So I am a new to commercial investor. I appreciate every and each one of your inputs guys!

I was looking for operators, small home operators so I could help them to rent another home and earn more money.

I came across an experienced operator but what he talked about was waay larger than what I imagined... So I am trying to put myself in this situation even though it's 20x larger than what I was originally aiming for...

The operator had a family friend who was going to invest, but the friend fell through because of family issues and he has 35 days to close,

We would of course need to verify everything possible to see if it's the real deal!

and here are the current numbers I have on hand approximates:

10m$ purchase price

62 beds

800 000$ down payment (on our side as investors)

Revenue: 40 beds occupied currently, bringing in $3 000 000 a year

After the debt service and all costs 800 000$ would be the profit. The CAP RATE in the area for other commercial properties is around 4-6%. Cap rate on this would be around 8% but of course it's not the best way to evaluate this, since it's together with the business... a bit complicated for my brain...

We will own 40% of the deal in total. 40% X 800k = 320k$ profit per year for our syndication which is 40% Cash on cash per year!

Operator will put some money down also. He already has 3 ALF homes in CA and is profitable. This facility is already operating with a good reputation, the operators wife is also a nurse for many years.

I don't have the full downpayment myself so I am now talking to my friends and industry experts to take a look at this. I can put down 1/4 of the money around 180k basically.

I now have prepared my own Proforma, I have checked the neighborhood and it's high income, median income is 98 000$. I can share the proforma with those who are interested.

There are only a handful licenced facilities in the area, and 4-5 million Californians will be in the 65+ age range in the next 7 years.

Yes young people are leaving California, but most old people are staying put. And long term I still think CA will be having the appreciation factor! And this is cashflowing today already!

RISKS:
1) If another corona happens it could be bad for the facility as vacancies go up, but it will still service the debt.
2) Staffing is problematic since there is a shortage but Most staff have been there 7-10 years

PROS:
1) With new solars installed the utilties will come down quite a bit!
2) The roofing, plumbing is in good shape!
3) Appreciation over the next 10 years
4) More elderly people that will need help
5) Great cash on cash and equity buildup

I asked him about the eventual exit and operator said "I could buy out the equity partner if they want an exit!"

We will be the LPs in this partnership operator GP. The real estate and the business will be in separate entities. There will probably be quite a bit of bonus depreciation as the cost seg will allow the syndication to do that.

We will of course look at operators existing businesses, balance sheet, last 2 years personal tax returns, experience and etc...

Any ideas on how to do better due dilligence?

I want to detect the RED lights for this deal and move on!