Monster Cash Flow with ALFs

As America’s median age increases, it is clear that some of the biggest and most rewarding real estate investment opportunities lie in housing aging loved ones and other disabled seniors.

Beginning in January 2011, statistics estimate that about 10,000 boomers turn 65 every day for until 2040 when the number leaps to 13,000 per day.

For investors who want a piece of the action in the fast growing, institutional nursing and assisted living business models, they can participate as truly passive investors by buying shares in the many real estate investment trusts (REITs) that specialize in multimillion-dollar health care services and properties.

However, when it comes to the average real estate investor, who is either actively flipping homes or buying and renting single-family properties there are many lower-cost alternatives that can deliver positive cash flow but stay in the comfort zone of their current business model.

Veteran real estate investors have been leading the charge to the capitalize on one of the most profitable real estate specializations: assisted living facilities, or ALFs, in most states. In California, they are commonly known as board and care or assisted living residences.

From a business perspective, investors need to understand that they can buy and own a senior care facility now and be ready to service the quickly aging boomer generation.

Most new and experienced investors could not dream of purchasing a nursing home, a cost that could exceed the savings of most mid-level investors. But when you bring it down to the single-family home level, everybody can picture doing that. It’s about the location and it’s about cash flow.

For some, the ALF business model is much more attractive than a regular single-family rental for a number of reasons, not the least of which is having the ability to own a single property while collecting rent from multiple residents.

In respect to the location of an ALF, The Green Group looks at a wide variety of eligible neighborhoods as well as purchase and rehab price points. While some investors may traditionally prefer a single-level, single-family residence with larger square footage, we find that multi-level, flexible spaces which may enable us to add additional bathrooms and bedrooms may hold just as much if not more earning potential. Garages and basements can always be finished and converted to additional living or common space as well.

When it comes to purchasing a property, the cost to income model is different than single family cash flow formulations as well. The acquisition cost is not as important as the cash flow. Most investment courses say you make your money when you buy equity properties. This, however, is ‘buy and hold’ with a business component that’s making me a lot more. It’s not how much it costs, but how much will it produce.

Not unlike the conventional investment philosophy in this business model the concern is on the worth of the property, an attribute that drives The Green Group’s acquisition strategy for its partners and clients. It can be like finding the proverbial needle in a haystack.

However, once the property is located, it can make a big difference for the investor looking for a steady income stream. In terms of debt service, the difference between paying $1 million for a property and $500,000 is about $3,000 to $4,000 a month. That higher debt service translates into one additional resident.

If one ALF house can earn $1,000 per month, per bed, and another can earn $5,000 a month, per bed, the business is pretty much the same. A 10-bedroom house then, with 2 beds per room, may earn $20,000 a month.

State regulations also can limit the number of units allowed in any ALF and how close they can be to others. In California, the limit is six bedrooms, for instance, but in some states, it can be as many as 10.

State regulations make the parameters of the property search tougher for investors looking to get into the assisted living space. Fortunately, The Green Gorup’s numerous sources of information and propriety search formulation will help investors locate viable properties that will not be ordinarily available through traditional sales or auctions. We target location along with property characteristics, market trends and other important attributes investors need to make an informed buying decision.

In addition to location, The Green Group consults investors on complex details such as zoning laws, the cost of renovating the property and general accessibility to the facility, among other factors.

Then there are different levels of involvement in ALFs, depending on the amount of risk desired and whether the investor wants to be more passively or actively involved in the everyday business of the facility.

Other options to consider include whether to own the real estate and lease it to the ALF for up to twice the fair market rent; own and operate the ALF and lease the real estate, or own both the real estate and the business.

State estimates indicate that the average cost of living in an ALF is $45,000 a year. In California, the costs vary, with a state median of $3,750 a month per tenant in 2014.

Because of the abundance of baby boomers in Maryland, the opportunities here are outstanding, however, The Green Group explores lucrative opportunities across the country.

Longtime real estate investors have long since created trends in the business. Years ago, it was buying rental properties around university campuses. Now it is a common strategy to focus on buying homes to turn into assisted living residences.

What we love about this space is the individual investor can get one, two, three or four of these and can build a very respectable yield for themselves. It’s easy to have a 15 percent to 25 percent yield, depending on how you structure it.

What remains of utmost importance is that the rental property, either with a single family or multiple unrelated residents, is that the property reflects a home environment. In the ALF everyone eats in the same dining room and home-cooked meals are prepared in the kitchen or catered daily. Finding the right staff is the only way to ensure the quality of care for the residents. Making sure they are having a dignified experience at this stage of life is how we know we are providing a 5-star service to our most vulnerable communities.