So You Wanna Start a Residential Assisted Living Care Home (RAL)?
I've seen a lot of posts about people eager to start an RAL and wanted to share some of the costly lessons I have learned and hopefully you can realize it before embarking on these projects. I've noticed the usual post goes something like this:
"Wow! Just listened to a podcast where the speaker talks about monthly cashflow of $5K to $10K!!!! I'm planning on building a 16 bed facility. That's like $80,000 monthly or $960,000 annually!!! How do I get it off the ground?!!"
others are little more cautious...
"I have a ranch house which I think would be perfect for a care home...where do I find an experienced operator to lease it?"
usually my favorite post goes like this...
"Found a site and decided to build an X bed RAL. How do i make sure it is filled up by the time I'm done??? Help...I'm close to licensing!!!"
Sure it's a little tongue-in-cheek but it's only because I had those same assumptions and scattered thoughts when I first started seriously considering RALs. I've previously posted on my RAL journey but I want to share my experiences and lessons learned. I'll go over the best steps I feel would most efficiently get an RAL off the ground and how I am currently evaluate future projects. Presently my 10 bed facility (opened in July 2019) reached a milestone last Friday by being 100% occupied! I am more than happy with the outcome and already have plans to open more homes. I'm presently working with some investors and our plan is to build some more 10 bed facilities (I'll post separately about these future concepts.)
Starting this business (and you have to realize it is a business) is not easy and there are so many moving parts. Common questions are: Do you find a location first? Is there a demand in my area? How do you get even accurate numbers to run a pro forma? Should you partner with someone and if so who? Do you go to the Dept of Health and review the thousands of pages of rules and regulations so you are absolutely familiar with everything?
Yikes! Fuggedaboutit!!!...this sounds like too much damn work!
And thus, most people never end up starting a care home.
Fortunately i'm going to share the number one concept (aka my secret) that I've realized that will really help put things into order and hopefully simplify the process. I'm not saying its foolproof, but it will go a loooong way in reducing the stress, time and effort you are going to put into starting a home.
I'm going to go over the most common mistakes and false assumptions people have in regards to care home.
Myth 1: Location Location Location
Yes, location is important. After all how do you know seniors will come to the house if you build something somewhere? Of course one method to check demand is to see if there is an existing commercial ALF already in town and if so where. You will need to figure out their occupancy rates esp over the course of the last year. A 100 bed facility that is half full for most of the year is a telling sign, but how do you even figure out that rate?? Also, remember an RAL will likely be located in a residentially zoned area, not a commercial zoned area like a big box ALF would be. Maybe you need to fork over a few thousand to run a market study in the zip codes you really like?
Myth 2: I need to run a great pro-forma
Here's thing about pro formas...they are almost always a shot in the dark. When we ran a pro forma for my 10 bed, nearly all the expenses were underestimated. And by a lot. Payroll was significantly higher, entertainment costs, food, utilities...everything was pretty much under budgeted. The only silver lining was that we also significantly underestimated our bed rates - an average of $1800 per bed less. [That's an extra $18K a month we didn't anticipate which really helps to offset those extra operating costs.] We knew we were being conservative with revenues but thought we were being conservative with the expenses. In the end our actual budget has been ahead of our estimated which has worked out in our favor.
The biggest variable is going to be placement costs. It costs big money to place a resident - often a 100% of the first month's rent. So how many residents are going to be placed over the year??? How do you estimate just how many residents will stay long term vs. decide to leave or perhaps pass away during their stay? This is a huge variable and the answer is it cannot be predicated with any degree of accuracy.
Myth 3: I need to get educated first
Actually this is Not a myth and should be done first and not taken lightly. I learned from doing Gene's home study course (and I can share my feedback if you PM me.) I thought it was extremely useful. I listened to Gene as a guest on several other podcasts and also listened to his podcast series (seems to have stopped doing for now.) I called care homes in the area to see what their occupancy rates were and how much they were charging. I also wanted to figure out how they were staffing and running these homes. Education is paramount and will help you learn a lot of the answers, or at least know how to ask the right questions when you come across someone who knows the business. The caveat is just being grounded and in a pattern of constant learning but never having the faith to leap forward (i.e. massive amounts of inaction). At some point, you will have realize that you need to put the book down and just get on with it.
So what is the best way to start in this field (assuming you got educated and understand the basics).
My solution is simple:
Find the manager first.
Get on some job sites or call some care homes and see if there is a manager willing to team up with you from the get go. It can start with coffee and lunch but you can really pick their brains on all those aforementioned issues just for free. They work directly with agents and should have a good sense of which areas in town are "most popular" for placing residents and which aren't. Second, they are often aware of most operating expenses so should be able to give you a good idea of just what their turnover has been, staffing costs, and how they would run your home. If you feel you found a good manager, pay a small salary to keep them on retainer as you start the project . They can help you with the state and city regulations and understanding what it is you need to have done to your property to make sure it is licensed properly. They will help you save time, money, and energy in the long run.
From my observation, a great manager has 3 skills that are imperative:
1. They are personable to family and caregivers - after all they will be the face of the business and will be giving tours and going over house info with potential clients. You want residents to feel comfortable soon as your manager says "hi" to them on the phone and in person.
2. They know how to handle caregivers and other staff - That means being both firm and fair with the caregivers as they will be actively managing, hiring and (if needed) firing them. They should understand when caregivers need help and support and make sure they avoid burnout. How the work environment is set up by the manager will really dictate the overall mood of your house and will be reflected quickly to families when they come to tour.
3. They can network effectively with placement agents - Agents are going to be the primary way a house is filled, so a reputable manager likely will have multiple agents who are willing to work with them already because they have a history of running good homes. A good manager reflects on your home and agents will be more likely to place a resident into your home just by knowing the manager running it - even if they have no idea who the owner is.
The caveat to all this is that it is very difficult to find a good manager that needs a job. Excellent managers may already be working for someone with several homes, or may be running their own homes and do not need the extra income. Mediocre and questionable managers may be out there looking for unsuspecting first time investors by over-promising and over-selling. Be wary if you are an out-of-state investor looking to run a home solely with a manager on your team. Finding a manager is going to be challenging but doable. Really do your due diligence and find out why a manager is looking for a position when they could be running their own home. If you find some potential candidates, call some of the agents in the area and see if they are known to be a good manager. Ask for references and call any prior owners they may have been associated with. There are facebook groups just for RAL Managers, so get in contact with some of the members and see if the person has any red flags. It also helps to develop this relationship early so you can see how the two of you will work together over time and really understand their strengths and weaknesses.
Anyway, hope this guide can help you focus on your end goal. I think working backwards by getting a manager on board is probably the best way for you to figure out how to proceed in the most efficient manner
Thanks and GL!
Sendhil