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Making $90K/Year with Just ONE Rental by Combining Compassion and Cash Flow

Real Estate Rookie Podcast
45 min read
Making $90K/Year with Just ONE Rental by Combining Compassion and Cash Flow

Investing in sober living facilities may not be the first thing that comes to mind when we talk about building a real estate portfolio. But if you knew how much they made, you might take a second look. We often focus on short-term rentals, long-term rentals, or fix-and-flip properties. But one of the best things about choosing real estate as an investment medium is its wide range and opportunities for creativity. People out there are house hacking, wholesaling, investing in mobile homes, and buying up parking lots. The options are truly endless.

So, where do we start? Sometimes, the best real estate investments are the ones that mean something more to us than cash flow. Devana Came and Reid Stadelman saw a gap in their community, and they filled it. They turned their real estate investment into a sober living facility to help people in recovery, and gave them a safe, structured place to stay while earning (mostly) passive income and building their investment portfolio.

In this episode, this husband and wife dynamic duo tells us all about their creative real estate investments that cash flow like nothing else. We talk about what a sober living facility is (hint: it’s not a rehab center), how and why they built theirs, how to find and screen tenants, and tips for reducing tenant turnover rates. These things don’t just apply to sober living facilities. Devana and Reid offer advice that applies to any real estate investment journey.

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Read the Transcript Here

Ashley:
This is Real Estate Rookie, episode 265.

Devana:
I also reached out to the Sober Living Coalition in our area, and then, we started going to their meetings. And they gave out kind of a packet, I guess, of some sorts that had some intake papers. And then, Reid and I really sat down and thought about what our why was, how we wanted people to feel in our house. And we started structuring our paperwork off of that and off of experiences that we knew people had in other sober livings, like, well, how could we make it different? And we just kind of formed it from there.

Ashley:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, I want to start out by shouting out a special person in the Rookie audience that goes by the username Smiley21. And Smiley21 left a five-star review on Apple Podcast that says, “A must listen as a newbie. I’m so happy to have discovered the Real Estate Rookie Podcast. Ashley and Tony do a great job of breaking things down while keeping the show entertaining with their banter and jokes. I hope to begin my journey this year in real estate and this podcast has been so inspiring.” So Smiley21, we appreciate you. We also hope this year is super successful for you and thanks for supporting the podcast. So if you haven’t yet, please leave us an honest rating, review on whatever platform it is you’re listening to. The more reviews we get, the more folks who can reach, the more folks we can reach, more folks we can help.

Ashley:
And let’s be clear about that review, it’s my jokes, because I think there’s been two times, in the history of this podcast, where you cracked a joke. I remember typing to you, “Oh my God, that was somewhat a good job.”

Tony:
That’s true. That’s true. But they also love the banter, which is awesome. And it’s so funny, Ash, because I’m in Houston right now, so if you guys are watching on YouTube, I’m like in an Airbnb in Houston, and I’ve had so many people come up to me, it’s actually Rob from the Real Estate Podcast, Rob Abasolo, he’s been out here, and I’ve had so many people come up to me and say, “Tony, I love yours and Ashley’s banter, please don’t ever stop it. Forget the haters that are saying that the banter is boring.” So I appreciate you guys for having our backs.

Ashley:
Yeah. Yeah. We really do appreciate it because I can’t take any constructive criticism. But Tony, how is the conference going? And you also have your own conference coming up too.

Tony:
Yeah, it’s conference season right now. So, Rob has his event called Host Con, that’s obviously about investing in short-term rentals, some amazing speakers coming out. So I was on stage with Rob and our buddy, Kai Andrew. We did a live YouTube thing and did some Q&A with the audience ant that’s super cool. Rob’s obviously an amazing host and so much good content coming up. And then, literally in nine days, I will be leaving to Orlando for our event, the STR Summit. So we’ll have almost 400 people all gathered in Orlando to talk short-term rentals for a few days. So it is definitely a busy couple of weeks for us, but we’re excited. The events in person are always fun.

Ashley:
By the time this airs, both of those events will be long gone. I think this comes out March or so.

Tony:
Yeah. But if you want to go to the next one strsummit.com or hostcon.com for Rob’s event. You guys can hang out with us in person.

Ashley:
Yeah, I am attending Tony’s event in Orlando, and trust me, I’m really, really hoping for warm weather.

Tony:
Yeah. I’m almost nervous that you’re coming because you bring bad weather everywhere you go, so hopefully, we break that streak.

Ashley:
I know it. Like December when we went to Phoenix, it was freezing. I brought my bathing suit, everything. It’s like, “No.” I almost DoorDashed a sweatsuit to the Airbnb because that was so cold.

Tony:
So hopefully we get a better luck in Orlando.

Ashley:
Okay. So the main point of this episode this week is not only to learn from some great investors, but to learn also how much of a creepy neighbor Tony is as we bring on two people who he drives by their house, and when he actually met them at a meetup says, “I actually know where you live. I know where your house is.” So we’ll get into that story. But Tony, do you want to introduce everyone to your neighbors?

Tony:
Yeah. So today, we have Devana and Reid, they’re a husband and wife duo, and they actually have a very unique niche, which is why I was so excited to get them on the podcast. But they invest in sober living facilities, which is something that I’ve actually never met anyone else that does. So in today’s episode, we break down exactly what a sober facility is, like a sober living house is, the steps you need to do to get folks into the home, they talk about how they manage the properties, they talk about how they screen the tenants, and they also talk about why these types of investments are so important to them. And they really caution everyone at the end of this episode that once you hear the tremendous returns that they get, don’t just start chasing the strategy just for the returns alone, but make sure that your heart is in it as well. So I thought that was a really important thing to call out for our listeners as well.

Ashley:
Yeah. I love the part about just their business model because no matter what real estate strategy you’re doing or whatever business you are in, having the right business model and structure and your mission statement really can help you increase the actual profit that you’re bringing in. So listen to how they developed, how they run their properties and how that is impacting the success that they have in these properties. And when you listen to them talk about their turnover rate, I think some of you are going to be very jealous that you don’t have that right now in your long-term rentals. And then, when you compare it to Tony’s short-term rental turnover rate…

Tony:
Devana and Reid, I am so incredibly happy to have you guys in the Real Estate Rookie Podcast. Before I even let you guys get into your story, I just want to let the entire Rookie audience know that I basically had to beg you guys to come on to this podcast. So as a quick backstory, we host a monthly real estate meetup here in SoCal, me and my wife do. And Devana and Reid live in the same city as me, they came out to the meetup. And I chat with folks at the meetup all the time, and after hearing their story and the kind of unique niche in real estate they’re operating in, I said, “We got to get you guys on the podcast.”
So what’s even more weird is that I actually knew where Devana and Reid lived before I even met them. So again, we live in the same town, and every morning when I drive my son to school, I saw this ADU being built at one of the houses on the corner, and it’s super unique as in our city there are no ADUs anywhere. And me being a real estate investor, I was like, “That’s pretty cool, someone’s building an ADU in the city that I live in.” So when I was talking to them and they were telling me their story and they do this thing, but then they were also building this ADU, and I was like, “Wait, is your house on this street and this street?” And they were like, “Yes, that’s our house.” So we became fast friends after that. So anyway, Devana, Reid, thank you both so much for coming on to the podcast. We’re super excited to have you here with us.

Reid:
Thank you very much.

Devana:
Thank you.

Tony:
So I’ve already given everyone a little bit of background. Right. Obviously, you got the ADU coming on, but if you can take it all the way back, what was the starting point for Devana and Reid as real estate investors and what kind of led you all into the niche that you currently kind of specialize in?

Devana:
So I’ll start with that. I have background in addiction. I’m not personally in recovery myself, but some close people that I knew in my life were struggling with addiction and alcohol. In 2007, I lost a really close person to me with a heroin overdose, and that kind of started my brain going, like I’m angry at addiction, but what could I do to not be angry anymore? Could I do something to help instead of sit in that anger? So my kids were too little at that time, but my head started spinning about stuff. So I came to Reid one day and said, “We’re looking for something else to do with investments and stuff, why don’t we buy a house and turn it into a sober living?” And he looked at me and said, “Okay,” but I had no idea what I was about to get him into.

Tony:
And Devana, just for those who don’t know, define sober living. What is a sober living home?

Devana:
A sober living home is a structured home that has accountability and structure for somebody who is in recovery from drugs and alcohol. So a lot of times people will leave a 30-day treatment center and then instead of going back into their toxic environment or maybe back into a house where their spouse is still drinking or something, they’ll come to sober living where they have, like I said, the accountability, the structure, and they can get their life back on track with a fellowship of people who are in the same place they are really, it’s a lot of support for them.
So right away we started looking for a house. And he’s more the numbers guy and the construction and I’m more the vision and oh, it’ll all work out. “Let’s just do it.” So we did, and to be honest with you, I didn’t really know what I was doing, I just thought, “I’m going to just do this and it’s going to work.” And so, we did, we went in and we built it and we thought of all the things and how we can get beds in. And then, once it was all done, that’s when we took pictures and I started, not really marketing it, but going to the rehabs and introducing myself.

Reid:
We had no idea what we were getting into. We had no idea.

Devana:
Oh, it’s been an awesome journey.

Reid:
It was awesome.

Devana:
So the first two weeks were really stressful because this was in 2014, so I wasn’t really on social media and all that stuff back then either, so I just did the footwork and went into rehabs to introduce myself. And after the first two weeks, when we got our first client, it’s like I can never look back. We’ve been filled with the waiting list ever since.

Ashley:
Well, that’s really cool. The first question that I have about this is this is actually a business, you are operating a business out of this. This isn’t a long-term buy and hold where you get the tenant and then you leave it be and they just pay their rent, there’s actually some sort of operation that goes into that. So how did you learn about this? As you were building out this property, how did you know somebody would be looking for sober living, how to attract them, and then, also, how to build out the operations? Do you have any employees or team members that help you with this project?

Devana:
Yeah. So the strange thing is, growing up, my grandma actually had a sober living. I didn’t really understand it when I was younger or know…

Tony:
Had you ever gone in to it or?

Devana:
I maybe drove by, didn’t even go into it, I mean, I was young. So I had heard the term before. And then, growing up with some close people to me that were an addiction, I actually had to bring people to sober livings before. And I would always walk in and I would leave crying sometimes because they just were not a place I wanted to leave somebody. So I had in my head that I wanted to do it different.
And then, I also, reached out to the Sober Living Coalition in our area and then, we started going to their meetings and they gave out kind of a packet, I guess, of some sorts that had some intake papers. And then, Reid and I really sat down and thought about what our why was how we wanted people to feel in our house. And we started structuring our paperwork off of that and off of experiences that we knew people had in other sober livings, like how could we make it different? And we just kind of formed it from there.

Reid:
Well, and Devana, being or going to sober living homes before she would tell me stories about how horrible they were. And it was the living environment. The landlord wouldn’t put money back into the home so they were dirty or things weren’t working and electrical outlets weren’t working or different things. So she’s telling me the stories and I’m thinking, I have background in construction, and I’m like, “Well, let’s make this awesome. So I know exactly what to do. We can put electrical outlets on each side of the bed instead of behind the bed and we’ll make everything super convenient for everybody. And I can do all that kind of stuff.” I mean, you can give a better example of what you saw before, but it was about how do we make this a place that we would want to live in?

Devana:
A high quality.

Reid:
Like why is a landlord skimping on their tenants living space? You want your tenants to be happy and you want them to be there, they want to want to be there. And I think that was where the struggle is. We saw an area that we could really help.

Tony:
Well, first, let me take a few steps back. Right. I love the approach that you two are taking because it shows that there are people who genuinely care about the folks that are staying inside of their properties. When there are landlords that don’t take care of their properties, don’t make repairs, don’t do CapEx, it gives all landlords a bad name. And that’s why when you talk about being a real estate investor in some circles you are immediately a bad person because you own investment properties. And I think if more people took the approach that you, Devana and Reid are taking of coming from a place of caring and actually worrying and working on the experience that people have when they come into your homes, it makes it a better thing for all of us.
But before we go too far, I’m loving this conversation, if we can just zoom out for a second. What does your current portfolio look like today? How many of these homes do you have? What other type of real estate investments? Just give us the 30,000-foot view.

Devana:
So we have three sober livings currently with a total of 47 beds, 48 because I have an emergency bed. So it’s kind of an interesting thing because I have those three houses, but I actually have 47 paying people, so it’s a little apartment or complex or something?

Reid:
Yeah, they’re single-family homes, they’re not anything special, but-

Devana:
So there’s not really a term, like a strategy, like you hear all the time, like short-term or midterm or whatever. I don’t really know. I’m almost bed hacking instead of house hacking. I don’t really know how else you would say it. So we rent the bed out instead of just the room. So there’s shared bedrooms. So we have three of those and then we have one longterm and we just built our first 1200 square foot four-bedroom ADU in the back of our house. So with a total of 52 paying tenants in all of those.

Ashley:
That’s awesome. Congratulations you guys.

Devana:
Thank you.

Reid:
Thank you.

Tony:
I just wanted to ask one followup question, and maybe we’ll get into this, but how are these tenants paying for their beds? Is this a county-sponsored program where there’s some kind of funding that they applied for that’s something like Section 8 or is this a self-pay program that every person is kind of paying for their own bed?

Devana:
Personally, we do private pay, so everyone’s private pay. I do know of some houses who do county beds because there are state and county programs that do pay for sober livings. I just personally don’t because I really like to have the control over who comes in and who doesn’t and I think that’s part of why we have a very low turnover rate. I mean, my average people who stay in our houses are one to six years. I literally have people who are there six years right now. And so, I don’t have that every two weeks somebody turned around and leaves. I have people who I offer quality soberly so people don’t leave. I maybe get a bed open every few months, so my wait list is hard, I feel like I have to turn a lot of people away.

Ashley:
Let’s kind of talk about that, like having a wait list. So you mentioned that you guys go above and beyond with these properties. Are you guys the only ones having a wait list or did you do some market research and see that there’s actually a big demand for this type of housing and there just wasn’t enough supply in the area or is it because of your model or maybe a mix of both?

Devana:
Yeah. I think a mix of both. There is a very high demand, but the other houses have such a high turn up that people go there and then, something happens and they leave. So they’re searching for that good home to stay in. So they will go to those other houses, but they’re not staying, you hear lots of stories about it. We just haven’t had that experience because when we get the people, they’re like, “Wow, I feel home. I feel comfortable here and I don’t want to leave.”

Reid:
We’ve heard of other owners of sober livings say, “Well, how are you staying full right now?” And we haven’t had the issues that other sober livings have had. Now, there’s obviously some good sober livings out there, there’s just not very many of them, there’s a lot of bad ones.

Ashley:
So along those lines, what’s the average rent you charge per bed? And then, what would be the difference if they were to go and rent a studio apartment or a single-family apartment or a single bedroom? I’m just trying to look at the difference in cost and to show what that motivation is to pay to have that kind of environment around you.

Devana:
So it all depends on the area. We’re in California, we’re in Riverside County, so we charge 700 a bed for our men’s homes and 650, I think we’re at 650 for our women’s house. If you go down to Orange County in California, I mean, a cheap bed is 1500 for like, I don’t know what you’re getting, but 2,500 a bed is average. If you go into LA, 2,500 to 5,000 a bed is average. I mean, they go up to $35,000 a bed if you’re in a really nice place in Malibu. So I’ve seen sober livings down to three… Nowadays, probably 450 is like a lower end, but that’s like-

Ashley:
So the ones that you have that are 650 to a 700, how does that compare to if they were to go and rent a studio apartment in that same market, that same area, what would the rent be for that?

Devana:
In California, a studio apartment probably would be 1200. Okay. Do you have that Tony? I don’t know what a studio… I mean, a one bedroom probably would be 1500 for a one bedroom apartment in California.

Tony:
The last time I had an apartment in California was six years ago and I think I was paying $1,800 for a two bedroom. So somewhere around there probably seems right in today’s market. I guess one followup question for me. So what are the responsibilities? Actually, before I ask that question, let me ask this, how do you guys set your prices? So you’re at 650 versus 700, is there a process for comping other sober living homes in the area so you know how much to charge?

Devana:
Yeah, to be honest with you, I could charge way more because we have the quality that we’re giving compared to what other sober livings are, I could. But this is my philosophy, I’m making money, I’m making good money, and I want every single person that comes into my house to be able to do it on their own because by the time they get to us, they have exhausted family, they’ve burnt their bridges. And so, I want them to gain that self-respect. So if they had to go get an entry level job at McDonald’s even, they would be able to pay their own rent and feel good about themselves and save some money and be successful in life.
So I could ask more, but I feel like I’m in that really good balance where we’re still making good money, but we’re also helping people. If our houses were in Orange County, they would be going for on the very high end of rent. We’re comparable in Riverside, so maybe that’s also why we have a wait list because they’re like, “Well, I could pay for the House of Courage this much and I’m going to go other places for pretty much the same and I’m not getting nearly the quality of life.”

Reid:
Well, I think to go back on what Ashley had asked earlier, so that $700 a month, that includes all the utilities, we’re paying for toiletries, cleaning products, cable TV, air conditioning, heating to whatever temperature, no matter how hot or cold it is, so we have all of that incorporated into that dollar amount. If you’re going to go rent an apartment at, let’s say, $1,500, 1,200s, 18, whatever, you’re also paying for utilities and the other things. We have Netflix included and certain things included. So a lot of people are leaving the sober living home and going to get their own place and realizing, “Wow, I thought it was just the monthly rent of the apartment, no, there’s a lot more to get the same quality of life that I had at the House of Courage.” So, that’s part of the benefit of going into sober living and paying that amount. But you do have to live in a room with somebody else, so-

Devana:
Like a bedroom in our city, they’re just going to go rent a bedroom out of somebody’s house. They’re going for like 950 to even a thousand dollars for just a bedroom in somebody else’s house. But I think more so what they’re looking for, it’s not just that they need an inexpensive place to stay, but they need the structure. People come to me and say, “I need the accountability because if I’m in a bedroom by myself, I might use or drink and I want to be surrounded by people that go to meetings that I can come home to and talk about my day and I’m getting that support.” So they’re actually looking for the accountability part of it.

Tony:
So now, say that I’m someone that’s brand new and I’m looking to start my first sober living facility, and I know you said that you kind of undercharge a little bit, but is there a tool or a website or what should my process be if I wanted to understand what is the going rate for bed in my city?

Devana:
So I would start at who you’re looking to attract. So if you’re looking to attract more a professional that wants to have really strict anonymity, maybe a police officer or a lawyer or something like that, they don’t want to share rooms with people, you could do more of an exclusive sober living and charge a higher rate and maybe do a private room type situation. If you’re looking just for the average person, I think checking other sober livings and what they offer, there’s not really a book or a thing to go by, I know people who charge a little bit more than me, a little bit less, it’s just kind of what you feel like you’re offering.

Reid:
You can find the sober livings that are in an area through a couple different websites and you can just call them up and ask.

Devana:
“What are you guys charging? And what do you offer? What are your amenities?” We have a lot of amenities.

Ashley:
Yeah. And that’s so interesting to me because I think of rehab, you watch movies and there’s people going to rehab and it’s like it’s so expensive, we can’t afford it or whatever and that’s why I was curious as to how that rental price compared to having your own apartment where really it is more affordable and it’s a great option, plus you’re getting that structure and that accountability of the sober living. So can you talk more about that actual operation? Is there somebody that lives there full-time? Do you have people, employees that come in and out and kind of monitor if someone has abused a substance?

Devana:
Yeah. So we have managers that live in all of our houses, they live there 24 hours. They’re allowed to have their own jobs outside, so they kind of come and go and they monitor, they check chores that have to be done every day, they make sure everybody’s in on time. They pretty much make my life so nice. They do all the day-to-day operations, they do the disciplinary stuff, unless it’s something that I have to step into, which I haven’t had to do in a really long time, they just run the house for me. So how we structure it with them is they live there for free and they get the manager’s room and they collect the rent for me if anybody pays, if they don’t pay. Some people don’t have bank accounts yet and that kind of stuff, so if they have to pay in a different way than Venmo or another way, then the manager would collect that and I would pick it up. But they pretty much do everything for me.

Tony:
So one followup, when you’re looking for these managers, are you looking for someone with specific training or qualifications or is it you, Devana and Reid that are finding just people that you feel are good people and then you’re training them up how to be managers in that house?

Devana:
So this is a really important fact. I think that they have to understand addiction because they’re dealing with… A lot of things come with addiction, there could be manipulation, old behavior and how they used to work when they were in their addiction. So the hardest part to find a manager is the first manager because you have to find somebody who’s been in recovery to do that. Once you have a house full of people, I pull from the house. So if my manager were to tell me they were moving out tomorrow, I have 19 other guys that have been there for three years that know how to run the house, they’ve done everything, I know they’re responsible and whatever. So I usually go and pick somebody who would like to have that position. So we usually have a manager and an assistant manager so that there’s always kind of eyes and ears if one’s working, one’s not, and he might get half off.

Tony:
So then, just to clarify, so your managers and assistant managers are people who came into your sober living home to stay there and then they’ve kind of leveled up to become your management team, I am understanding that correctly?

Devana:
Yeah.

Reid:
Correct.

Devana:
Yeah.

Reid:
Yep.

Tony:
That is fantastic. That is fantastic.

Devana:
And it gives them something to put on their resume. It gives them responsibility and purpose, which most of them want just to help to give back to the community that helped them.

Reid:
Yeah. And you have people living in the house and they have pride in where they live, and so, they want to keep that running the same way that it’s been running. If they have a great manager that’s been overseeing everything and that person leaves, there’s usually a lot of people that are interested in stepping up to make sure that the house stays the quality and level of management that they’ve seen. So we usually have a lot of great people to pick from.

Tony:
So you guys have talked a little bit about the amenities that you offer and kind of what that community looks like. Are there any certain boxes that you have to check to be considered a sober living home like you have to offer this or you have to offer that? And if so, what are those requirements?

Devana:
So there’s no requirements in terms of amenities. I mean, I’ve seen basic where they don’t even turn the air conditioner on in California because they don’t want to have the air conditioning bill.

Reid:
Unfortunately, yeah.

Devana:
It’s pretty sad. To be a sober living, the qualifications, I guess, if code enforcement were to come to your house, we do random drug testing and alcohol testing and my managers do all that, so they log that. And then, our people do some sort of self-care, like either AA or NA meetings, therapy, not in our house, this is outside. We don’t provide any services. So we require, it’s three to five times a week that they do something, an outpatient program, an AA or NA meeting, something like that. And then, we keep their logs. So if somebody were to come to the door, we could say, “Nope, look, here’s their stuff and here we drug test them.” And they sign something saying they are in recovery from drugs and alcohol, but we’ve never had an issue with having to prove it to anybody or anything. You can just buy a house and start a sober living, there’s no license because we don’t provide any service really, it’s just like-minded people living together, really, if you want to break it down.

Ashley:
So how are you finding these people? You’re going to the rehabs and you’re giving them the information, then they must refer people to you. And then what does the screening process look like?

Devana:
This is another interesting thing. I mean, we pay for our domain names. I don’t know, what is that? A hundred bucks a year or something. That’s the only money we’ve ever put into marketing.

Reid:
Ever.

Devana:
Ever. Not a single penny in marketing. Our people in our house are best marketers, so when they go to their meetings and back to their rehabs and wherever they go, people are like, “Oh, what house are you in?” It’s like this whole community. And then, we get 90% of our calls just from word of mouth, I guess.
The screening process, I still do all of that. To me that’s really important. I haven’t given that over to the managers yet. And I just go through a series of questions. And I don’t know if I’ve been doing it so long, I just know. Like in the first three seconds of the phone call, I know if it’s somebody I’m going to continue with or not. And I’ve just gotten kind of good at that process.
So that my life isn’t super chaotic getting a thousand phone calls a day because I could probably get a hundred calls a day on my phone, I just kind of go through, I screen them first because I don’t have any open beds. So then, I’ll go through my voicemails and get back to them or give them a text message quick or a response like, “No, we don’t have a bed open. I’ll put you on the list.” Or something like that. So it used to be in the beginning, I wanted to talk to everybody and I had to, I’ve learned how to simplify my life a little bit and not have to talk to every single person that calls, but still get a good quality person in. Having good processes and procedures in place has made my life so simple around this. I don’t think it takes any more time for me where I’m at in my stage than it would with a mobile home park or I think even a short-term rental probably would be more work for me than what I’m doing right now.

Ashley:
Well, especially with your low turnover too with having people stay for so long, it’s not like every month you’re having a new turnover.

Tony:
Our properties in Joshua Tree turn on average 12 to 15 times per month, so to have someone staying there one to six years is crazy.

Devana:
And when I get the call, then I just set up the time, I text my manager and say, “Somebody’s coming in for the intake.” They do all the intake paperwork, they get them in. I don’t have to go over and do all of that, they do all that for me.

Tony:
Yeah. I guess let’s talk about that process. So someone, a lead comes in, is it typically that they’re filling out a form on your website or how does that person typically come to you?

Reid:
There’s no background check, by the way.

Devana:
It’s so different than any anybody.

Reid:
Just like anybody else.

Devana:
Does, yeah.

Reid:
Not completely.

Devana:
We don’t do a background check, we don’t do a credit check because they all have past, they probably all have back credit. I don’t really know how I can explain this, it’s like a gut feeling or just how they answer the question. Then I’ve just had a really good experience.

Reid:
Well, I think you can tell when you’re talking to somebody on the phone, you can tell whether they really want to be in recovery or whether they’re being forced to be in recovery. And that’s a big factor. We want everybody to want to be there. If you have people that are mandated by the state to be in a sober living or something like that, that’s not always bad, they may be mandated, but you can tell if they really want to be there. And that’s who we want as a tenant. That’s what makes everybody in the house like-minded. When you have people that are like, “Yeah, I just have to be here, but I can’t wait to get out,” and do whatever negative things, that just doesn’t help the house.

Devana:
So to go back, I don’t remember if Tony or Ashley asked me the question, but there’s about, I don’t know, seven questions that I ask that I can tell right away.

Ashley:
Can you give us an example of a couple of those, just maybe two or three?

Devana:
Yeah. So the first question I ask is if you’re a 290 registrant, which is a registered sex offender. And let me just throw this out there, these questions just aren’t to protect my house or myself, it’s also to see if this is the right fit for them because I want to set them up for success. And I know some people sometimes have a child that comes to visit, so I don’t want them to get in trouble for being around a child in a certain vicinity. So I always ask that.
My second question would be, how long have you had clean and sober? And that’s where it gets a little tricky, you got to kind of experience. They’ll tell you something, but you’re like, “Hey, when’s the last day you used? Don’t tell me two years ago when you got clean, but did you relapse?” You kind of ask those questions. “Yeah, what’s your why? Why do you want to be in sober living?” If it’s, “Oh, my mom’s kicking me out and I have no other place to go and I need to do this for a month,” or “I really want to do this. I want to do this for myself, I want to do this for my family,” whatever, you can kind of just tell how they answer the questions. Another one would be, “Do you have any violent offenses or any arson? Are you registered arson?” Certain things like that.
Now, there are some sober livings that don’t ask any of these questions and they just let whoever. If they have an open bed and you want to come, you can come, that’s the ones that have the turnover rate and have some crazy stories because they just really… I do ask about mental health because again, I want to set them up for success. So I only take a certain level of mental health and it has to be secondary so they can’t be bipolar and because of that, they drink once or twice. Drugs and alcohol have to be their primary issue.
And then, a lot of times, some mental health will come with that just because of the drug and alcohol use. So if it’s a higher level of care, then I want to refer them out because I don’t want to set somebody up in my house that has schizophrenia that we’re not capable to handle and I don’t want them to fail in my house. So just certain questions like that and then, I can move them to give them a phone number to where they need to look or say, “Sure, show up on Tuesday, the manager will meet you.”

Tony:
So is there an ideal property type that you all look for when you’re kind of scouting for new locations for your sober living homes?

Reid:
For us personally, yes. And this goes back a little bit onto what Devana was saying earlier, it depends on the type of tenant that you want to have. So for us, we have multiple tenants per room. We don’t want to have a single tenant per room. We’re not looking for a higher end price range. So we want to figure out how many people we want to have. For us, we’re looking around 16 to 20 people per home is our range. Now we do have a home that we have 10 people in, but we have some others that have more people, and we just found that’s kind of our sweet spot. So the size of the home is really important. How many bedrooms and how many bathrooms is really important. Bedrooms, not as much because with my construction background, we can always make bedrooms out of certain living spaces, but bathrooms are a little bit more expensive to build, so we want to have the appropriate amount of bathrooms for your tenants.

Ashley:
Reid, one question real quick. Is there a certain law or regulation as to how many people per a bathroom at all? So do you have to work around, okay, if you can fit six beds in there, you need at least two bathrooms or anything like that?

Devana:
It’s six people to a bathroom.

Tony:
And sorry, is that based on city regulations?

Reid:
Yeah.

Devana:
Four people to a refrigerator and six people to a bathroom, so we have five refrigerators.

Ashley:
Okay. So that’s great advice right there. If someone is looking to do that makes you look into your city regulations. I never even would’ve thought a refrigerator at all is something that you would have to be careful of how many people you have on the property. Okay, sorry, go ahead. Continue, Reid.

Reid:
Outside of the size of the home and the bedrooms and bathrooms, we’d prefer to have a corner lot because we’re going to have a lot of cars parking, so we want to make sure we have enough area for people to park on the street. And a cul-de-sac would not work, there’s not enough parking space there. And then, we want the location to be kind of central to the recovery network.
I mean, there’s a large city and there’s usually like a smaller hub of where recovery and meetings are taking place, so you want to be closer to that because not everybody has a vehicle. So public transportation’s really important for us. We need to be close to a bus stop and easy to get to close meetings and that kind of stuff.
Another important point for us is we need to be close to entry level jobs, so usually next to large retail areas, or maybe lots of industrial areas. The types of entry level jobs need to be fairly close for people as well because 95% of the people coming in they don’t have a job, they’ve lost their job, they’ve been in rehab for a long period of time, and so, they’re coming out, they have to start fresh. Those are some of the biggest things. I miss anything?

Devana:
Yeah. I would touch more on the reason why we like corner lots too is because sometimes the guys will go outside to smoke and so, my thought process is, put the table on the side where the neighbor’s not just so don’t have… We all know about NIMBYs, right? So you could have a NIMBY in your backyard. So I try to be a really good neighbor and think of those little things to not irritate a neighbor as much as possible.

Tony:
Since you mentioned neighbors, let’s talk about that a little bit. How receptive is the neighborhood to having a sober living home in their community? And do you feel that there’s a stigma at all around the home? What’s the reaction, typically, when you move in?

Reid:
I did forget to mention that you need to check your city ordinances, wherever you’re looking to start your sober living or group home, you need to make sure that… Some cities have ordinances or anything that can make it more difficult to operate. But-

Devana:
Yeah, I will say this, they are illegal ordinances, but it’s just how much time do you want to push back on that? How much money do you want to spend on a lawyer to push back on that? Our city doesn’t have any ordinances that continue, but San Bernardino County has some ordinances. So for the ease of your life, I would check ordinances first.
And oh, the NIMBY stuff, so we had an issue with one of our neighbors at our house number two, and he saw a lot of guys and he questioned it and I told him it was a sober living. For me, I feel like it’s more education. When they hear a sober living, they think, “Oh, there’s 20 drug addicts living next to me. It’s going to be this crazy, wild house.” And when I educate them and say it’s going to be the quietest house on the block, they have to be in a curfew. They’re not even drinking a glass of wine at night. There’s like no parties, there’s no anything. Then after a couple of months he was like, “Wow, this is like…” Where our house is by University of Riverside, so there’s a lot of student housing nearby. So they’re like, “Oh, here we go, another party house” or whatever, but he’s like, “Wow, this is the nicest house.”
And we make sure that our outside is kept up really nice, so you wouldn’t even be able to tell it was a sober living by driving by. And now he actually is really close with some of the neighbors. They help him unload his truck at night. They’ll take his garbage cans in for him. And now, there’s no problem. But I think the stigma at first is like, “Whoa, what is this?”
But I think educating people about what’s happening and then they kind of back off. Now, it also depends on the community. If you’re in an HOA, you might get some pushback because it’s not legally allowed to be because they are protected against the Federal Fair Housing Act. Nobody can say they can’t be there, but you could get pushback. If you’re in a really exclusive neighborhood, you might get more pushback than just a working family neighborhood.

Reid:
We also want to be the best looking house on the block. We take a lot of pride, not on just the interior of the house and the operations of the home, but looking presentable on the exterior. So we’re putting money into the exterior and we truly do have the nicest house on the block everywhere we’re at with the landscaping and the care and everything that goes into that. And the neighbors know pretty quickly, “Okay, this is not what I thought it was.”

Ashley:
Would you guys want to go into one of the numbers on one of those properties for us and kind of walk us through the purchase price, any rehab you did and then, what you’re bringing in?

Reid:
So I can do that. I’ll give you a just quick backstory on some of this to try and understand some of the numbers. So I’ll give our second house that we purchased as the example. So we found this property on the MLS and that’s where we’ve bought all ours. We haven’t had any special real estate.

Devana:
Freedom.

Reid:
Anyways, we found the house on MLS. It was a five-bedroom, three-bathroom house. It was 2,800 square foot when we bought it. The purchase price was $415,000.

Tony:
Which is pretty good for Southern California.

Devana:
Yeah.

Reid:
That was 2015. We weren’t completely out of the recession yet, so it was a little cheap. So we just did with the conventional loan route, 20% down on that. And we ended up putting a lot more into construction than we originally thought we would have to. And the quick backstory on that was our realtor made us aware that there was an additional structure that was on the side of the house or on the back of the house that was attached that was not permitted. And we were under the impression, well, it’s not permitted, it doesn’t count as square footage of the property and all that kind of stuff. So we bought the property not needing that, but we went to get permits on doing construction work. We repiped the house with new plumbing and did some electrical work, got permits for all that.
And what we didn’t realize, the city knew about the unpermitted structure and they said, “Okay, yeah, here, here’s all these permits.” It was super easy to get permits. And then, as soon as we got the permits, I went for our first inspection, an inspector comes out and says, “Yeah, I’m not going to give you an inspection until you tear this structure down. And that totally disrupted the backyard. So we ended up adding 600 square foot to the house to cover that whole area. Without going into all the details, it was a really ugly part of the property that, after you tore it down, it was just a mess. So we ended up putting in $97,870 in construction costs to the house. So a lot more than we planned on.

Ashley:
But that was the interior, adding three bedrooms and then, the 600 square foot?

Reid:
Correct. Yeah.

Tony:
And you guys have to furnish these as well, right?

Reid:
Correct. And we’ve always done it on a very creative way on furnishing. So we only put $9,000 worth of furnishing in this house, but yeah, we-

Devana:
But it’s done nice.

Reid:
Really nice. But yeah, we’ve used reclaimed wood and just painted things and we do a lot of the decor and furniture stuff ourself. So we had $83,000 down on the conventional loan for the 20%. We had 97 and change, 97,000 and change for construction, 9,000 for furnishings. And so, all in, we were like 189,000, almost $190,000 in on the property. So that being said, we have a total of 20 tenants, 18 and a half of those are paying because pro rata for the assistant manager and the manager don’t have any payments or contributions. The mortgage is $3,500. Utilities are around 1800 to 2000. So our net monthly profit is $7,580. Cash on cash return, everybody gets nervous about the almost $200,000 you put in cash on cash return, we’re at 48%. So it took us just about two years, just a little over two years to-

Devana:
Pay ourselves.

Reid:
… pay ourselves completely back. So it was a lot to put in. It was more than we thought. We thought we were going to have a better cash on cash return, but-

Devana:
We’re happy with 48%.

Reid:
We’re happy.

Ashley:
Yeah, that’s incredible.

Tony:
My mind is blown right now. That is phenomenal numbers. Congratulations guys. That’s fantastic. You’re going to have so many people after this podcast reaching out to you asking you how to get into this space. It’s going to be crazy.

Devana:
I don’t know, BiggerPockets, maybe there needs to be a book in the future, How to start a Sober Living.

Ashley:
That’s the worst part about being the host of this podcast is that we immediately get Shiny Objects’ Syndrome. It’s like me and Tony like right when this ends, he’s like Googling stuff and be like, “Did you even see this?”

Tony:
Do I have the time of my calendar to start another business? We’ll see.

Devana:
I want to say this because there’s really good money to be made in sober living, I don’t want everyone just to get Shiny Objects’ Syndrome and just go start it and then not have their heart in it too. Right. So there has to be a good balance of I want to help people and I’m making money because they are humans and just because they’re on drugs and alcohol doesn’t mean, first of all, that they don’t deserve a good place to live, but second of all, that they’re just looked at as like, “Oh, cash cow.” Right?
And that being said, I’ve seen a lot of people try to start sober livings, and I’m sure Tony, you guys probably have had the same thing in your spaces where people get the shiny object and they go, “I can do this short-term rental,” whatever and then, they kind of fade out because they don’t have that heart or that passion for what they’re actually doing, it’s just about the money. And then, I feel like 90% of the time, that doesn’t always just work out for people if it’s only for the money, you have to have some heart in what you’re doing. That’s just my perspective.

Ashley:
And you guys really touched on that too throughout this whole episode as to how you go above and beyond. And one thing that really impacts that is how you’re not having turnovers, you’re getting people that are staying for six years. And having turnover so frequently really can hurt your bottom line, so you’re not going to see that huge cash cow if you kind of just wing it and do mediocre and just be like, “I want to just get cash out of this. I don’t care about the tenants or the residents of the property or what the property is like.” So I think you guys did a great job of showing that if you are going to get into something like this and you do really want to turn it into that cash cow and make it profitable, you really have to have that balance to keep your residents, to keep your clients staying in the house.

Devana:
Yeah.

Reid:
Definitely.

Devana:
And touching on that, Ashley, I look at other sober living homes and sometimes I’ll even go in them because I have to inspect them for if they want to be in the Coalition because I sit on the board of the Sober Living Coalition in Riverside, and I think, “Wow, it’s just interesting. Why wouldn’t you replace those dish towels?” It’s probably 10 bucks or something. Overall picture, I’m still making a good amount of money if I go put new dish towels in. But my turnover rate, if it’s junky and ugly, it’s going to be so much more that, it’s going to be so chaotic for my life. Just to go above and beyond, those are the little extras that make people feel special and you’ll get better clients and keep your tenants longer.

Ashley:
Let me ask a question about that. Are you doing inspections every so often on the properties or do you have your manager just report to you like, “Hey, we need new dish towels”? Is it kind of up to them to bring it to you if there should be something that’s replaced? How does that work?

Devana:
Yeah. So we have a list of everything we have in the house that’s like laminated. And every month when they give me their supply list or what they need, there’s a place that they could put like I need light bulbs or the dish towels, whatever, and they can just put dish towels or whatever, and then, I’d go get supplies. When I go visit the properties, I used to go a lot more often than I do, now, I go maybe twice a month, I could go more if I wanted, but I’m I’ve been so busy lately, when I pop in and I notice something, like the other day I noticed these cabinets are looking a little funky, so I had my handyman go out there and paint them. I see things they don’t see for sure, but for the most part, they’ll let me know if the rugs or little things need to be replaced, they’ll let us know every month.

Reid:
But you did have to kind of teach that because a lot of people don’t even realize how worn things get, they’ve just been using it and it’s acceptable to them, so you kind of go over and say, “Look guys, when it looks this bad, we need a new one.”

Devana:
We need a new rug that doesn’t have stains on it. We’re okay with that. But I think they’re also so used to other sober livings that that’s just the standard. Yeah, I had to teach them like, “We’re okay with replacing these and I want it to be nice for you guys.”

Reid:
Yeah, the tenants, like we said earlier, they’re the ones that are selling the house, they’re marketing it for you and so, if you are not constantly keeping it updated and doing more than others… We’re just doing more than everybody else. And so, they’re letting everybody else know that. And so, that marketing, for everything we’ve put into it, they let everybody else know, yeah, “We got this and we got new whatever. We didn’t even have to ask for it, it just comes.” So that’s how we keep-

Devana:
Also though, when I first started this, I kind of got a few mentors that I was like, oh, let me ask them how to do it. And their advice to me was, “Paint it all beige. Go to the thrift store and buy everything, because they’ll thrash your house.” And I was like, “Really? That sounds so depressing. I wouldn’t want to live it else like that.” So I did just my life, it’s like what I do in my whole entire life, I do the opposite of what everyone tells me to do. It’s a little rebel in me.
But I did the opposite. I bought everything new. I did it all nice. I painted the walls, it looks like a Joshua Tree, like one bright thing, paintings. And they come in and they’re just like, “Oh my gosh, this is amazing.” They feel so good when they walk in. And I’ve never had one person in the nine years I’ve done this thrash my house, maybe they’ve broken a cup on accident or something or dropped a plate or something, never one time have I had somebody thrash one single thing in my house, ever. So it just worked out good for us.

Tony:
I love the story that you guys have to share because… And it goes back to your point earlier, Devana, about these are still people and folks in sober living facilities, much like people that are on food stamps or they’re Section 8, they get a bad rap because there’s a minority of folks that don’t treat the properties well. But in reality, these are people who are almost your best in this because they need this just as much or if not more than you need them as a tenant. So I love that you’re able to share that.

Devana:
Having that mutual respect with each other, like they know that I respect them as a person, they are so loyal to me, I’m telling you, if I pull up and I have supplies in my car, I have 10 guys unloading my… I mean, they’re so nice to me. And some of them have a tattoo over their eye, they look like they’ve been in prison, they don’t even understand what they do to my life, like how much they teach me in my life too. So without getting emotional, I love… They’re my best tenants. And because they’ve burned so many bridges, they don’t want to leave a good home. They don’t have anywhere else to go. They’re either going to go back on the streets or junkie sober living. So they’ve been really good.
And you would think with 20 guys in the house or 17 girls in the house, that it would be like, oh, when you walk in, but I’m telling you, the way I have my chores and stuff, I tell them, every single day, a mother or a parole officer or anybody should be able to walk into this house and be proud to look at this house and go, “Wow, this is clean.” And when I walk in, it’s always clean. And we have AM and PM chores, so it never really can get that dirty. And they do, they do their little chore and it stays clean for that many people.

Tony:
Well, Devana, you guys have shared so many golden nuggets about how this not much talked about niche has been successful for you guys and for the people in your home.
Before we wrap things up, I do just want to take a question from the audience. So this is a Rookie request line. Typically, we pull a voicemail. Today we decided to pull a question from the Facebook group. But if you guys do want to get your voicemail played on the show, give us a call at 8885ROOKIE, leave a voicemail and we might use it on the show.
So today’s question comes from Sarah L. And Sarah’s question is, “I work in housing for the city of Boston and I’m looking to open a trauma, sober or domestic violence house of some sort for females. I see firsthand the need and the funding available, but I’m having trouble finding a mentor and or advice on the topic. I’ve tried to reach out to the state, et cetera, and keep getting redirected. I want to start buying rental units and would love it if I could open up a nonprofit. Even if you’re not familiar with nonprofits, I would really appreciate any advice.”
So here’s kind of the second part of her question. “Should we use all 100K to put down on another property or try and buy two?” Her and her husband both still work W2 jobs and they have a few young children. So what’s your advice to them? They’re looking basically for advice on how to break into the space and get some better information.

Devana:
Yeah. So looking for a mentor, should I talk about that real quick? Looking for a mentor, there’s a couple of national organizations that somebody could go to to just even Google and look up information on sober livings or domestic living. There’s also a really big need for women and children and men and children like single fathers that have children that need a safe place. So there’s a lot of different little niches inside the sober living housing thing.
Should I give the…

Reid:
Names of the-

Devana:
No. So NARR is a really good national organization. It’s [email protected], N-A-R-R, .org. And then, thehouseofruth.org is really great for domestic situations. They’ve done a really great thing with how they help women with domestic violence. So those might be two places people can go and look for information or even find mentors. In terms of the putting all hundred thousand dollars down-

Reid:
I’ll speak to that. If you are starting in this space, a niche of whether it’s sober living or domestic violence, help or whatever, I would suggest not going to two locations at the same time. I think you really need to get your processes and everything figured out. We didn’t go into too much in the rest of the podcast, but the beginning of our journey with our sober living, I would say the first six months to year a was pretty hectic. It wasn’t just an easy jump in and we got it figured out, we had to create our processes over time. And I wouldn’t want additional levels of stress with multiple locations, that’s just me.

Devana:
When you don’t know what you’re doing.

Reid:
Yeah. There’s not like a standard way that you have to run your location, specifically in the sober living, there’s a lot of different ways, a lot of different rules and processes that other places have, we had to figure ours out and we had to figure our niche within the niche of how to manage and how to get our backlog. So I would suggest picking one location. And the idea of putting all hundred thousand in or not, I’m not sure on what size location-

Devana:
Yeah, it depends on the number, the house.

Reid:
Yeah, that’s a tough one to ask. I mean, the case that we brought up where we put almost 200,000, that was almost double what we put into one of our other homes. So it just depends on the project or the location and what you think you can get out of that. I think that’s all I got.

Ashley:
Well, for our Rookie exam today, because we have both of you on, we are going to kind of tailor it to you guys. And we want to know, what is your next step with investing? Where do you guys want to take it?

Devana:
So we’re looking always for another house, for another sober living. Right now, in California, they say the prices have come down, but these big houses we’re looking for are still really high. So we’re constantly looking. If another good deal comes up, I would jump on it.
We’re also going to start, a little nervous, out of my comfort zone, but I think we’re going to start looking for out of state, something out of state with maybe another midterm like what we’re doing with our ADU. And we already have all of our plans to start building another ADU on one of our other properties, so that’s something we’re deciding right now. We’re in that beginning of the year phase, we’re like, “Okay, what direction should we go? We have all these different options.” So yeah, we’re kind of really trying to decide. Do we build the ADU right now? Do we buy something out of state? Do we get another sober living? But those will all be something, I think, we focus on this year, just I don’t know what order they’ll come in.
And then also, we have another property we bought this year that is right here close to eastbound, but it’s an acre property and we kind of bought that more of a personal property, even though it has a house on it for a long-term tenant. We’d like to build a big shop for, we have a 1948 travel trailer that we love, so just to house our stuff, extra tools and things. And so, it’s a little bit more of a personal project. We’ll probably build an ADU on that one as well. So we’ve got all these little things, we just don’t know what order we’re doing them in quite yet.

Tony:
Well, we appreciate you guys for sharing your story. Before we wrap up, I just want to give a shout-out to this week’s Rookie Rockstar. This week’s Rockstar is Emily Murray. And Emily says, “We are newbies and proud to have bought four properties this year. I just hit my 10-year anniversary at my hospital. It’s a well paying job that I’m thankful for, but my 10-year bonus was $100. After I fumed for hours, I decided to turn that into a positive and donated the bonus to a fund for patients with the financial struggles.” So congrats to you, Emily, and the goals to buy four more properties in 2023.

Ashley:
You guys, thank you so much for coming on to the podcast, we really appreciate it. Can you guys let everyone know where they can reach out to you and find out some more information?

Devana:
Yes. So my Instagram handle, I have a couple, but Investing Mama is my one for investing. And then, the one that I love to travel and do my investing on is Bee Organ Mama, like the little insect, bee. My email is devana, D-E-V-A-N-A, that’s how you spell my weird, crazy name, so [email protected] or [email protected]

Ashley:
Devana, we didn’t touch on this at all, but I had seen it in the show notes, is that you, actually, part of the reason you wanted to start this because you wanted to be a stay-at-home mom too, so that was a big why for you, right?

Devana:
Yeah. I was a stay-at-home mom and I wanted to continue. I wanted to find something that I could continue to do with my kids. And my son, he got dragged and had to rip open houses, and he goes over with me all the time. And it’s such a good experience for him too, such an eye-opening experience for him to meet these people too and understand that there’s diversity in the world. And-

Ashley:
Thank you guys so much. And we really appreciate you coming on and sharing so much value with everyone. And hopefully, there will be some people that have a passion for it and really want to help people that continue to make this great business model that you guys have made where it’s cash flowing and also helping other people.
I’m Ashley at Wealth Firm Rentals and he’s Tony at Tony J Robinson and we will be back on Saturday for Rookie Reply. (singing).

 

Watch the Podcast Here

In This Episode We Cover

  • How to turn an investment property into a sober living facility
  • Finding and screening tenants
  • Easy ways to keep your turnover rate low
  • Managing an investment property with a waiting list
  • Choosing a property that fits your needs and investment goals
  • Investing for cash flow and your community
  • Resources for starting a sober living facility or domestic violence shelter
  • And So Much More!

Links from the Show

Connect with Devana and Reid:

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.