Residential Assisted Living Home Deal Deep Dive

[Alexander Schloe]

1 week ago, we (@Charlie Cameron and @Luke Frizzell) closed on our latest Residential Assisted Living home, and it was one wild ride! We are so excited to add another RAL to our portfolio and truly believe it is the best asset class in real estate now and for decades to come. 

Check out the deal deep dive below!

Arizona Residential Assisted Living Home Deal AnalysisLocation: Urban market in a submarket of Phoenix, Arizona

8 bedrooms, 4 baths

Recently renovated and operating residential assisted living home

Purchase Process:- Direct Mail Sent: 648 letters to RAL property owners in Phoenix

Seller Responses: 45 interested sellers via email, phone, or website

Deal Source: Initial email, followed by a phone call

Negotiations: Seller desired cash flow to retire, accepted seller financing

Financing & Expenses:- Offer Price: $740,000 (includes RAL business)

Seller Financing: Terms: 10-year balloon, 30-year amortization, 6% interest rate

Down Payment: $45,000 (6%)- Principal & Interest Payment: $4,226.83/month

Other Costs:

Property Taxes: $2,701/year

Operator Placement Lease Fee: $14,220 (3%)

Legal Fees: $4,334

LLC Formation: $164

Closing Costs/Inspection/Sewer Hydrojet: $4,058

Repairs Budget: $10,000

Reserves Fund: $12,500

Investor Payment: $416.67/month (10% interest on $50,000)

Insurance: $192/month- Utilities: $0 (paid by the operator)

HOA: N/A

Home Warranty: $750/year

Repairs/Capital Expenditures: $395/month (5%)

Total All-in Expenses: $91,300

Total Monthly Expenses: $5,230.50 (including saving for repairs)

Income:

Commercial Lease: The operator handles day-to-day care, placement of residents, utilities, maintenance, lawn care, etc.- 

Lease Term: 5 years

Lease Amount: Month 1: Free 

Month 2: $3,950 (50% off) 

Months 3–12: $7,900/month 

Months 13–24: $8,137/month (3% annual increase)

Months 25–36: $8,381/month (3% annual increase) 

Months 37–48: $8,632/month (3% annual increase)

Months 49–60: $8,890/month (3% annual increase)

Cash Flow Analysis:-

Monthly Net Operating Income: $7,067- Average Monthly Income: ($0 + $3,950 + $79,000) / 12 = $6,912.50

Average Monthly Cash Flow: $6,912.50 - $5,230.50 = $1,682

 Year 1 Annual Cash Flow: $1,682 x 12 = $20,184

Year 5 Monthly Cash Flow: $8,890 - $5,230.50 = $3,659.50

Year 5 Annual Cash Flow: $3,659.50 x 12 = $43,914

Cash on Cash Return: 77.51% annually

Let me know your thoughts and come ride the Silver Tsunami with us!