Welcome to Physicians and Properties
As many, of you saw in the Physicians and Properties Facebook group, we just closed another assisted living home. Welcome to a deal deep dive into our latest Arizona transitional living home!
Investment Goals and Objectives
As always, you have to start with your goals and think will this property get me closer to my goals? For my partners and me at Open Range Capital, our goal is to generate semi-passive cash flow with a cash-on-cash return of at least 20%. And, as I have shared before I have a goal to achieve $10,000 dollars in semi-passive cash flow from real estate by Jun2, 2025. And investing in assisted living homes is the vehicle I have chosen to help me achieve those cash flow goals. If you want to learn more about assisted living homes before continuing click here!
Arizona Transitional Living Home Deal Analysis
- Location: Urban market in Arizona with a high demand for transitional living
- 4 bedrooms with a flex extra bedroom, 3 baths, former residential assisted living home
Financing & Expenses
- List Price: $565,000
- Offer Price: $500,000
- Purchase Price: $530,000
- Loan: Commercial 5/1 ARM, 25-year amortization, 7.5% interest rate
- Down Payment: 25% down, $132,500
- 3% Lease fee to agent: $6,750 (wrapped into the loan)
- Allowances/Credits from Seller: $1,000
- Repairs: Budgeted for $5,000, a total of $2,100
- Reserves Fund: $10,000
- Principal and Interest: $2,937
- Insurance: $77.92 per month
- Utilities: $0, paid by the operator
- HOA: $25 Monthly
- Home Warranty: $750, annually
- Repairs/Capital Expenditures 5% monthly, $312.50, low due to commercial lease and home warranty.
Total All-in Expenses: $160,950
Total Monthly Expenses including saving for repairs: $3,414.92
Income
- Commercial Lease: Operator responsible for filling the home, care of the residents, utilities, maintenance, pool/lawn care, basically everything except for mortgage, taxes, and insurance
- Lease Term: 3 years
- Lease Amount: $6,250
- Lease Structure: Month 1 free, Months 2-3 1/2 off: $3,125, Months 4-12: $6,250, Months 13-24: $6,438, Months 25-36: $6,661 (an increase of $500 dollars per month once sprinklers are installed likely prior to month 6)
Monthly Net Operating Income: $5,732
Monthly Cash Flow: $2,795
Annual Cash Flow: $33,535
Cash on Cash Return: 20.8%
Conclusion
As you can see, investing in residential assisted living can be quite lucrative and provide a substantial amount of cash flow. The beauty of this is that now that we have a stellar operator in place this deal is essentially passive! Also, these deals get significantly better with time, the cash flow, CoC, and NOI above do not take into account the fact that the lease will increase by $500 a month with sprinklers or the 3% annual increase. Additionally, once we are able to refinance to a lower interest rate the cash flow and CoC will increase dramatically!
I hope this was helpful for you to see a deal analysis of our latest Arizona transitional living home! We are looking for investors who are interested in joining our team! If you are interested fill out the contact form or schedule a call with me here!
