How can turn “plain Jane” single family home into money making machine

Earlier I introduced to you the world of RCF, or residential Care Facilities. In my next entry, I went through the numbers and the profit potential for operating a RCF. This week we will cover the real estate aspect of this opportunity. How do we rent, own or otherwise control the real estate for the RCF?

Can I do this IN my own home?

If you own a home now that could be used as a RCF, the real estate cost is your current PITI. That is the principal and interest on any loans that you may have now and the property taxes and insurance for that property as well. That might be $2500 a month or less. The best rates for financing today are for SFHs that are owner-occupied. If you can, always use residential financing. Those rates are currently under 4% and even home equity loans are available under 4%.

Just because you CAN do something doesn’t mean that you SHOULD do something. Let's think this through. If you are contemplating using your own home… where will YOU live? Assuming you are not ready to live there as a resident, are you willing to live there as the owner?

The home may be big enough and you may even have a separate entrance and kitchen etc. But whenever you live AT your business, things are different. That is a consideration and something that you will need to decide if you are willing to do.

Having said that, it COULD be a great option for you. Some of you may own a home that is simply too big for just you at this point in your life. I am consulting a woman that owns a 7000 square foot home in Utah that is too big for just her, BUT, what an amazing RCF it would make.

If you were to operate it as a RCF you could have 5 to 10 residents paying you rent. I would encourage you to not be the “caregiver” for those people but rather, be the owner of the business or the property owner. I want to encourage you to work ON your business and not IN your business.

As a side note, there are many people that started a RCF in their own homes with the intention of being the caregiver, the cook, the maid etc. After a few months or years they realized that it isn’t what they really wanted. Those are good prospects for us to buy those homes and existing businesses in some cases. They have a problem and we have a solution. That is the topic of next week’s entry.

If you like the idea of using your home as a RCF, that is fine. But living IN the home while it is being run as a RCF is another choice that you will need to make. Choose carefully.

Can I buy a SFH for myself and convert it into an RCF?

Now we are talking! That will get you access to the best financing available. SFH owner-occupied with a low down payment. The 1st thing you need to do BEFORE you buy the home is research whether you can do this in that specific home. 1st contact the zoning board in the city that the home is located in. They will have specific rules regarding this. 2nd, if there is a HOA where the home is located, you need to determine if they will allow this use in that neighborhood. If it passes both of those then you can move forward. Doing these two steps early in the process will save you time and effort. You can get exceptions and variances to get permission from both of these but make sure that it is even possible before you move forward. If it is not possible, it doesn’t matter how good the house or the deal is. Move onto the next opportunity.

By the way, you can find excellent homes that you can buy or rent and help the owners avoid a short sale or foreclosure by taking over their payments on a home they might otherwise lose to the bank. This will be explained in detail in my training in Phoenix AZ. This is a great way to get to a property before it goes to the bank or to the steps of the court house in a foreclosure sale.

Do I have to own the home or can I just rent the home?

You can rent it if you would like to. The reasons why that would potentially be a choice for you are:

• You may have poor credit and not be able to qualify for a loan
• You may have limited resources for a down payment
• You MAY be able to rent the home for less than owning the home. This is all in the negotiation. I have a friend that is renting an amazing $2.5 million dollar home for $5,500 a month AND he has an option to buy it for $1.5 million. He is renting it for much less than what it would cost to own it and he can buy it if he wants to in the future… at a DISCOUNT. That my friend is tremendous negotiating. When you have a motivated seller, you have the leverage. It is all about your skill in assessing the need and creating an agreeable solution.

For this case study let's assume that you will pay more to rent the home than to own the home. If you rent the home from someone else, you may pay up to twice the amount required to own the home. In this case that would be $5,000 a month for rent for as home that you could own for $2500 a month IF you could qualify. The question is, do the numbers work? If they do, then we can move forward. If not then we move onto the next opportunity.

The good part in leasing is that you will not have to qualify for the financing and your out of pocket cost to get into the property will be less with no down payment. This is all up to your negotiation skills. If you are really good at this, you could even get the 1st few months of rent “waived” or deferred or even have the property owner provide the funds needed to improve the property.

You will want to negotiate with these as your goals:

• 1. term lease. A RCF is not a business that can be moved easily. You want to be there for the long term with the option to renew the lease.
• 2. Always have the option to buy the home in the future. Negotiate a portion of the rent being a credit to you if you do decide to buy the property.
• 3. Obviously the lower the rent the better. The smaller the security deposit the better.
• 4. Have the landlord take care of all maintenance, pay the taxes, and the property insurance. Realize that if you are the property owner I would tell you to have the tenant pay for those. In just depends on which side you are on of course.
• 5. Waiver of the first 2-6 months rent. If you don’t ask, you don’t get

If you were to purchase the property for all cash, the cost on a monthly basis is zero. BUT, you do have an opportunity cost that you have to account for. IE: <1% if you put it in a bank account. 2-4% in a CD, etc. If you were to leverage the purchase with 25% down and a bank loan for the balance you can do this for just 25% of the cost of the home.

You can even use your own retirement account to finance the purchase of real estate. I will explain that in detail at my training in AZ. You are also probably wondering “how long will this take to do?” Next week I will explain the different options that you have to get this done. I will explain the secrets to saving you time and getting to that $10,000 a month faster.

If you are interested in learning more about RCF, Residential Care Facilities and how you can do this for yourself, email my team at [email protected], for more information. I have reached out to a friend and fellow investor and EXPERT in RCFs, Gene. He will be providing a zField Mentoring training for a limited number of people in AZ. We will “go into the field” for 2.5 days and see working homes and homes that are for sale now. The best way to learn is by seeing it all for yourself. Come and join my CMREI RCF Team if you are interested.

To your SUCCESS!
Cherif Medawar

www.CMREI.com