Senior Housing

28 Replies

Has anyone ventured in the area of senior housing? I've seen a few deals but I noticed the rents are restricted and most of the mortgages are assumable. Has anyone done any of these deals? Anything to look out for?

I would be careful of how much insurance you have to carry for malpractice or anything like that.  As well as how many employees you will need to have on staff.  The other day I was looking at purchasing an Assisted Living Facility, but it seem more involved than I expected.

Medium river capital logo whiteAnil Samuel MBA, River Capital Investing | [email protected] | 240‑449‑4118 | http://www.rivercapitalinvesting.com | MD Agent # 653695

it is certainly a growth industry with much upside but you need to educate yourself well before venturing in.  Their is licensing, strict regulations and high staffing turnover.  Their are, of course, rewards.  I have friends that did well ... until they burned out.  I believe primarily due to their management style which was disorganized and too self-involved. Empathy and nursing skills help, but management and personnel skills help to.

Curtis Bidwell MBA, Philia Holding Co LLC | http://www.PhiliaHC.com | Podcast Guest on Show #95

Yeah we call them ALF's in the business.

I looked at some for some of my clients. The returns are higher but you are really buying a business as an owner/operator. You have to be able to be around getting close to people and them passing away etc. and the liability issues.

There are many different levels from just owning a 55+ age apartment building where nothing is generally required to some assisted living and then other places with full blown acute around the clock care. 

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

Daniel, I focus primarily on the AL industry, and raise capital for key operators.  I only focus on the larger facilities, and not the trend we have seen lately with SF homes that are converted into small AL facilities.  However, I think they have merit.  I agree with @Joel Owens  - its a business now, and not just a rental property.   I have seen various models, whereby you run the business, or you outsource the business to an operator that will manage the business and just utilize your facility.  And depending on the level of need of the residents, there can be some vey high start-up costs.  If you are going to do it, I recommend you commit yourself to it, and plan on multiple facilities.  Otherwise, I would not recommend it.  Its a significant undertaking.  It's very popular in the Phoenix area, and you can probably find some investors who have done this in that market.   Good luck!

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Daniel - I have been financing senior housing operators for over 15 years and it is really an operating healthcare business more than rental property. Your best place to start would be to hire a reputable management company in your market who runs other similar size and type of facilities. Market demographics and competition are very important to positioning your facility for success. If greater than 50% of your ALF residents are on Medicaid, you will struggle with profit margin, ideally you would have 65%+ private pay.

Keep in mind senior housing is considered 'special use' in the eye of lenders so there are fewer loan options in comparison to apartments (no CMBS, few life companies, fewer bridge lenders). I agree with @DanBrewer, it doesn't make sense to own one or two facilities because it is a significant undertaking. The successful operators I know are typically all in on senior housing with very little else in their portfolio.

out of curiosity, if I did not want owner-operated, what would a qualified operator cost per year to run the facility? and how many beds could one operator manage? 12? 20?

Kyle,

       Lots of good advice here!  Let me add some.  Here in the Midwest, these facilities are usually referred to as Community-Based Residential Facilities, or CBRF"s.  The licensing requirements are strict, for obvious reasons, and they vary depending on the number of beds in your facility.  You will find a lot of folks who want to open four or eight bed facilities, as the licensing requirements for places of that size are less stringent than the larger facilities. Employee turnover is high, due primarily to the low wages prevalent in the industry.  You have to allow more in your vacancy calculations, as a CBRF is more often than not a person's final move.  And you should make a serious effort to limit the number of Medicaid residents, at least until you are experienced enough to understand the nuances of how you get paid from the government.  

       Having said all that, these facilities can be cash cows, and their future is nothing but upside!  You've heard the fact that 10,000 baby boomers reach the age of 65 each and every day, and will continue to do so for the next 10 years or so?  What's not to love about that?  The facility owner who is experienced and patient will be well positioned for the foreseeable future.  Please bear in mind that you alone decide what type of residents you wish to accept, so elderly folks who can take care of most of their own needs are obviously less maintenance.  Also, your rent can be whatever the market will bear for your private pay residents.  Additionally, although their care is more intense and staffing turnover is even higher, dementia and Alzheimer's residents pay an average of $5K per month for their bed.

       I strongly urge you to pursue these facilities as an investment.  You will be happy you did.   

I am looking to invest in senior housing as well. I am however looking for a 55+ style, smaller, non-assisted living scenario in Northern California. I have tried multiple types of searches on the internet and coming up empty handed.  Can anyone point me to a resource for the restrictions/requirements for California?  I read somewhere (where?) that there was a minimum of 36 units required to be considered for a senior housing community.  Thanks in advance for any assistance lent!

I couldn't find anything specific about over 55 properties but here is the Calif landlord handbook.  Perhaps it contains contact info so you can phone an agency to ask.

http://www.dca.ca.gov/publications/landlordbook/ca...

I know links are discouraged but because this website is a government one, hopefully the mods will let it stay.

As a passive investor in a Single-Family Residence converted to Senior-Assisted Living, how much is 'sweat equity' worth in these types of deals? I understand management and insurance is at a higher cost than normal because it requires special licensing and higher quality management. With that said, 'Managing Partners' put the deal together, will manage the property and run the business. 'Managing Partners' are selling 50% equity for $182,000, equating, $91,000 as 'sweat equity' in the deal. Does this make sense as a passive investor?

Thanks for all the great advice in advance everyone!

@Dan Brewer   by any chance are you associated with the Seniorlivingfund or are aware of it? They are based out of Lenexa as well. 

@Joel Owens , I agree ALF is often a owner or operator model but I am curious if there is a pure investor play in this space as well? The fund mentioned above claims returns upto 21%. Wonder if any BP members have experience with them.

Hi @Kj Rustom , I am the Fund Manager for Senior Living Fund.  Feel free to call our offices, just go to our website - we are easy to find.  I can provide you and @Joel Owens plenty of information, and we have investors that can provide you a testimony on their experience with SLF.  Regardless of whether you invest with SLF or not, I strongly encourage you and other investors to invest in the senior housing sector.  It's been the top performing commercial sector for the last 10+ years, and that trend is expected to continue.  

Does anyone here know by chance about the housing that is strictly for 55+ or older community as opposed to ALF?! Also is it regulated? Any specific requirements there? Thanks!

Alina T., SAMO Financial

@Dan Brewer - I am intrigued by this sector, do you have any projects in the Atlanta area? It would be helpful to study the business and returns in my market. Of course, investing in your fund itself is another option.

Hi KJ,

None in the Atlanta area as of yet.   However, we do have a project in Savannah, and are seriously considering another Georgia property.   Feel free to contact me for more information.  Thanks, Dan

@Alina T. ALF (assisted living facility) is just a product type offered within the senior's housing space.  The major product types are IL (independent living), AL (assisted living), MC (memory care), and SN (skilled nursing).  Making a community 55+ restricted is a restriction that is placed on the deed and/or by a LURA by taking low income housing tax credits.  Age is normally a protected class for housing but a 55+ age restriction is the minimum age where you can get around this.  

Originally posted by @Alina T. :

Does anyone here know by chance about the housing that is strictly for 55+ or older community as opposed to ALF?! Also is it regulated? Any specific requirements there? Thanks!

 There is also Independent Living communities.  These are not regulated like Assisted Living facilities.  

@Daniel Roma the question is, what exactlly is it that you are wanting to do?  There are independent living homes, which house people that do not require any medical care by the facility. They can however; have nurses, home health aides, etc. that they pay for which come to them and help them at their apartments. Then there are the ALF as Joel Owens and others have mentioned. 

@Tina Peters in California you can contact Community Care Licensing to see if what you want to do needs licensing. if it's basically a group living type situation where you are renting rooms and providing meals (or not) that probably doesn't need licensing. I have actually considered converting my house and property into such a use. I have a 4600 sq. ft. home on 20 acres in Redding, CA and it could easily be adapted to such a use. However; I would need to rezone, and I'm waiting on the County to tell me what zoning I'd need for such a use, and how many bedrooms I'd be allowed to have. I've also considered just selling the property. 

@Dan Brewer Where can someone find information on market feasibility for various projects,, especially independent living if you know. Also, in talking with a non profit that is involved in senior housing they said that a lot of the funding that was once available for seniors housing is no longer there, do you know anything about that? 

Medium house plansKaren Margrave, Parlay Investments | [email protected] | http://www.parlayinvestments.com | CA Contractor # 680782

Hi everyone! I am studying this business and will undergo a training next week on how to run and administer RCFE in CA. Does anyone have any information on rental houses that are ready to be converted to residential care facility? Preferred location is within San Fernando valley, CA. I would greatly appreciate feedback, thanks in advance!

Hi @Napoleon De Guzman ! I just finished the online training (Component1) and am looking for houses in the exact same location. We should connect via DM! 

Are you starting component 1 or 3?

@Candace Majedi and @Napoleon De Guzman what training are you referring to, being an administrator for Assisted Living or ?  If you're looking to operate in a smaller facility, such as a house, why would you choose doing assisted living, over having an independent living home where there aren't the licensing requirements, or the staff requirements? Independent living is basically a boarding home where you provide rooms space and meals, etc. Do you happen to know what the cutoff number is for licensing? I've heard 6 before, and then someone else said 16. 

Medium house plansKaren Margrave, Parlay Investments | [email protected] | http://www.parlayinvestments.com | CA Contractor # 680782

@Karen Margrave The term in CA is RCFE, residential care for the elderly. It is its own type of independent/assisted living, but you can choose how "assisted" you want it to be. The demarcations are basically 6 bed, 15 bed, 50+ beds. The 6 bed is usually a SFR that's been converted to meet the standards required for a license.

Either way, even if you're just providing room and board and telling people when they need to take medication (not administering it) you still need a license. operating this type of facility without one is illegal and a person can be charged $500/day per person if I'm not mistaken. 

In 2014 they created the RCFE reform act which put more stringent rules in place for elderly care, beyond assisted living, because of mistreatment.

Now, to get a license, you have to have the building/sfr in place and up to code, submit a business plan, operational plan including weekly activities and meals, and have 3 months of operational costs in cash in the bank. 

This is seperate from the training needed to be Administator (which a licensee has to do as well)