Residential Care Facilities
Could you “Survive” on $10,000 a month?
Last week I introduced you to the world of RCF or Residential Care Facilities. This is where we use a SFH, single-family home for a commercial purpose, as a group residence for adults. With 10,000 people a day turning 65 for the next 17 years, the opportunity is huge.
I brought in an expert in RCFs and we explained how you can double your cash flow by renting a home to an operator of a RCF for twice the normal rent. Since this would be a commercial application for a SFH you can even offer or require that the tenant rent it on a NNN basis. That is where the tenant pays for the property taxes, insurance, and maintenance. This can be a tremendous way to cash flow a large home that otherwise would not be able to produce the required income if rented as a SFH.
Today we will cover the REAL potential of this opportunity. Let me share with you the numbers for the business associated with running the RCF itself. Remember, you will not be running the day to day operations or providing the care to the residents yourself. I will be presenting this to you from the point of view of the owner of the business. That way you can be working ON your business and not IN your business for maximum profit. There is your “Cherifism” for the day. J
Here are the numbers for this case study.
Lets assume the home has a value of $500,000 in the current market. Obviously that $500,000 will depend on where that home is located in the US. In addition, it will depend on the specific size, quality and condition of the home. We will use this number for this case study for illustrative purposes.
As a SFH, the property might rent for $2,500. If you rented it to a RCF operator you could expect to charge up to twice that or $5,000 a month on a NNN basis. If you operate the business itself, here are the numbers.
Let's assume that your home is licensed for 10 beds. That means that you will have 10 residents paying you to rent on a monthly basis. The average resident pays over $3,200 a month throughout the US today. I know of homes that charge over $10,000 per month and others that charge less than $2,000 a month. Let's assume that you are charging $3,000 per person per month.
10 residents X $3,000 = $30,000 a month in GROSS income. Now we need to calculate the expenses involved in running this business.
The largest expense will be the caregivers and the operating staff also known as the facility manager. There will be 2 or 3 caregivers on staff and one facility manager that oversees the day to day operation of the business. Each one is trained and licensed as required by the state that the home is located in.
The facility manager will have a higher level of training and licensing required and will typically earn more than the caregivers. The FM can also be a caregiver. The cost for those people will be the biggest expense that you have. It will be $6,000 to $10,000 per month. We will use an average of $8,000 a month for the staff. The cost of food is less than you would imagine. Typically $2,000 or less each month. A senior typically doesn’t eat as much or require a tremendous variety of food. We provide nutritious meals that are well balanced and professionally prepared. The rest of the monthly expenses will cover the utilities, insurance, maintenance, and the rest of the required expenses. That will total $3,000 to $5,000 a month. When you add that all up here is what it looks like.
$30,000 in GROSS income.
- $8,000 for the staff
- $2,000 for the food
- $4,000 for the rest of the expenses
- $1,000 for miscellaneous
- $15,000 in Total Expenses
That leaves us $15,000 in NOI or net operating income, to cover the cost of the real estate and the rest is our profit. Lets assume that the real estate cost is $5,000 a month to either rent, own or otherwise control. Subtract the $5,000 from the $15,000 and we are left with $10,000 in profit.
That is $10,000 a month. $120,000 a year… Just dwell on that for a moment.
If you committed to learning how to do this and then you actually DID it just ONCE, you could potentially retire completely. Most people that I know could “survive” on $10,000 a month in retirement. For those of you, that simply can not make it on that amount… do it twice. Doing the second one is easier than the first. Having 2 RCFs provides quantities of scale that will make owning 2 easier than owning one.
At this point, some of you are probably thinking, “How do I get the real estate?” Or “how do I get the financing” or “how do I get the staff” All of those are great questions and I will address them next week.
If you would like to learn more about the opportunity in RCF, residential care facilities, my RCF expert Gene, will be training a limited number of people in Phoenix AZ. If you are interested in learning more about this topic and how you can get the training you will need to do this with confidence, email my CMREI Team at [email protected], today and get the details on joining Gene in AZ next month. Seats are filling up fast! See you soon.
Cherif Medawar
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