All Forum Posts by: Account Closed

I am 100% positive that less than 1% of the people who get purchase, rehab and run an RAL's or AFL. For the other 99% of those who are naive and gullible I have this to say since I've been involved with the AFL business for more than 45 years.

Assisted Living Homes aka. Assisted Living Facility (ALF') is a very high risk business venture. As stated in several accumulative posts, there are thousands of AFL's for sale and there is a reason. There are also several posts stating that investors opened an RAL and put their business on the market because the hard work, inability to hire workers and lack of profit overshadowed the glory of helping the elderly.

1) The cost to get into the business business is astronomical. With the high risk this business has I can't' see any lender willing to take the risk loaning money when an investor does not already have extensive experience in this business. Start putting your own cash into this business and you are going to be shocked long before you get an occupancy permit. This business will not work better for you because you have a deep desire to help the elderly.

2). It takes 6 months to more than one year to turn a home into an RAL. You will need blueprints, contractors, building permits and a lot of cash. There are thousands of huge ALF's with hundreds of rooms, professional nurses on staff 24/7, all sorts of amenities mom and pop businesses cannot afford, expensive fire sprinkler systems, ADA compliant wheelchair ramps, bathroom facilities large enough to be ADA compliant for wheelchairs and showers you can roll a wheelchair into. Expect to spend $60,000 to more than $100,000 to make a home RAL compliant and that depends on your city's local ordinances and building codes. You may not be allowed to turn your home into an RAL. 

3) Competition. This is a very competitive business and the little guy cannot compete with the big corporations. Relatives shop around and check out at least 2 to 3 facilities.

4) LARGE TURNOVER RATE - You will be dealing with elderly people who don't have many years left and many of them don't have a lot of money. The average stay is less than two years. Many residents cannot afford to stay for long periods. Many resident pass away.

5) Due to your large turnover you will be constantly interviewing and searching for new residents. You will have to try to get in with agencies who can refer residents and you will also have to pay large referral fees. You had better be prepared to stay home 24/7, or you need employees. Then, you will be constantly interviewing, hiring and terminating employees. 

6) SPECIALLY COOKED MEALS - You will be taking care of elderly persons who may have dimentia and are difficult to manage. They are paying you a lot of money and demand 5-Star Service. You will have residents who each need specially prepared meals 3 times a day 365 days per year because these residents may have diabetes or some other medical condition that requires specially prepared meals. You will be responsible for administering medications at all different times of the day and liable for failure to administer the correct doses.

7. LABOR NIGHTMARE - Even a high percent of experienced business persons cannot manage this business. You need to provide immediate service to residents 24/7. You can let children cry themselves to sleep, but you cannot let a request from an ALF resident go unattended for one minute at 3:00 in the morning. When they need a bowel movement and need your, or an employee had better be ready.

8) LAWSUITS - In this world, you don't have to be negligent to get sued for millions of dollars. You don't have to do one thing wrong. When someone's mother (or father) falls when at your facility relatives are going to ask you what you did not do to prevent their mother from braking her back. The average ALF I was involved with had two lawsuits pending that were filed by relatives on behalf of their parents and lawsuits filed by workers for injuries, overtime pay, improper payroll classification, for not paying taxes and for not paying worker compensation insurance.

9) LABOR COSTS - If you go small-time with only one or two residents you will still not make enough money to make the business worth watching over elderly persons 24/7, cooking their meals, bathing them interviewing for new residents and paying the mortgage and costs to start the business

When you run a larger facility you have to hire workers and now you are in a vicious circle spinning faster and faster and spiraling out of control. You achieved you goal to earn thousands of dollars, but you neglected to consider that the money does not belong to you. You need to comply with all State and Federal laws regarding insurance , payroll and worker's rights. Employees sue RAL's for everything from work related injuries caused by lifting residents in their beds and when giving showers. You may need workers for 5 separate shifts to cover your residents 24/7 even if you get your workers to work 10-hour shifts. Your workers will see the high prices your residents pay, but they don't see nor do they care about your expenses. The cash you take in (that does not belong to you) makes it appear to your workers that you are wealthy and this makes you vulnerable for work related lawsuits.

This business may just be for you. Some people are successful. Maybe, less than 1%. Do your own research on the internet before you waste one penny. Ask for ABSOLUTE PROOF from gurus selling their courses before you pay them one penny Before you spend one penny for a course give it some thought for a few weeks. Anxiety is the reason for almost every mistake we make. Ask the gurus how many Advances Courses they will sell you and the total cost. My guess is that the total cost for courses will be $10,000 to $15,000.

Never trust what someone tells you. Demand copies of records that were filed with the State and IRS. Ask to see personal income tax records. If you have a wad of cash I am betting that you worked hard for it. When people have cash to invest we get anxious because we want to make even more money as fast as possible. This leads us to being gullible, naive and making irrational decisions.

"There will always be another day to lose your money. It doesn't have to be today." Think about it for a few weeks. Don't trust a person who is anxious to have you invest your money without telling you to think about it for a few weeks. If you are my friend I would do everything possible to stop you from investing in the RAL business until after you have completed your due diligence. A truly good investment will still be a good opportunity a month from now.

I was watching youtube videos looking for number crunching ideas and I found that Bigger Pockets already has the best free calculator I've ever seen for calculating exactly what I was explaining in earlier posts.

www.biggerpockets.com/analysis

Bigger pockets.com has the best free calculations for investing for multi-unit properties. The calculations are fairly comprehensive and much better than I can ever do with my software.

What I like about Bigger Pockets calculations for multi-units is you get a Return On Investment (ROI) for 5 consecutive years. For example I entered the numbers for a 24-unit apartment building with a purchase price of $2 million, $700,000 down payment, $30,000 per month income, taxes, expenses and the ROI for each consecutive year was 84%, 46%, 27%, 21% and 18%. That type of cash flow and annual cash flow is amazing and makes investing in multi-unit buildings fascinating.

I am going to stop posting for a few days, or weeks and will not answer any messages or arguments. I am working on my analysis software that will be 100% free and it is going to answer every question about real estate an investor can ask. No! I don't have all the answers. Hopefully, the majority of answers will be through teamwork and cooperation for with the purpose to make investment choices simplerand more risk-free with the ability to do investment calculations on-the-fly.

For an example. Last week, a homeowner called and said he wanted to sell his home, immediately, and move to Texas. I went to his home with my computer's calculations and was going had an Offer To Purchase pre-printed in my hand. My guess is that the home is worth $760,000 and my offer was $500,000. I asked the homeowner what he thought it was worth and he said $600,000. I left his home and went to a fast food restaurant. I opened my table, re-calculated all my numbers at $550,000 and printed a comprehensive breakdown showing my expenses and profit. I printed a new Offer To Purchase at the restaurant, took it to his home, showed him my low profit margin on a neat and organized printer report and closed the deal. Yes! I still buy homes when the numbers make sense because apartment buildings are over-priced, in short supply and I don't always have a million dollars just sitting in an account.

Maybe, I am a strange duck, but I cannot make decisions without going over numbers a hundred times and I think it is impossible to do numbers on paper, or even in excel and be accurate. I have to be able to tweak the numbers a hundred times, print reports and go over the numbers 100 more time because one mistake can cause a loss that puts you backwards for several months, or years.

See you in a week or so. 

Dollar-for-dollar, the expenses for multi-unit buildings are far less for every type of expense. 

Roof? Every roof needs to be replaced, or repaired and a roof on a single or multi last the same number of years. 

Incidentally, I am a roofing contractor and the prices I am quoting are very low. I have California contractor licenses for 8 construction trade specialties.

Take 28 homes (because I own a 28-unit apt bldg.)  The average sq ft of a single house roof is 3,000 sq ft x $400 per square = $12,000 per home X 28 = $336,000

Take 28 apartment units. Every apartment building is 2 or more stores. Since apartments are much smaller than homes and there size is condensed the square footage of my roof is 12,000 sq ft x $400 = 120 squares x $300 (because it is a flat) = $36,000. Even at $400 per foot the total is only $48,000 compared to $336,000. 

Lets look at maintaining water heaters since landlords usually pay the cost for all repairs. The average water heater lasts about 15 years.

The cost to replace a 30-gallon gas water heater is California when using a real licensed plumber (not a handyman) is $1400+. I will use the national average of about $1100. 

28 water heaters every 15 years  28 x $1,100 = $30,800
Apt building water heaters do not last as long as small residential heaters. I cut the life expectancy in half.
A commercial 100-gallon 299,000 btu (apartment building size) water heater costs about $3,500. There are companies that will install them for $600. I will even add $900, insteat and make the total cost $4400.
2 x $4400 = only $8,800 compared to $30,800.

Look at property insurance. In California, Idaho and Las Vegas I pay $400 to $550 to insure every home.
Lets split the difference and say the average is $475 per house.

28 x $75 = $13,300 every year.
The cost to insure my 28-unit building is $7,000 per year.

Sure! Apartment buildings have larger driveways and parking lots, but don't forget that every time I make even a small improvement I raise the rents $50, or $100 per month. I replaced the concrete for my entire parking lot about 18 years ago. It was exactly 8,000 sq ft and the cost was $5 per sq foot to both remove and replace = $40,000. The lot should last about 50 years. So, I raise the rents $50 and I don't want to do the math, but look at the previous post. I paid $40,000 and earned about $5 million by increasing the rents and the gross multiplier at the same time.

I have several single family homes in Idaho I purchase about 15 years ago. One of the worse real estate moves I ever made. I purchase the homes for an average price of $130,000. I was hoping that property values would increase at least 4% per year. The maintenance, ROI, annual income and management was a disaster. Furnaces would only go on the blink when temperatures were below zerow. Of course, every time a furnace wen out the cost to repair was 3 times what I charge in California. I paid $850 to replace inducer motors and I charge my customers only $450 in California.

I will shorten story, immense. When a tenant vacates an apartment it takes about 3 days to strip the apartment to the bone, re-paint, install new blinds and maybe even replace one or two appliances. I will ho high and say the average apartment costs me $2500 every time a tenant stays 2 years and moves.

I just came back from going through an 1800 sw ft house in Idaho. I did all the work by myself with one laborer. The cost, not including my helper's labor was $14,000. WHY? Because I had to go the the dump 6 times with trash, carpets, appliances and several trees that had to be trimmed. I had to clean rain gutters for the entire 2-story house. I had to paint 4 bedrooms, 3 bathrooms and ceilings, repair fences, install a new dishwasher and stove. I had to put new faces on the kitchen cabinets, replace 3 cracked bathroom sinks, granite kitchen counter tops and replace all the carpets and linoleum. I had to make repairs to stop rain water from going under the house and the rest of the list is too long. I had to make 3 trips from California to Idaho and the total time was 13 days working from 5 am to 11 pm every day. I own several apartment buildings and never worked that hard on an apartment building. I gave the property in Idaho to one of my kids about 10 years ago. He sold the property last month. So, I wrote him a legitimate bill for the repairs for the one house and the bill was $32,000.

The numbers and profit for multi-units is amazing. You will never ever convince me that single family units are better than multi units. I am a serious real estate investor and a number crunching fool when it comes to figuring out where and when to invest for maximum profit.

Sorry, but one more think. One reason I came to Bigger Pockets was to hook up with one of more of the gurus who wrote books. My software would be the perfect compliment for most books. It can use some professional help. It is free and I don'w want any money. I would like to see investors get benefits by using it.

I developed my own software to analyze real estate. I've been dealing with real estate investing for more than 50 years and never ever met a broker who did calculations that would tell me whether or not an investment was good. I never met a broker who showed me any type of math or software. 

For anyone interested, I give my software away for free with the hope that other investors will help improve it with ideas math and everything that a real estate investor needs from a very beginner to a professional. To use my software you need MS Access 2003. The upside to my software is is free and has every field imaginable for analyzing flipping houses. It was created to download Excel files from propertyradar.com and auction.com. It has a about a hundred filters for managing files. It easily prints customized and personal letters, prints labels on a roll, or 30 on a page. It has a contact section and educational section. It prints Offers To Purchase by filling in the fields and has many pre-printed real estate forms. It has links to favorite videos. It has templates for contingencies and a lot more. Ms Access does everything you wish Excel could do and does it a thousand times better.

No, about single family homes! Multi-units is where the big money is. There are about 100 advantages for multi-units. 

 The larger the number of units the better the positive cash flow.

Dollar-for-dollar, multi-units are less expensive that single family homes and dollar-for-dollar you make a much higher ROI.

One roof to repair, one tax bill, one gardener and one trip to collect the rents.

Multi-unit properties have both present and future income that is unbelievable. In fact, I own several apartment buildings and I love to evict tenants when they look at me cross-eyed because every time I evict a tenant I earn a $36,000 profit.

Here is some simple math and this math is something that does not apply to single homes. These numbers are very doable in California and may not be as much as in other areas, but this is the type of math investors should use when trying to decide whether to buy and hold, of flip, or whether or not to do multi-units.

1) Multi unit buildings always cash flow better when you know how to buy them at the right price.

2. Suppose, you own 50 units in Tennessee that you purchase for $750,000.

Each unit is earning you only $75 per month after paying every expense = $3750 x 12 = $45,000 / year

That is an ROI of approximately 18% because your down payment was only $250k. Not bad and very difficult to with with a single rental home.

But, here is where the huge money is in multi-units and I prefer not to hear from people telling me this is not doable, or bad advice, or whatever because I have been doing this for the past 50 years.

Rental properties are not like homes when doing the math. They are like a liquor store, or a gas station. The more income the business takes in the more it is worth. Apartment buildings are worth about 8 to 15 times their annual gross income and it is called a Gross Multiplier (GM) The number for the GM depends on the quality of the area the building is in. A higher income neighborhood will have a GM of 15 to 18.

Lets assume your building in Memphis is in the ghetto and the GM is 9.

Your current income is 50 x $750 x 12 = $450,000 per year and your building is worth 9 x $450,000 = $4,050,000.

How do you earn thousands of dollars when you evict a tenant? Suppose, your tenant is paying you $750 per month and he (or she) gives you problems. You evict the tenant and raise the rent $100 per month for the next tenant.

You just earned $100 per month x 12 months = $1200 x 9 Gross Multiplier = $10,800 x 10 yrs = $108,000 + your still did not add the $1200 per year extra you are collecting for 10 years = $12,000.

In 10 years you earn a total of $120,000 just by raising the rent for one tenant by $100 per month.

Raise the rent for 50 tenants and you earn $6 million on just one building.

Try doing that with single family homes.

I have Microsoft Access software I developed for purchasing and flipping properties. Anyone, can have it for free, but you will need MS Access 2003 on your computer because I will never make the software self- loading. But this software has a lot of math investors should use before making any type of real estate purchase and you can customize it to do whatever you want it to do.

I love to argue with investors, not because I want to prove that I an right, but because I want to be proved that I am wrong. For example, I was arguing with a mentor as a workshop and he said the best business model for new investors was to buy and hold. Personally, I find the worse advice anyone can give unless the new investor is already a multi-millionaire.

My advice to new investors who are not already multi-millionaires is to have a mindset, goal and business plan to double your investment capital every one to two years. So, if you have $50,000 to invest you need to find the right property at the right price that will reap you a $50,000 profit within 1 to 2 years and this is very possible. Especially, when you purchase a property that is a steal and worth $50,000+ less than the purchase price, or when you buy multi-units, raise the rents and increase the value of the property and the GM.

I call my business model earning 50% to 100% on your money every year and you will never do that in the stock market.

$250k is not a lot of money to start earning $150k per year right away, even for an experience investor. I would look in the Memphis Tennessee area for apartment buildings where units are selling for $15k to $20k per unit. $250k can get a $750,000 building with 37 units that rent for $700 to $800 per unit. 37 x $700 x 12 = $310,000 annual income - expenses. Then, add in rent increases, appreciation. Add your $30k per year and you will be smoothe sailing on Easy Street. You can get property management companies for about 6%. Look for apartment buildings for $15k to $20k on loopnet.com.

I would stay away from this deal. Even an attorney cannot protect you. The only thing an attorney can do is write an agreement that you can spend thousands of dollars litigating in court. It is not advisable to put money into a property when you are not the 'controller'. I don't give one penny of my money to others when I don't have 100% control of the outcome.

You need a legal Lease Option Agreement and you have to open an escrow to close before you spend one penny. Then, your friend will have a legal obligation that you can sue him for. Or, maybe your friend can add you to the Deed, Title, or whatever you have in your area.

The problem with doing business with anyone is people's words mean absolutely nothing and even written legal agreements are useless when it costs you tens of thousands of dollars and five years to litigate a lawsuit that you can lose even when you are 100% in the right.

Earning money is very difficult and takes a long time to build a wad of cash. Losing money is very simple and happens within a few seconds.

Whenever someone asks a question like the one you just asked I say that when you are not 1,000% positive then don't do it. There is always another day to lose your money.