Assisted living deal details

[Kevin Vandenboss]

I know a lot of people have been exploring the assisted living industry as a market to invest in, and I talk to a lot of people that want to learn more about it. 

I can't help out very much with the operational side of it, since I only handle the sale of them, but can help you understand how the deals come together. I figure I can post the details of a deal we closed a couple of weeks ago to offer some insight. This one is fairly standard as far as the deals we've done. 

Property/business
17 - bed adult foster care
Sold for $750k
SBA 7(a) financing plus seller note

This one is located in a rural area in Michigan and cares for seniors without any special care. It's licensed for 17, but they have been operating it as a 12 bed. The sellers operated the business, but only handled administrative tasks. Never covered any shifts. It was a good opportunity for somebody that wanted to be involved in the business, but not necessarily have to work in it. 

This particular one was getting between $3,200 - $4,000/ month per bed.The gross income on this facility was about $450k/ year. The net income, including owner's pay, was about $125k.

The buyer used SBA financing to do the deal, but also needed the seller to hold back a note on a portion. 
The buyer put $45k down, the bank financed $585k and the sellers held a note for $120k with a 5 year balloon.

We had some hangups early on with the lender the buyer wanted to use, but once we got him set up with out lender it took about 90 days to close. 

The buyer had prior experience in the business, which helped with getting approved for the loan. The sellers also agreed to stay on for a couple of months to help the transition, which was another factor in the loan approval. 

Some of the things the lender needed in order to approve the loan:
Three years tax returns for buyer and seller/business
12 months of bank statements for the business
Environmental inspection
Commercial appraisal
Business plan from the buyer
List of all furniture, fixtures and equipment with estimated values and serial numbers for anything over $5k
Life insurance policy on the buyer naming the lender as a beneficiary
Other random things the lender or SBA asks for along the way 

In Michigan, licensing isn't a simple process. You need a license to operate, but you can't apply for the license until you either own the property or have a lease. See the issue? In some situations, if the facility is at risk of going unlicensed with residents that will all have to leave, the state will issue an emergency temporary license. In most cases, the seller maintains the license for a period of time. They put the buyer on the license as the administrator while the buyer waits to get approved for their license. That's what we did in this situation. What happens if the buyer doesn't get approved? Never had it happen, but it's a risk. That's why it's important to make sure that you fit all of the eligibility requirements, or have somebody that does, before getting into the deal. 

I hope this offers some insight for anyone interested. I'll write one about a couple of seller financing deals next time.