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As a physician real estate investor, you may be looking for ways to diversify your investment portfolio. One option that has a lot of untapped potential and will continue to gain popularity is investing in residential assisted living homes (RALs). In this post, we’ll take a closer look at what RALs are and how they can benefit your investment strategy.
What are Residential Assisted Living Homes?
Residential assisted living homes are residential properties that provide care and assistance to seniors who need help with activities of daily living, such as bathing, dressing, and medication management. These homes offer a more home-like environment than traditional nursing homes, with a smaller number of residents and more personalized care.
Why Invest in Residential Assisted Living Homes?
There are several reasons why investing in RALs can be a smart investment strategy for physician real estate investors:
- Growing demand: The demand for residential assisted living homes is increasing as the baby boomer population ages. Believe it or not, there are 77 million baby boomers. And, every day until 2030, 10,000 baby boomers will turn 65, and 7 out of 10 will require long-term care in their lifetime. As mentioned before, America is already 1 million assisted living beds short. So, RAL offers a valuable service that is in high demand.
- High-profit potential: RALs can be very profitable, and offer substantial cash flow with either a lease or owner-operator model. The lease model would be where you own the real estate, which you then rent out to an operator for a premium. This is typically with a commercial lease for 3-5 years. Or, you own the real estate (home) and the operating company. This has significantly higher cash flow and returns but, with more time commitment and responsibilities that can be difficult for a practicing physician.
- Personal fulfillment: Investing in RALs allows you to make a positive impact on the lives of seniors in need. By providing a luxurious, safe, and caring environment, you can improve the quality of life for those in your community.
- Commercial lease: We own the homes currently and lease these homes out to exceptional operators. That is because we do not yet have the time or bandwidth to also own and operate the homes. This is something we are getting into hopefully. However, the beauty of this is a commercial lease. I love it. The operators are responsible for all utilities, maintenance, landscaping, pool cleaning, and interior repairs. We are responsible for the roof and HVAC only. It’s awesome!
How to Invest in Residential Assisted Living Homes:
- Determine your goals: The most important step on your investment journey is to consider your goals as a physician real estate investor. Do you want to invest for cash flow, appreciation, long-term, short-term, passive, active, etc. Seriously, this is where you have to start. Where do you see yourself and your investments in 1, 5, and 10 years from now? Develop that crystal clear criteria and take action.
- Research the market: Identify areas with a high demand for residential assisted living homes. Consider demographic trends, such as the aging population and the number of retirement communities in the area, the number of seniors moving to that market, and the number of operators available.
- Find an exceptional realtor: This is so important. Seriously, find a realtor who specializes in RALs and it will make your life so much easier. They will likely have a list of operators, service providers, licensing contacts, etc. Trust me, a good realtor is well worth the premium.
- Identify potential properties: Look for properties that meet your investment criteria. Consider the location, size, and condition of the property.
- Perform due diligence: Before making an offer on a property, perform due diligence to ensure it’s a sound investment. Review financial statements, evaluate the condition of the property, and assess the quality of the operators who may be placed in your home.
- Secure financing: Work with a lender who specializes in residential assisted living homes to secure financing for the property. This will typically be a commercial loan. In our experience with an exceptional local bank, the terms are typically a 5/1 ARM, 25-year amortization, with a 25% down requirement. However, multiple lending options exist.
- Develop a business plan: Once you’ve acquired the property, develop a business plan that outlines your goals and strategies for operating the facility. Consider hiring an experienced manager to manage the day-to-day operations if you are also operating the home.
If you have read this far you are likely interested in RAL. And, I hope you are as excited as we are. Stay tuned for more blog posts! Also, I will include some posts that will dive deep into our deals so you can learn the nitty gritty behind the financials on some of our deals. Here we really break down the numbers and the operations side of things. If you are interested in investing with us, leave a comment, or fill out the contact form!
