Hi, can anyone share their experience with purchasing a vacant facility or land for the purpose of building a facility? We are only in the planning stages, but seems a lot more complicated than just buying regular RE. How much % downpayment does the bank require and what kind of loan ie commercial RE, business or construction loan? We are looking into either selling a rental property to help purchase a vacant facility, or we have a land that we could potentially build a facility (after rezoning). Do you think we are better off building new rather than fixing up a 1960-1970's facility? We are looking into either building a 15+ bed or purchasing an old 20-50 bed. Thank you for your time. And advices on what not to do are also welcome :)
Hi @Zen Ouano, Texas is a great state for this business. Depending on the number of beds in a facility and the type of service, you will need to different levels of state requirements.
The simplest differentiator in the state of TX is the number 16. If you have 16 or fewer residents, you fall into a small Type B facility and can be located in a residential setting. You would be buying a big house, converting it to meet TAS2012 (Texas Accessibility Standards), including a fire suppression sprinkler system, and would hire staff to care for up to 16 residents 24/7. You will need to apply for a state license to operate.
If you go higher than 16, you will be considered a Large Type facility (there's A, B, and possibly C). You'll be zoned commercial, and have to meet an additional set of requirements to get a state license to operate.
The costs of renovation either way are definitely higher compared to a standard fix-and-flip. And depending on the municipality, you might have a rough time navigating the city permitting process. I'm in the thick of my first residential assisted living remodel down in Austin.
Considering a $500K 1800 square foot house that needs work in Austin rents might rent for $2500 if in a desirable neighborhood (more like $2000 otherwise), it makes a lot of sense to find another model to make a property have positive cashflow.
Other states have lower caps on residential small type B facilities: Arizona 10, California 6, Colorado 10. And DFW, like Austin, is still growing. It's a great time to consider this business!
Not sure why you are interested in this specific niche but I will share my very limited experience with you. A few years back I had a relationship with someone who managed one of these facilities in Southern CA. I also believe you need a license to run one of these. She had a Masters in Hospital Admin. and worked for a company that owned many of these facilities all over the country.
Her particular facility was nothing more than an old house or apartment building but it was in a great area near the ocean. Had a full kitchen, courtyard, and various specialties that would come in on a regular basis to treat the patients like different doctors and physical therapists.
Her company actually rented this old building from someone but from what I remember it was a money maker. So it would seem to me that the older building with the larger bed count, assuming you had the proper licenses, staff, management, etc., would be the way to go. Maybe get it fixed up and sell it to one of these companies that make a business of owning these types of facilities.
Thanks for the response @John Becker. I have been interested in this niche bec it seems like a good combination of what I can do. Also, good profitable rentals right now are hard to come by, not like it was even 2-3 years ago. Husband and I are both RNs and I have an Econ degree. So I've always felt that my place is where Healthcare and Finance could meet. We've been fortunate enough to invest during recession, that we can possibly focus full time and still survive when we do actually start the facility. Seems like a steeper learning curve with more risks than investing in rentals tho. My biggest fear would be to buy a big old building only to find out cost to retrofit will be much more than building a smaller one. Just very limited resource for research out there. I guess we just need to take the risk.
Hi @Zen Ouano, Texas is a great state for this business. Depending on the number of beds in a facility and the type of service, you will need to different levels of state requirements.
The simplest differentiator in the state of TX is the number 16. If you have 16 or fewer residents, you fall into a small Type B facility and can be located in a residential setting. You would be buying a big house, converting it to meet TAS2012 (Texas Accessibility Standards), including a fire suppression sprinkler system, and would hire staff to care for up to 16 residents 24/7. You will need to apply for a state license to operate.
If you go higher than 16, you will be considered a Large Type facility (there's A, B, and possibly C). You'll be zoned commercial, and have to meet an additional set of requirements to get a state license to operate.
The costs of renovation either way are definitely higher compared to a standard fix-and-flip. And depending on the municipality, you might have a rough time navigating the city permitting process. I'm in the thick of my first residential assisted living remodel down in Austin.
Considering a $500K 1800 square foot house that needs work in Austin rents might rent for $2500 if in a desirable neighborhood (more like $2000 otherwise), it makes a lot of sense to find another model to make a property have positive cashflow.
Other states have lower caps on residential small type B facilities: Arizona 10, California 6, Colorado 10. And DFW, like Austin, is still growing. It's a great time to consider this business!
@Zen Ouano you should listen to @Joe Fairless's podcast with Gene Guarino. The Link is Here.
Basically, assisted living is a business. It throws off lots of cash and you can combine it with real estate investing to make more money and build long term wealth. I have a friend here that is looking into doing these kind of projects. My take is that it's capital intensive ( you need investors or deep pockets). You should definitely know your remodel budget going in. My friend doesn't do the old houses. He does the big McMansions in the high end burbs. They are very creative in that they do things like split the master bed room into multiple rooms. There are lots of options for configuring the property. You can go from private room private bath to shared room and community bath. Each type offers different income potential. My friend's assisted living does not have any skill nursing on staff. Their most important criteria is the ability of the staff to work with the population. That also follows Gene's advise on Joe's podcast.
Let us know what you end up doing.
@Jason Brenizer Yes we are closing on a duplex in 1 wk here in Dallas. Location is average, but its very close proximity to 3 hospitals downtown. We are thinking of doing a 15 bed by either renovating or building new since the house is pretty old, or we'll see what the city will permit. So our first stop will be to inquire about zoning and go from there, since it seems like that might be the first challenging part. Thank you for the reply. Very encouraging as we are pretty nervous going forward. Yes I agree its the best time to get into the ALF. Thank you.
@Charlie Claxton Wow looks like you guys are very experienced and proficient at what you do. Congrats! Its very smart to find ways to subsidize some aspects of construction costs with tax credits while reducing long term op costs. And thank you for sharing your recipe for successful ALF: amenities, competetive wages, quality care. Thank you for all the info. Husband and I are leaning towards building a smaller new for now, as we want this to be long term and hopefully pass it on to our 2 yr old. Yeah, I thought of maybe trying to work for an established facility to have firsthand experience working for a facility as we've both always been working in critical areas. But truthfully, we're afraid to lose momentum and get comfortable. Actually wrote your 3 ingredients, excellent guiding points for residents to stay happy. Thank you again for taking the time to respond.
@Bill S. Thank you for the response. I will listen to his podcast tomorrow. Yeah budget is definitely a priority as we dont have extremely "big(ger) pockets" haha! Looks like I'd need a draft, budget, then submit for city approval. And will definitely give you an update once we get the ball rolling. Thank you.
@Zen Ouano if you ask the City they will tell you no-go in almost all cases. My friend that does it, submits a building/remodel plan for a SFR. It just has lots of rooms and bathrooms. His friend that also does it has had to hire a lawyer to "convince" the local city that it's not a business or commercial use but a residential use that falls within residential use requirements (unless you build above the definition of a the small type B facility. This can be very challenging but if you hold their feet to the fire they will eventually concede and you will be able to move forward. If you are very serious about this do not approach the City first. They will mislead you and cost you thousands. Get competent legal advise and experienced operators to hold your hand and guide you. If you ask they will tell you "no" and it's set in stone. If you point to the code and tell you conform they have not alternative but to say "yes". I can tell you from experience, asking a bureaucrat if something is allowed will only lead to heart ache and large empty pockets. The way to do these type of things is to have a team that knows the code better than the City and leads the City to the obvious conclusion. You win these battles by annihilating the opposition. When you meet with the City, your team should control the conversation and present from a position of strength.
If you feel you must ask, don't give them your name or the property address. If they insist on an address find a similar one that is zoned the same, in the same area. Tell them you are blue skying the possibility prior to acquiring the property.
@Zen Ouano, heed @Bill S. 's advice. Most cities shy away from this type of facility because it's not something they have to deal with very often. Outlier projects like this, from their point of view, are fraught with risk. They have fear over making decisions that aren't so cut and dry.
For instance, Austin, TX has an ordinance which states "no more than 4 unrelated adults may live in a property zoned as residential". I'm paraphrasing. That "code" tripped up my architect. I didn't mention it to the city, since it is really in place to crack down on stealth (college) dorms and flop houses. The "Group Home" designation in Austin, under the residential use, has several federally mandated fair uses- -- day care, assisted living for the elderly, disabled, and mentally impaired, etc. These supercede that ordinance.
Knowing the overlapping city, state, and federal codes and guidelines better than the city officials is often necessary so that you can educate them (kindly) into granting your permits.
If you are going for the residential model, I suggest submitting your documents for your building permits without talking about the intended purpose. They may reject your submission, stating that you have too many rooms and bathrooms. Only then would I break out the "Group Home" explanation and explain the State licensing standards you'll have to meet to run the home. And avoid talking about it as a business, even though that's what it clearly is. That word will likely scare the residential permit reviewers enough to say your project should actually be reviewed by the commercial reviewing division.
Good Luck!
@Jason Brenizer and @Bill S. thank you for the advice. I honestly had no idea and wouldn't have thought of approaching the city like this otherwise. This is the great thing with this site, with busy people like you taking the time and willing to impart some learnings based on life experience. I appreciate it. Thank you again.
@Jason Brenizer .... I'm late to the party, but I found your information vey helpful as my wife and I are also interested in Residential ALF's here in Texas (Dallas). We've been doing a bit of research ourselves. Navigating code/compliance/rules and regulations can at times be daunting, but knowledge is a key to being successful, so thank you for sharing!