and run the operations. Of course, that's going to be much more active. You're going to be you know, in charge and responsible for getting the licensing, the providing the day-to-day care, all those sorts of things. But you can cash flow $10,000 per month or more with just one of these homes and it can be a great way to do it. And of course there's ways to make that more passive.

4:02Maybe you partner with an operator and you kind of, you know, maybe you have the capital, you help purchase the real estate, you have that investment experience and then the operator comes and and you split the deal that way. So there's some ways to make that more passive but it is it is a great way to do it. That owning and operating in terms of financing kind of the holy grail is like SBA financing, right? Because you can sometimes get 10% down on that entire project. And so it's it's a pretty incredible way to do it. And then kind of the the asterisks to that would be developing to own and operate which we're working on a couple projects as I mentioned in Texas and another one in Missouri.

4:40But yeah, it's amazing. So it just it just depends where you're going to be at and what your strategy is in terms of how much capital you're going to need. It's difficult to like go into this space and be like, "Hey, I have less than 50,000 bucks. I'm going to I'm going to purchase an assisted living home and operate it because there's a lot of initial costs, renovations cost, and then reserves. So hopefully that helps answer that question. — Absolutely. Yeah, I know that's that's super helpful. I'm I I I am curious like in terms of price point and what what works the best.

5:12Like so if you're looking for a deal, it sounds like, you know, most of the time you're retrofitting an existing property. So what what type of property — Yeah. — are you looking for and then what what what's involved in the retrofitting process? — Sure. Yeah, absolutely. So we get folks all the time who come to us and they say, "Hey, I have this three-bedroom, two-bath, 1,500 square foot, two-story home." That's never going to work for assisted living. And so I'll just want to nip that in the bud right right here. But what you're looking for typically is going to be a large single-story home.

5:43So ranch home, as many bedrooms and bathrooms as possible. The more private rooms with half baths that you can offer, the higher you're going to be able to charge for the resident rate, the more likely you're going to be private pay. So, as many bedrooms and bathrooms, single story. — You said half bath? — So, it doesn't have to have a shower. Just just a sink and toilet. Yep, you do not have to have a shower in every room because a lot of the residents they have mobility issues, they require the caregivers to help bathe them or help give them a shower. And so, you typically need depending on your state, depending on your location and number of residents, one to two roll-in showers where the caregivers can roll the resident in a wheelchair and be able to bathe them appropriately.

6:23So, not every bathroom has to be like that. But, seniors love the privacy of having that half bath and being able to go to the bathroom, you know, more in private in the room, those sorts of things. — Yeah. — So, more private rooms can be helpful. And then, about 300 square feet per resident is a good rule of thumb. So, for example, in Arizona, the max number of residents you can have is 10. So, 3,000 square feet is kind of a good rule of thumb. Different specific localities will have square footage requirements where a bedroom has to be a certain size to have a single resident or have two residents.

6:58And so, that 300 square foot rule of thumb can be helpful just as a broad overview to help you from that perspective. Things that you need to do to renovate or retrofit is are more the life safety things. So, often times you need widen door frames, you typically always need a fire suppression system, so fire sprinklers, fire alarm monitoring panel, potentially a wheelchair ramp depending on accessibility into the home, grab bars in the shower, grab bars in the bathroom, those sorts of things are going to be really important. Typically, you want to use like LVP or LVT or or like the really thin carpet tile from a mobility perspective and a tripping hazard perspective.

7:36So, carpet doesn't really work well for seniors. Those are those are the big things that are needed. And then be creative. Think about, "Hey, how can I potentially add more bedrooms?" Because this this industry works best when you're able to care for the max number of residents allowed in your state. So, a lot of times folks think like, "Well, I only have three or four bedrooms. I'm just going to take care of four to five residents." And that's going to really hit your margins because your biggest expense will be payroll. And whether you have one resident or you have 10 residents, you're going to be paying staff 24/7 cuz they require 24/7 care.

8:10And so, it's really important to try and maximize the number of residents you can have to maximize your gross income to then combat those expenses. So, shoot for if you're in you know, if you're in Texas, you can have 16. Figure out how I can accommodate 16 residents appropriately. Arizona, 10, etc. And that might be converting the garage or doing an addition or whatever you can do to kind of add more bedrooms or taking that sitting room that nobody ever really uses and turning that into a bedroom. So, think about different ways to be creative with your space. — Interesting. Wow. So, so with 16 like let's just use the 10 just for round numbers.

8:44If it's 300 sq ft per person, you have 10 10 residents, that's 3,000 sq ft. Are you saying there's 10 bedrooms in a 3,000 sq ft house? Or how does that work with 10 residents? — Yeah, not necessarily. Not necessarily. You'd probably need more square footage if if you're going to go straight for a 10-bedroom house. But like one of ours that's for example, it's a memory care home in Scottsdale, Arizona. It's so, memory care just means we care mostly for residents with dementia. And you can typically charge a little bit more for that and I can talk about the numbers here in a sec.

9:16But that's seven bedrooms. Seven bedrooms. And so, so there's a few shared rooms in that house. — Oh, shared rooms. Got it. — Yeah, but the more private bedrooms, private bathrooms, not shared rooms you have, the more you can typically charge. So, for example, these development projects in Texas that we're doing, we're building 16-bedroom, 16-bathroom homes to be able to accommodate residents. Yeah, these are like way way bigger than 300 sq ft per resident. These are about 10,000 sq ft per house. And so going to be really more luxury in terms of that side of things.

9:50You know, we're we're essentially following Brett's model and Brett's a partner on that deal. And so that's that's what that looks like. But yeah, it's just a really really awesome opportunity. — Yeah. Wow, that is awesome. So, what what do these numbers look like in terms of what you're typically buying these properties for and then what you can rent the different rooms for and how does that how does that work? — Yeah, absolutely. I'll give you two different examples. So, one one is six bedrooms, kind of seven flex cuz there's like this kind of office space that's that can be used if needed in Glendale, Arizona.

10:27We bought it for $619,000. That was about 2 and 1/2 years ago. So, it's probably it's it's worth more now. But $619,000. There's 10 residents in that home. This is a lease to operator deal. So, we purchase the real estate, lease it out to an operator. They pay us $6,500 per month in rent for that. And so, we cash flow about $3,200 per month on that house. — Mhm. — which is which is great. So, short-term rental cash flow without the without the oven breaking on Thanksgiving from that perspective.

11:01But nonetheless, love short-term rentals and the Schlows will be getting back in the short-term rental the other is — you said what what do they pay per room on that one? — Oh, they pay Sorry. So, $6,500 per month is what the lease fee is. So, they pay us $6,500. The operator, they they charge whatever they'd like for the resident rate. In Arizona, that's about $6,000 per month. So, so I mean, if you think about the numbers from that perspective, 10 residents, $60,000 gross profit per month when they're fully occupied.

11:33And then, typically profit margins are about 20 to 25%. So, even at a 20% profit margin, that'd be their all their expenses taken to account, they're still cash flowing $12,000 or so per month on that house. And paying us, that's including paying us $6,500 a month, to lease that out. — Okay. — the other example I'll give you is memory care home in Scottsdale. That's, the one I mentioned previously, that's seven bedrooms. And, that one is, about $8,500 per month average per resident.

12:04There's 10 residents. So, $85,000 per month gross. And then again, if you if you look at the profit margin's 20 to 25%. At 20%, you're looking at what, $17,000, a month in cash flow. So, there's there's certainly opportunity there. Now, there's always going to be, occupancy issues. I won't say always. Deaths happen in this business, and so unexpected, you know, empty beds and so forth are going to be something that, comes up. And then, when you're first getting started, if you have a vacant home, you have to go from no residents, to 10 at for this example, and that can take quite a bit of time.

12:40And where we see folks get hung up is they think, "Oh, I'm just going to, you know, start my home, and, licensing's only going to take like a month, and then I'm going to have this thing filled the next month." licensing's going to take like three to six months, probably, cuz you're working with the state, which is never fast. And then, it it typically takes quite a few months to get filled up to those 10 residents. And, sometimes it's, you know, two two residents per month. So, that's five months that it may take for you to get that filled up. There's a lot of different strategies to make that a lot shorter time frame. But, I say all that to say, you have to think about, "Okay, I'm going to have five months of expenses." And make sure you have those reserves appropriate, appropriate reserve amount.

13:18So, it's also something to think through when you're getting started. — Got it. Yeah, that makes sense. So, you so you do you guys don't do any operating? You do you just buy the real estate and and lease it out to the operator. — we're going to start and and I'll explain why in a bit, but so yeah, so right now we have five that we lease out to an operator, three that we're partnered with an operator on. — Okay. — and then we're we have some independent living new developments that we're working on in Florida, 485 units and 360 units in Florida. And then we're doing these two development projects, one in Tomball, Texas, one in Missouri outside of Springfield.

13:53That will be kind of our first foray into more kind of operation side of things. And so we're looking forward to that. Obviously, as a doctor, like I love the care and the alignment and want to make sure we're providing the most optimal care. So I feel like at least the operator were like not really taking advantage of that fact, right? And of course, like we're vetting the operator, we're making sure the care goals are aligned, we're making sure that their heart's there and the culture's there, but you can't have as much control without the ownership. So going forward, we're going to be more involved in the operations. We're not going to be the boots on the ground, you know, taking care of the residents, but own that operation side of things and go from there.

14:30— Yeah, interesting. Wow. Yeah, so much opportunity there. Do you know Jay Bunt by chance? He's a — Yeah, yeah. — Okay. Yeah, so he he also is partnering with Brett, I believe, on one of these deals. Yeah, he He heard him on the podcast and then reached out and it sounds like they're moving forward, I think in Texas as well. — Yeah. — But yeah, I just I love the concept and he's a he's another great guy. — Yeah. — But Yeah, so So so from a operations standpoint then, you mentioned the licensing and that sort of thing.

15:07Is it I mean, is it a big lift to manage all of the the back end components of it, like all the inspections and everything, or do you feel like once you get everything in place, it's a pretty seamless flow. — Yeah, that's a good question. The licensing process can be fairly complex and again, it's going to be different per each state and then you have the specific locality that you're looking to operate in it's going to have their own processes and so forth that you have to meet. Then you typically have your standard operating procedures and your evacuation plan and a lot of these documents that you have to have in place before you get licensed and start operating.

15:46Then things become a little bit more systematized from that perspective. But you're you're providing, you know, care for seniors 24/7 and I I don't think I hit on this when we first talked about residential assisted living, but in terms of the care that's being provided, it's typically activities of daily living. So bathing, toileting, medication management, helping them with mobility issues, those sorts of things. Not necessarily strict medical care. Sometimes folks think like, oh, this is going to be like a nursing home and that's that's not the case. When you need more in-depth medical care, either home health is coming in or a a nursing staff or something like that is coming in to or a doctor to provide that medical care in the home or they need a higher level of care like a skilled nursing facility.

16:28So I want to make sure that that's clear that this isn't really in-depth medical care that's happening. More of those help with activities of daily living. So yeah, and then you know, you're responsible for for feeding, you know, feeding them three meals and snacks all throughout the day, toileting, medication management, bathing, all those sorts of things and then activities are huge and how how can you create a community? How can you keep the senior stimulated? Those sorts of things are going to be really important as well.