Is it good time to invest in Assisted Living Facilities?

Question

Hey BP,

I'm here to get you guys opinion on if ALF's are a better investment than multi Family properties .. From my experience I'm starting to see better returns with these types of Investments .. Is there any ALF or Multi Family Investors who can chime in on this subject ..

Tom Feret · Answer

Working in healthcare I'll have to echo @Julia Vang Hart and @Account Closed that this should not be viewed as an extension of a "typical" real estate investment opportunity.
There is and would be a lot of red tape, government, compliance and staffing obstacles to get through in order to establish a compliant facility. All of which are constants in the operation of an ALF, even after it is set up. Once it is running there is a multitude of regulations, laws and compliance components that need to be maintained, reviewed and up to standard. All this is JUST from the administrative side!
You have one deficient survey or are not in compliance at your site and the fines and government (medicare) scrutiny will be upon you.

Can it be lucrative? Probably. Plenty of baby boomers that will be in that age group in a few decades time.
Is it worth the (constant) headache? Hehe, I think those with experience in the field would give you their 2 cents.

Unless you have a great team in place that has experience with all that mentioned above or have experience in healthcare, you will be in for a ride.

Can it be lucrative? Probably. Plenty of baby boomers that will be in that age group in a few decades time.
Is it worth the (constant) headache? Hehe, I think those with experience in the field would give you their 2 cents.

Unless you have a great team in place that has experience with all that mentioned above or have experience in healthcare, you will be in for a ride.

Account Closed · Answer

With such a demand in this market I can't'argue with the facts but knowing people in the industry and what they have to go through as far as the "red tape" involved with the government not to mention the turnover with employees I fail to see how it would hardly be worth it. You would have to have in my opinion an excellent management team in place and be so far removed from the day to day in order for it to be beneficial.

Julia Vang Hart · Answer

As a nurse that's worked for years in ALF I'm even finding it hard to wrap my head around owning and managing an ALF. Of course I'm seeing it from the perspective of what medical services/amenities you will provide as an ALF. You'll need need an administrator, a director of nursing and nurses to dispense medication, nursing assistants, provide three meals a day, provide activities and transportation and pay the staff for providing all of these "assisted services". Assisted living people are just one health crises away from a nursing home or hospital. And if you don't provide these services why should they give you their good money to come live there when they can stay at home and have home health services. And don't forget about the annual survey from the State to make sure the facility is running as it should.

Jason Brenizer · Answer

Hi Marcus. I attended Gene's RAL Academy course last summer and I cannot say enough good things about it! Gene and the other main instructor Tom have been in the financial and real estate industries for years, and both are fantastic instructors. They practice what they preach, unlike a lot of teachers out there.

My wife and I are in the process of remodeling a property in Texas for the purpose of owning the assisted living business as well as the underlying real estate.

It's not a hassle free investment. You can't "set it and forget it". But if you were to syndicate a medium to large sized multi-family where you needed to enact a value-add play, you'd have a similar sized project ahead of you, likely with a lot less cashflow, especially in today's tight market.

1) get educated on the business model,

2) research your target market (especially state and municipal codes and ordinances) to see what's possible,

3) find an under-served location or even buy an existing, already licensed assisted living site that caters to the kind of clients you hope to attract.

Gene's got a lot of free content to get you started on his website to help you decide if you'd like to dig in further.

- Jason

Joel Owens · Answer

Build out is more expensive but rents tend to be a little higher than B multifamily. You just have to have the building and land numbers down pat with the expected rents on the conservative side.

Zach Quick · Answer

I have always that the 55+ community would be a solid investment for an end 1031 purchase for the low turnover/low expenses appeal/ideal.  Have you found that to be actually true for this caliber of investment as compared to maybe a B class MF?

Joel Owens · Answer

It's not passive.

What I am seeing now is some clients going after the 55 plus only community for apartments to build brand new.

You get into ALF's and then specialty places like Alzheimer care and rehabs and the regulations can get pretty tough.

Jason Brenizer · Answer

My take on it is this. Most businesses that offer a high ROI and a reasonably fast slope to profitability will also have components involving risk and significant start-up effort. Maybe an online marketing products business (fulfilled by Amazon to avoid inventory and shipping work) could get you where you want to go with less exposure. But then you wouldn't get the tax benefits of owning the real estate.

Owning a quality ALF is not a business decision to be taken lightly. But then to equal my private pay model, with 10+ residents under care, I'd have to own 70+ single family rentals in C+ to B neighborhoods in the stable markets I favor with a COCR of 12% or better after expenses. Even with property managers (which I use for my rentals) that's still a lot of work. Not necessarily the "set it and forget it" passive cash-flow machine.

Matt Leavell · Answer

I would seriously look out for the legal exposure.  1 word... "malpractice".  Cause someone's elderly parent to pass away due to lack of professional care and you are in hot water.

With that being said, my sibling owns an ALF and I helped put the deal together.  They can certainly carry a good ROI, but be positive that you have protected yourself from the legal exposure as best as possible.

I also have a friend whose family invested in a ALF and they did not protect themselves adequately from the legal exposure.  They were simply investing in financing the real estate of the facility and they were able to get linked to the malpractice case.  They had to declare bankruptcy.

Is it good time to invest in Assisted Living Facilities?

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