Gene Guarino talks with us today about how flipping a home into a residential assisted living home can bring you more money.
Monthly, the rent from tenants in a residential assisted living home can be significant, and when you go to sell the home, it can be sold with the business and be worth a good amount.
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 Guarino from the Residential Assisted Living Academy. I’m your host today for the REI Classroom and we’re going to talk about the ultimate flip, how to add $100,000, maybe $200,000 or more in value to your flip.
When we talk about real estate, we can talk about square footage and comps, but the reality is a home is a home, but it’s not the highest and best use to just rent it out to a family. When you think about it, if you have a rental home and maybe it’s just what I call a breeder, box, three bedrooms, two baths, your average home, your average neighborhood, it might rent for $1200 a month. So you’re going to make $100, $200 in cash flow, but it’s worth pretty much a multiple of either the net or the gross cash flow. So if you’re getting $1200 a month, that home might be worth $120,000 just based on its cash flow potential.
But I’m going to switch it. If you watch some of the other REI classroom sessions that I did, showing you more about the opportunities with the residential assisted living, you understand you could make $10,000 a month in positive cash flow. So if you own the real estate and you’re charging yourself in a separate entity rent and you’re getting twice the fair market rent, number one, instead of $1200 a month, we’ll just use those numbers, if you’re getting $2400 a month or all of a sudden, your home is worth more just based on the rental income, but you still have to prepare the comps.
The comps might still say it’s worth more than $120,000, but it’s not worth $240,000 just because you’re getting twice the rent. So you do get a bump there. But where you really get the bump is if you have that home ready to go and rent it out to an entity that is leasing it for residential assisted living, that business itself, residential assisted living, is worth hundreds of thousands of dollars.
So let me give you kind of the general math so you understand. Take the net income each month. Let’s call it $10,000. I got to that number, I gave it to you in one of the previous REI Classrooms. Go back and watch that one. But $10,000 net, if we multiply that each year, that’s $120,000 in net profit. So in your valuing the business, it’s a multiple of that net number. It could be twice that. It could be three times that. So let’s just say twice that. If that business is netting $10,00 a month, one year is $120,000. Twice that is $240,000.
So you, potentially, could sell not just the real estate at a premium but now, sell the business as a separate entity for $200,000, $300,000. That’s the ultimate flip. By the way, the financing for that, many times, is going to be they give you a significant down payment and then make payments to you for a period of time. How many of you wouldn’t mind getting $50,000 now for that business and an extra $5,000 a month for the next two, three, four or five years? That’s what you can do. That’s the ultimate flip.
So if you’d like to learn more about the residential assisted living and how this works in a residential setting with a single-family home, keep watching the REI classroom. I appreciate you being here. I look forward to sharing with you more.
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