3 Best Ways to Profit from Senior Housing Today

Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Gene: Hello, this is Gene from the Residential Assisted Living Academy. We’re going to be talking about the three top ways that you can make money with senior housing.
Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com
Gene: Welcome. When we talk about the three top ways to make money in senior housing, you can just put your money into a mutual fund, a REIT or a hedge fund and they would invest the money for you. Actually, that is one of the top ways that the big money is investing today in senior housing. Three of the top 10 hedge funds, they are getting the highest rates of return on every category from motels to apartments to multi-family to single family.

So the big money is there. How can we get involved? When we talk about senior housing, we can do the big box. But that’s not what I do. I do residential assisted living. In residential assisted living, one way you can do it is just be the owner of the real estate, lease it to the operator of the business. If you like the idea of single-family homes and rentals, the problem for me is that you have a family that’s typically living there, they can be hard on a property. That hard meaning they can really run hard on a property from everything from flushing the toilet too many times to dissecting their motorcycle on the family room. You know what I’m talking about. Typically, they’re a one-year lease. And if you have a one-year lease and they move out and move the next person in, you can be down for a month right there.

So there are some issues with single-family rentals, but if you had a long-term tenant that was low in impact and they were paying you up to twice the fair market rent, would you be happy with that? Well, that’s exactly what we do when we talk about the residential assisted living. I bring people together in my trainings that are operating the business and others who just want to own the real estate. Those who want to own the real estate, the idea of having a tenant for five years that is low impact. Where you’ve got seniors living in the home, they’re are not punching holes in the wall and they’re in bed by 7:30, there’s no loud parties, the neighbors don’t complain. But why would they be willing to pay you twice the fair market rent? The reality is when they operate the business they can be making 10, 15, $20,000 a month in profit.

So let’s make an example where, let’s say, you have a nice home; it’s a $500,000 home. By the way, if you’re in California, that’s a garage with a loft above and if you’re in Georgia, that’s the Mayor’s mansion. It’s different strokes, different folks, but let’s say it’s a nice home. It’s a three-bedroom, two-bath home, 3,000 square feet so it’s a nice big home. It’s $500,000. What would that rent for in your neighborhood? $2,000, $2500? Maybe $3000? It’s hard to make money as a rental property for that.

So the only way to really make money is you make money when you buy. You’ve got to buy it at a huge discount, maybe $350,000 for that $500,000 property. And now, from a cash flow perspective, you can break even. You’ll make money on, hopefully, the appreciation, certainly on the depreciation and the tax benefits you get. But it’s going to be a relatively small cash flow.

But instead of renting it for $2500, what if you could rent it for $5000? And what if your tenant signed a five-year lease, not a one-year lease? And what if your tenant also took care of the basic maintenance? You have a homeowner’s policy that takes care of the big things like the AC and hot water, but they take care of everything else. Why would they pay twice the fair market rent? Because they’re going to turn it into a residential assisted living home. And in that home, they’re going to be charging 3, 4, $5,000 to 10 different people. Those residents, those seniors living in that home, are going to be provided with 24-hour care and they’re going to be very happy in that home.

That business itself is going to generate huge income and paying you rent is just a cost of doing business. So if they pay you $5000 a month in rent because you’re willing to let them have that business in the home and, by the way, it’s all sanctioned by the government. It’s licensed by the state. The Fair Housing Act, you have to allow seniors to live in those homes. There are rules and regulation that they’ll follow. And, by the way, the liability insurance that you’re worried about, which I know you are, if you own the real estate, you have the liability insurance for the real estate, the slip and fall, but the business will have it for their specific business.

You name doesn’t [Inaudible 00:04:15] insured so you’re protected there as well. I know that’s a concern to any one of us that does real estate, what is the liability and what is the risk? But, if they’re operating that business and they have insurance and you are now protected with that insurance, it’s a moot point. So they are willing to pay twice the fair market rent because they’re going to be making a lot of profit there.
So the third way to make money in this niche in senior housing is to do that yourself. Own the home and own the business. Do it in two separate entities. That’s what I would suggest. Have the business lease the property from the entity that owns the real estate so they’re separate liability protection. But also, you have the ability to raise that rent to a level that you can refinance the property at a much higher rate.

So when we think about this opportunity, when we talk about senior housing, if you do it on a residential level, you can do it with a home just like the one you live in now. As a matter of fact, you might be living right next door to one and you wouldn’t even know it. There’s no sign in front, there no kids running around, there are just 10 seniors living inside with a couple of caregivers taking care of them 24/7.

And there’s an added bonus to this whole thing, by the way, when it comes time for you to move into a home, you’ve got a choice. You’re either going to have to get a long-term care policy today, which might cost you $5000 a year. And most people in their 30s, 40s, and 50s don’t want to spend that money. They’re going to put $150,000 into that insurance policy and hope that they collect on it at some point. So 10% of the population does that.

Your other choice, you’re now going have to take whatever you’ve saved for your entire retirement and start to spend down $5,000 a month, $6,000 a month, 8, $10,000 a month. That money is going to go pretty quickly. Once the money’s gone, you’re going to have to liquidate the assets. The real estate, whatever it is that you have accumulated to pass onto the kids is going to be liquidated. It’s going to be paid down until you have nothing left and then the state takes care of you.

And that’s pretty drastic and drab, but let me give you a better solution. You own the real estate and you own the business. You make 10, 15, $20,000 a month now as the owner-operator. And when it comes time for you to move into a home, you move right into the master suite. You’re being taken care of for life and you didn’t leave a problem for the kids. Your kids aren’t going to be any better prepared for this than you are and if you’re not ready for this, it’s going to come one way or another.

The baby boomers are here and they are around 65, 68 on the front end and 10,000 people a day are there turning 65. More importantly, 4000 a day are turning 85. Seventy percent of them are going to need help for three and a half years, 24 hours a day. You’re not going to go over and take care of mom and dad yourself. You’re going to have to bring somebody in or you’re going to have to bring them to an assisted living facility.
So if you like the concept of the residential assisted living facility and you would like to learn more about that, that’s what I do. And I appreciate you listening to me today. I’m going share more with you in the future so come on back. Thank you.
Mike: AceBusinessFunding.com can help you get access to up to $150,000 in revolving credit lines to fund your business with rates as low as 0% for the first 12-18 months. Use the funds for start-up costs, marketing, inventory, heck, you can even use it to buy houses and pay for rehabs or almost anything else that your business needs. If they can’t get you funding, you don’t pay a dime. Get funds for your business today at AceBusinessFunding.com.
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