10,000 people a day are turning 65. Much more importantly, 4,000 a day are turning 85. Gene Guarino of Residential Assisted Living Academy is focused on investing in the mega trend of senior assisted housing. They find the right location, the best demographics, and they buy or rent a home and convert that into a senior-friendly, senior-safe home with grab bars, smooth floors, wide doors, and the like. Gene explains it’s a residential home in the neighborhood which may have six to twelve seniors living in it with no sign in front being used as a group home for the elderly with caregivers 24/7. Gene exposes this exciting opportunity in a growing trend and talks about the real estate angle and the business angle of residential assisted living.
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This episode is interesting because we’re talking about something that relates to massive growth. We’re talking about a major demographic and population shift. Demographic changes in the United States have major implications for investment returns. You have to pay attention. This is something you need to start paying attention to. Of all the facets of economic life, a few are as predictable as the impact of population growth and age structure. Demographics are often ignored. I hear very few investors talking about it. Despite the influence they have or they can have, they have a major impact on the markets and on real estate, so you do need to pay attention. There are over 77 million Baby Boomers and every day, 10,000 of them turns 65 years old. I’ve heard this statistic a number of times and I’m sure many of you have as well, but that’s a big number and their number one dilemma is housing.
That dilemma can be our opportunity, could be your opportunity. My guest and I discussed this opportunity that almost anyone can benefit from. I have to be honest, it’s not for everyone, but it’s good for you to know and to learn about it as this is a demographic shift in trend that will touch and affect everyone, including you. It’s not a matter of if, it’s a matter of when. We’re all aging. We’re all getting older and at some point in time, we’re going to turn 65 and we’re going to have a need for housing or different kinds of housing or housing assistance. This is something to certainly be aware of and pay attention to whether you’re involved or not. Once you know how to capitalize on the tremendous need for senior housing, you’ll have the tools and the knowledge to protect your family’s future while you build a legacy for yourself, if you choose to do so. You don’t have to, but you need to be aware of this. Keep in mind that this is not for everyone but I’d like you to read this because it’s not only interesting, but it’s a major demographic shift that needs to be on your radar, and you need to be aware of it.
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Massive Growth And Profit In Residential Assisted Living with Gene Guarino
It’s my pleasure to welcome Gene Guarino to the show. Gene is the President and Founder of the Residential Assisted Living Academy. He has over 30 years’ experience in real estate investing and in business. Now, Gene is focused on just one thing, investing in the mega trend of senior assisted housing. Having trained tens of thousands of investors and entrepreneurs over the past 25 years, Gene now specializes in helping others take advantage of this mega trend opportunity. Gene, welcome to the show.
Thank you, Marco. It’s great to be here.
I got to know you when we went to the Real Estate Cruise and it was quite an amazing event. We’ve got to meet a lot of neat and exciting people and I got to finally sit down with you and learn about what you’re doing. I thought it was appropriate to bring you on the show and expose this new idea, this exciting opportunity and a growing trend. Gene, let’s start off by learning a little bit about you. Why don’t you tell us about how you’ve got started in real estate investing and what ultimately led you into assisted living?
My story goes way back to when I was eighteen years old. That was my first real estate transaction. I was a professional musician. We had a recording studio, a music school, we’re doing a lot of different things, and we had a landlord. We were renting a building for two years from when I was sixteen to eighteen and at the end of that, we just said, “This building is terrible, the landlord’s worse and we’ve got to either change location or we’re shutting the whole thing down.” I walked out the front door and looked up the street two doors away and we saw a for sale sign. The funny thing about that is it could have been there for months or years and I never even looked for it. You don’t see it until you’re looking for it. I went up, grabbed the sign out of the yard, brought it back home and I started dialing. I ended up buying that house and it was no money down. We had no money. We had no credit. We had no crew. That’s how it all began when I was eighteen and we’ve been doing it ever since then.
What led you to assisted living? Was that an assisted living facility?
No. We were giving drum lessons, guitar lessons and all that in the recording studio. We bought that and we renovated it and sold it five years later for a $90,000 profit, which in 1982 or 85, that was a lot of money and we did fix and flip. We did buy and hold but it wasn’t until fast forward many years later that when my mother started to need help with assisted living, what I mean by that is my mom was getting older in her 80s. She was starting to be forgetful and did she take her medication? Not sure. We realize somebody’s got to keep an eye on her and at that point, things get real. You can talk about money and business all you want, but when it’s mom, you do things. Things become more important and we looked at the alternatives. To take care of a relative, of a mom, a dad, a grandma, a grandpa, somebody who’s older, it’s either you invest your time, which is give up other things to be the caregiver or you hire somebody.
To hire somebody to come into the house is $23 an hour. That’s the national average now. At that point, you realize, “Eight hours a day, $23, it’s going to cost me $4,000 or $5,000 and you’re still meant to take care of her at night and the weekend.” At that moment, you start to realize, “Maybe it’s time to put that person into a home.” As soon as you say it, you feel guilty. Then we looked at the alternatives and they weren’t pretty. They weren’t nice and we realized this is a huge crisis. Millions of people are facing the same thing and I couldn’t find a good solution. That’s when I vowed to create it and that was really the beginning of what I’ve been doing now for the last few years in residential assisted living. It started with my mom needed help and we created a solution for seniors that do need help and it’s been a very lucrative ride. There are a lot of people that want to get into this because they know they’re going to get involved one way or the other.
I finished an episode right before yours and one of the things I was talking about with my guests is how many Baby Boomers there are out there and how many are retiring every day. You read a lot of articles and for the longest time, I keep reading, 10,000 people per day are turning 65 years old. This is just a pig in the python. It’s just a swelling demographic. Take a moment and explain this demographic and more importantly, the trend here. The trend is your friend as they say. When you can take advantage of a growing trend, you can find ways to not only help people but to profit from it, and that’s a pure win-win situation. Talk about the demographics here and the trend.
When we talk about the numbers and the demographics, the trend and the opportunity, it’s like looking at stock chart ten years in advance. When you look at a chart that shows the age of people and when they were born, there’s literally a wall. It’s a silver tsunami of seniors around 1946. In 1945, World War ended, service men come home, they get busy, there’s a baby. They wait a little bit, there’s another one. Before you know it, they need five or six to take care of the farms to fields and so on. It’s a literal wall, a tsunami. Those people, the front edge of the baby boomers, 71, 72, they’re not in assisted living but their parents are or were. Now, the baby boomer generation, 71 on the frontend, ten years from now when they’re 80, 82 to 85, those are the ones that will be in assisted living.
They’re ten years away and that silver tsunami as a massive increase. You cited a number that we’ve all heard, 10,000 people a day turning 65. Much more importantly is this one, 4,000 a day are turning 85. When you turn 85, you don’t check into assisted living, but there are a lot of people that do it. 80, 85, 90, 95, some people will live their entire life. There will be in their own home until they’re 105, but usually, in that early-80s, mid-80s. That’s when people start to look at or move into assisted living. The demographics are on our side. When you think about what happens in the economies of the world and the US is a great prime example, everything is about the baby boomers. In 1946, the suburbs started to explode. Franchises, McDonald’s, things like that that never existed before, now they’re all over. We just take it for granted. The suburbs, the franchises, all of it.
Then the next one that we’re in the middle of right now is the aging of the Baby Boomers. You see these big communities like the villages in Florida that started off with a few thousand, now there’s a 150,000 people who are there in a senior only community. Basically, it’s independent living. Live there if you want to take care of yourself but you have to be 55 or above. That’s not assisted living. Assisted living is where somebody’s taking care of you 24/7. The next step for the independent living, when somebody’s 65, they’re playing pickle ball and golf and swimming and cruising. When they’re 85, they slow down. They move into smaller homes. Maybe one-story homes. When one of the spouses die and the other one’s getting a little forgetful and feeble and they’re aging and their kids who are busy taking care of their kids and in their career, they can’t take care of them so that is the crisis on one side and the opportunity on the other.
What is a residential assisted living investment? Based on what you said, it’s not a senior’s home. It’s more of a home, a true home that has that assisted living component built in. Is that what you’re getting at here?
Let me lay it out so everybody can understand it. When we talk about residential assisted living, it’s two parts. Real estate on one side, business on the other. The real estate is a home, a residential home in the middle of a nice neighborhood. It could be the senior’s home that they’re living in now, but that’s not the model we use. We find the right location with the best demographics. The right location, the best demographics, and we buy or rent a home. That home itself is now converted, which means grab bars, smooth floors, wide doors, make it senior-friendly, senior-safe. Now, that home itself, instead of having one person or one family, might have six, eight, ten, twelve seniors living in it. It’s a home in the neighborhood, it’s a residential home.
There’s no sign in front, but it’s being used as a group home for the elderly. There are caregivers 24/7. They are probably doing shift work. They’re there twelve hours and then replaced by somebody else for twelve hours. Maybe it’s live in, but it’s a group home for the elderly. Those residents don’t drive cars and go to jobs or go out to the library. They’re living in the home and they’re there for a number of years, one to three years where they’re living those last days in that home being taken care of 24/7. There’s a real estate investment angle and that’s what we’re all about but there’s also the business side, which there’s a lot more money in that side. That’s the magic part of this process.
The greater profit comes out of the operations, not so much the real estate. Is that what you’re saying?
Correct. Here’s the way I put it. If you want to do the real estate portion, you can own the real estate, lease it to the operator of the RAL, Residential Assisted Living Home. They may be willing to pay you twice the market rent. Why would they do that? They’re going to be making $10,000 a month in profit even after they pay you high rent, but they’re also going to want a five-year lease. They don’t want to be there for one year and hope you don’t kick them out. They want to be there making their profit for years and years and years. Anybody who’s saying, “You’re telling me there’s a tenant who is willing to pay twice as much and they want a five-year lease. That sounds good.” It’s great.
It sounds very attractive. As an investor looking from the outside in, I’m trying to figure out if this is an active or a passive investment. Is this a passive investment strategy or is it, “Do I need to be more actively involved in putting the pieces together and running this as a business?”
Just like with your turnkey properties on the single-family homes, and I love what you do, Marco, all the different markets. You’re in the different levels that somebody can come in and participate. You have a great model. Just like that, the farther off site, the more hands off somebody is, the lower their rate of return. You’re doing all the work for them. You’re handing them a finished product and saying you write one check and just get a check a month for the rest of your life. You’re good. I’m good. If somebody wanted to get a higher profit, they would be the ones to go out and find the property, fix it, get the tenant, manage it, do all the nitty-gritty, and maybe get twice the return. The same thing here with the residential assisted living. If you want to write a check and invest, you can do that right now. You can do that with REITs, Real Estate Investment Trusts. They do it with nursing homes, hospitals, assisted living. Write a check and get a check. It’s as simple as that.
If you want to get into the residential assisted living currently, there are no REITs for that and it’s coming, but currently, you would be the one that would either buy the real estate and lease it out twice the rent long-term tenant or maybe you’re an investor and somebody else is the operator. You’re writing a check, you’re investing in, but now the farther along we go in that path is depending on how much more hands on or hands off it is. Let me back up one more level. You can choose. You can be as hands off as you want. I’m an owner/operator. I own the real estate in one entity and I operate the business in another. I may not go to the home for a month or two months. As a matter of fact, the only time I pretty much do is when we do our trainings in Phoenix, Arizona. People come on a bus tour and come to see the homes. That may be the first time I’ve seen the home in a month or two. I’m not at the homes, but there’s a manager who’s there full-time. I may not talk to the manager every day or text them or Skype or email them, but if I need to or they need to be in communication with me, we are. I spend maybe five or ten hours a week managing the manager. Their job is to hire the caregivers and fill the home and keep it full and take care of all the day-to-day nitty-gritty. I choose to make it pretty hands off, yet I’m fully in control.
As an investor, you have an option. You could be actively involved or passively involved. You can just own the real estate and lease it for more than you typically would to a plain vanilla market tenant to the assisted living operator, or you can be involved on both ends of it. You could be the real estate owner/investor as well as the owner/operator of the assisted living operation. I’m learning stuff here and I knew I would. This is still relatively new to me. I’m not familiar with this, but I do intend to come out to Phoenix there and sit through one of your trainings here this year and learn more about this because I find it quite fascinating. How do investors fund this business? The real estate is pretty straightforward. I would imagine you could probably use conventional financing and if that’s true, how do you fund the rest of this?
It’s a residential property, non-owner occupied. Fannie or Freddie for 80% loan to value is common. You can do it with private lenders and investors and so on. The same thing as any other rental property. The balance of it, the down payment, the cash infusion, the fix up cost, the blue sky for getting any business up and running, all of that can be funded with personal funds, number one, private lenders or investors, number two and there are bank loans. SBA, USDA, those are bank-guaranteed loans. It’s still a bank loan, but the government guarantees them, so the bank never loses and they never lose money anyway.
Those loans are available as well. I like private investors, Marco, because they’re easier to deal with. You can have three out of four things and they’ll say thumbs up. With a bank, you can have four of four things that are right and they’re still not going to lend you money. I like private investors. There’s so much cash on the sideline line right now looking for a home. It’s ridiculous. Everybody is looking for something to do and there are a lot of people that want to get in this game. This is the easiest thing I have personally raised capital for residential assisted living because when they see the numbers, they see the need, they see what’s happening, they realize this is the place to be.
If you’re bringing in private capital and you have a small number of partners, you’re essentially creating a small syndication.
Anytime you bring in a number of people, it’s syndication. The question is about partnership where we’re both on the deed. You and I are partnering together or a blind pool. Ten people come in and they put their money in and one person makes the decisions. It could be a syndication. We have students who do exactly that.
I like clarity. Is your tenant the operator of the residential assisted living business or is your tenant the seniors that are living in the property?
I want everybody to hear me clearly. It’s not grandma, it’s not the mom or dad, the resident who’s in the home. They’re not a tenant. You don’t have a tenant-landlord relationship with them. You may have a tenant who is a business, an LLC that’s operating the residential assisted living business itself. That’s your tenant. They’re the ones that want the five-year lease and you should have them do the maintenance on the property and so on, but not grandma. It’s not a tenant-landlord relationship with that individual living in the house. It’s the entity that’s operating the business.
How do the residents pay? You’ve got the seniors living there. They may or may not have the money. They might have some financial support. What’s the money trail? Where does the money come from? Where does it go?
With most people who are out there, they pretty much don’t have a plan for their long-term care. Most people will end up just spending all of their money and then at the end, they’ll go to the government and say, “I’m tapped out. I’ve got no money. I’ve got no income. I’ve got no assets, pay up and the government will.” They’ll pay $2,000 a month or something less or more. That $2,000 a month is half of what an average home would cost to stand. If you’re going to go to the government, Medicare, Medicaid and say, “I’m poor. Pay for me,” they will, but that $2,000 a month is only going to afford you a substandard place. The people that we work with, we do not do government, Medicare or Medicaid. We do private pay. That’s an individual who has Social Security coming in. They probably work with the company for 30 or 40 years or their widows. The spouse did who passed away. They’ve got a pension plan.
They probably also have a home that they bought for $20,000 and now it’s worth $400,000. They own it free and clear. They’ve got equity in the home. They’ve got assets of different kinds. All of the income and assets that they have on a personal private basis are used to pay for their care. The average person in assisted living now is $3,750 per month, private room assisted living nationwide. Now, depending on where you’re at, Dallas is one thing. Every city is different. Some are more expensive than others. I was in San Diego and I asked a group of 180 people in front of me, “Do you know what it costs to stay in here? Do you have personal experience?” Those who raised their hand 30 or 40 of them, $4,000, $8,000, $6,000, $7,000, $12,000 per month is what they paid or are paying now for assisted living for a family member.
The other people in the audience are saying, “How do you do that? Where’s the money come from?” The bottom line is that we love mom, we love dad. We’re going to take care of them. We’re going to pay for them whether it’s out of guilt, obligation, or pure unadulterated love. We’re going to pay for it. We’re going to take care of it. It starts with the seniors’ assets. Once that’s liquidated, then the kids who are 50, 60, they’re the ones who are going to pay out of their own pocket. I want everybody to hear me clearly early on in this conversation. You’re going to get involved in assisted living one way or the other. Either the real estate, the business or you or a family member is going to be lying in a bed writing a check. Do you want to write a check or receive ten checks? That’s your choice.
Does the income per person, per senior staying in your facility change based on the number of people within the property? If you have a property with let’s say three seniors in it, is it a certain dollar amount per person and does that change if you had, let’s say six or ten people in the property? In other words, is that amount per person the same whether you have three, six or ten people or does it go down because you have more people within the same property?
It is based on supply and demand just like everything is. Given that the numbers that I gave you is the average, if I’m the only home in town, that doesn’t mean I can charge $100,000 a month because the market can bear it. It is supply and demand, but having said that, the sweet spot is $4,000 to $8,000 per month. That was the clientele that I’m looking for, that private pay. $2,000 is Medicare or Medicaid. I can’t make enough money to pay the bills and pay caregivers and pay for a nice house. Above that $10,000, $12,000, $15,000, $20,000 a month, there are people that pay that but there are too few of them for me to build a business model around. The sweet spot is at $4,000 to $8,000. Here’s the reality, if my home is licensed for three people, you’re not going to make money. That’s not the way to do this.
A lot of people who are saying, “Let me just do this on my own.” They get a small house and say, “Let me get three people, hire one caregiver,” and they ended up creating a lot of work and effort spinning your wheels. You really need to have eight, ten, twelve people in that home, paying that average of $4,000 to $8,000 per person. You can do it on less, but if you’re licensed for ten easy math, if you’re averaging $5,000 per person, that’s $50,000 of gross income. My expenses might be $20,000 and with the real estate, call it 25,000. If I’ve got ten people in there, I’m making $25,000 net each month. That’s a beautiful thing. If I’ve got three people in there, I’m losing money. I’ve got to be, to some extent, full. At least 60% full and that’s one of our benchmarks that we teach people and train you on. One of the benchmarks is 60% occupied. If you’re doing it properly, you breakeven. Everything above that is profit. You’re never going to be full all the time. You’ve got to bake in something in there. Ultimately, what I’m looking for is 30% of the gross income to fall to the bottom line is profit.
There are a lot of similarities with traditional residential real estate investing. You’ve got vacancy allowance, you’ve got maintenance and repairs, you’ve got property management. In this case you’ve got an operator, which is a good segue to my next question and that is how are these managed? Who is the provider or the operator? With traditional real estate, you have a property management company. That’s not the case here. This is far more specialized. Where do you go for that service?
Thank you for making the distinction. This is a service-oriented business. It’s not a rental home. When we go into a restaurant, there’s a manager. That manager may or may not be on site but they’re responsible. They may have managers in front of the room, back of the room. They’ve got a chef, they’ve got wait staff. All of that team playing together, the staff is what we look at and say, “I like this place. I don’t like it.” It’s not the building. The building is empty. It’s just black walls and exposed AC and tables and chairs. It’s everything else that goes into it. The manager is one of your key components. I don’t know if you’ve ever had the experience calling a company like GoDaddy is a great example. You call them and talk to anybody in customer service. They’re awesome. I love them. I always tell them that. That comes from the top, the manager at the top, their whole culture and system on the way down, it’s great. That’s the way we want our business to be. It’s the same thing. It’s not just a building, it’s the business. The managers are key and critical to your success.
The question now becomes how common is that type of operation or that service provider? I’m not doing it myself, you’re not doing it yourself. You have to hire the people to do this.
Right now, there are between 30,000 and 40,000 of these homes in operation in the US. Most of them, 80% are mom and pop operations. What that means is it’s a house. The kids moved out, mom and pop still live in the house. They got extra bedrooms. They say, “We’ve got three extra bedrooms. Let’s rent it out to three seniors for $5,000 a month. We’ll make some extra food, do some extra laundry. We’ll be the manager, the baker, the cook, the candlestick maker.” That’s what 80% of them do. We do it differently. We find the right location, we get the right house, we do what we need to do, we hire the manager. Your question now is, “How many of those managers are going to find them?” If you come to our class, there’ll be people sitting in that room who want to be that manager who maybe are saying, “I need a real estate investor. I’ll be the manager. You be the real estate owner.”
There’s a partnership in the waiting right there. In your location, wherever that may be, there are schools that train managers and caregivers. You could go to them and say, “Do you know somebody?” Word of mouth referrals are your best way of hiring anybody. You can go to Indeed.com and Jobs.com and all those other sources. I’d rather say, “Marco recommended this person. That’s good for me. Let me meet him face-to-face.” There are managers out there. A lot of them are or were caregivers, now, they’re managers. They have that skill set and qualification and that’s the person you’re looking to hire.
Here’s the entrepreneur in me coming out with this question. When I hire these people, are they employees of mine, W2? Are they 1099 contractors or are these service providers that have and run their own businesses and I’m just simply contracting their services and bringing them into my property?
Let’s go down all three routes because as an entrepreneur, you and I both are always trying to save money and figure out how we can do this most efficiently. If I hire outside, I’m going to hire a company who’s going to provide those caregivers to me and they charge me $23 an hour, but pay their caregivers $12 an hour, the rest is their overhead and profit, I’m going to spend way too much in labor, I can’t do it profitably. I can’t go there for economic reasons. I can’t make it work. It’s doubling my cost and it’s not worth it. Second, independent contractors. Gene advice, call them independent contractors. Then I don’t have to pay taxes and workman’s compensation and so on, but if you do and they’re not, they’re actually employees, then you are responsible for their taxes and if they get hurt, you’re responsible. I’m not willing to take the risk.
What makes an employee versus independent contractor? The moment you say, “Here’s your schedule. You’ve got to show up at [spp-timestamp time=”6:30″] AM,” they’re an employee. There are all kinds of people. Moms and pops who own these homes hire people as an independent contractor, as a live in somebody. They’re paying them something. If they were to get called on the corporate by the Department of Labor, they’re out of business. The penalties and all the rest will crush them. We operate as a business, we train our students to do the same. The caregiver is an employee because you’ve got to show up here and you’ve got to be done by here. That’s written in stone, you’ve got to. The manager, that’s different. My managers, they’re independent contractors because I don’t care if they’re there at [spp-timestamp time=”9:00″] AM and leave at [spp-timestamp time=”5:00″] PM, you just got to get the job done and you need to be available 24/7. When a call comes at midnight, I’m not taking it. You are right. Those people, my managers, I literally had them set up their own entity, an LLC. Then I pay the entity, they take their tax write-offs and they get whatever’s left.
I have properties in different cities around the country. If I already own a home or a rental, can I use that rental for this program? Can I retrofit it or change it to become an assisted living facility or do I have to start fresh with a new property?
The short answer is yes you can. The better answer is just because you can, doesn’t mean you should. This isn’t the field of dreams. If I build it, they will come. It’s all about the location. I’ve had people come to me that didn’t come to my training who say, “I’ve got a great house for this,” and I go see their house and I go, “You’re right. It’s a beautiful house. You did an amazing job. The problem, it’s in the wrong location. You’re never going to get a resident. You’re never going to get a caregiver to come out here.” If somebody gave you the house for free and it’s in the wrong location run. It’s not going to work. It’s got to be in the right location. When I say right location, the next question everybody should be thinking is, “What does that mean?”
It doesn’t mean on the golf course, on the oceanfront or on a hilltop. It means demographically, is it in a neighborhood of upper middle-income people? If it’s on the low-end, it’s on the wrong side of the tracks and people that are on welfare, nobody who had money to pay is going to drop mom off in that house. I’ve cut out my market. If it’s in the hills, Beverly Hills, Rodeo Drive. It’s the most expensive home. It’s a $20, $30 million home, number one, those people can afford it, but they can also afford a private doctor or nurse to live in the house with them and the real estate is going to be way too expensive. We have a system.
Level one is the bottom, level five is the top, level three, four, that’s our sweet spot. That’s what we’re looking for. That is the demographics. It’s upper middle income, twice the average income. If the average income in the state is $60,000 per household, I want to be in a where it’s twice that, $100,000, $120,000, $150,000. I want a neighborhood that’s not near the college campus for the average age is 30 years old because their parents are only 50. They’re not in assisted living. I want to be in a neighborhood where the average people that live there are 50 or 60 because their parents are 80, 90. That’s where I want to have that house. Upper income, proper age because they’re going to move mom and dad into a house in that neighborhood that we’re going to operate as the residential assisted living and they’re going to be paying that $4,000, $6,000, $8,000 a month.
It’s about affordability. I’m not meaning that it’s inexpensive, but can people afford to live there? It’s really a demographic question. This is a fascinating concept and there are different ways to be involved with this. I personally am going to look into it further with you because I’m fascinated by the opportunity here, both personally and as well as the syndication. Is there anything else that you’d like to share or something I didn’t ask you that I probably should have?
One of the things that I want to do is compare this to other opportunities. You’ve got a sophisticated audience that’s here. You’re really sharp, Marco, on what you do and your understanding. All of us want to be at the right place at the right time. It’s about timing and opportunity. What we tend to attract is people that have experience. They’ve done real estate for a while. They maybe have had a business for a while and they’re probably a little bit older. They’re not twenty. They’re maybe 30, 40, 50 and they’re not looking for the next thing. They’re looking for the last big move. Where I’m all in, we think about the big cycles.
We started the conversation with what is the big demographic move? We talked about the big scale, the pig to the python, and the Baby Boomers and so on, but cyclical. Real estate is cyclical. We’re closer to the top of the current cycle than we are the bottom. We’ve had a great run, but it’s been a great run for a long time. Some markets are pretty frothy. There are people bidding up properties. It’s back to 2006. It’s right where it was. To me, you look at it and go, “I can give you 30 reasons why everything could crumble and drop 30%. I can’t give you a lot of reasons why it’s just going to keep going up and up and up. Our economy is good, it’s strong. People are happy, confidence is up. It’s all good in every aspect for just about everybody.
That’s all good, but I’m just saying closer to the top and the bottom. Apartments are great investments, but timing is key. Right now, cap rates have gotten crushed and there are people buying C-properties with a 4% cap and a 6% cap. If I’m going to go down to a c level property, I better get 10%, 12%, 14% caps, but now are doing it with 4% and 6% and not even California people. To me, it’s just, “It’s a great time to sell.” Maybe not a great time to buy, but the numbers always work. Let’s segue to what we do. I love what you do, by the way. The model of you’re doing the hard work. Here’s a fixed property loaded with a tenant. You just come in, walk in, we take care of it all. That’s an easy simple solution that you are really helping people with. Thank you for doing that.
The bigger picture, I don’t care what the property costs, whether it’s worth $1 million or $200,000. It’s all about the cashflow. If I’m making $10,000 a month net after all expenses, whether the property is worth $800,000 or $400,000, it doesn’t affect me. The economy aside, the cycles aside, what I’m looking for is the right location. I want the numbers to work. The clients, the demand is good now and it’s getting better and better and better. We’re at the right place at the right time. Gretzky, the great one. We just had a hockey, the Washington Capitals the championship. “Gretzky, how come you’re so good?” “It’s simple. I go where the puck is going.” The puck is going not to mega mansions, not to 8,000 square foot homes. It’s going to smaller where people are in control. There are one or two bedrooms where a millennial can move in with a friend or be by themselves. A senior doesn’t want a 3,000-square foot colonial with the big staircase. They want a single level, one level. They want to be in control and some of them need help. They don’t want to live alone. They want companions, peers of their own age. Everything is going to the future and the future is getting older. Grains, silver tsunami and you have a real opportunity right now, to be at the right place at the right time ahead of the curve, on top of the wave, not getting crushed by it.
You have to follow trends and you have to pay attention to demographics. That’s so important in anything you do, any kind of investing, no matter what it is. You have the right idea here. You made me think of one more question as you were talking and that is, you were talking about markets and in every market is local. There are over 400 markets in the US and they all move independently of each other. I like to look at what each markets are doing. I look at those trends within those markets, but it’s not just price, it’s a lot of different things. One of those things, are rental rates. How they compare to price appreciation or depreciation. My question to you is how sensitive are the fees that are being charged or paid for by these seniors that are staying in the properties relative to the market cycle, meaning economically and the real estate cycle? Is there any correlation there or are these just completely disconnected?
When it gets to markets that are higher, more expensive than others, the rates for assisted living are higher. It is a given. When they raised minimum wage and the government is so stupid at what they do so many times but they’re like, “It’s only going to affect 3% of the people. Everybody who it works, it gets raised because if they’re making $4 and now they’re getting $10, the person who was making $9 are saying, “I want eleven.” Every gets raised. All of that just gets passed on to the resident as well. Everything is economically-driven. This all tied together, but when it comes to certain markets, here’s the part as real estate investors. I would want you to think differently. As real estate investors, we think it’s all about the real estate, the tax deductions, the appreciation, all of that, but in this, it’s not.
It’s about the business and the cashflow. The need is there. The demand is there. The people will pay it because they love mom. They’re going to liquidate their own home before they say, “Mom, you move out and take care of yourself.” They’re not going to give up their job to take care of mom. The point is the clientele is there, the money is there. If the whole economy goes to crap, everybody’s going to pull back to an extent, but we just went through a great recession. How did it affect our industry? It may be held some people off from not moving into assisted living for a little bit longer until the economy did recover, but it didn’t affect vacancy rates very much. It’s pretty much held stable. It was a few points different, but we just went through a major recession.
When it comes to the real estate that we’re doing our bit in, it’s cheaper sometimes to rent than it is to own. If I’m in an expensive market and I can buy the house for 2 million or I can rent it for $8,000 a month, $10,000 a month, I’m a renter and I’m fine with that. I’ll have an option to buy. Even when the market comes down and the property is now worth one point $1.5 million instead of $2 million, now I’ll exercise my option, but a renter can work for you.
The property value aside, when we were looking at what the resident, whatever they’re paying per month, that’s how sensitive is that to the change in real estate values and the market? Does it move up and down with the market or is it determined and dictated by other factors?
It’s not affected by that. It’s just like your apartment complex. If all the sudden you bought it for $12 million, now it’s worth $15 million, that doesn’t mean that every tenant’s paying you 30% more.
I find that there’s not a tight correlation between property price or value and what we collect for rents. I do find rents lag behind, changes in market value. With this, this is a little different. This is a slightly different animal. It’s not tied to market rents, it’s tied to what is the going rate for assisted living residencies and I don’t know who determines that?
It’s all about what somebody can afford. There are markets right now, if I was to pick one, say Missouri. Missouri is one of the lowest averages for assisted living cost in the nation. Let’s just say it’s a $2,800 for the state, per month on average, $2,800 is low. There are people who are in Missouri right now who can afford much more than that who would not even consider staying in that place, that’s $2,800. They’re looking for that place that’s $6,000 a month. They’re able to afford it and they’re not going to do anything less than that.
Tell us about your academy. What is it all about? What are people going to learn?
We’re going to give you a link and that link is a free training that we’re going to give you complete access to. I have the privilege of traveling around the country. That’s pretty much what I do, whether it be on a cruise ship with you and Robert Kiyosaki and the real estate guys or whether it be a REIA in different locations. When I travel around, sometimes I only do it half dozen times a year where I’ll do a five-hour training. That five-hour training, I boiled it down to an hour and fifteen minutes with a lot of meat in there. I took that and broke it down into seven segments. Nobody has any excuse, I can’t sit for an hour and fifteen minutes.
If you want that training, it’s free. If you want more information, there are two opportunities. We do a home study course and that’s three courses, 36 lessons where you complete or the better way, come to a live training. We do it eight times a year in Phoenix, Arizona. The reason why we do it in Phoenix is you actually come to my homes, you get in a bus, come to see my homes meet my manager, my caregivers, my residence and the context for the content, seeing it from the inside out is the very best way to learn this.
I appreciate you making that offer. I encourage people that are here, if you’re even half interested or curious about how this works in the profit potential from it, definitely check it out. If nothing else, you’ll get a free education. It will expand your mind to look at different opportunities that are out there and not plain vanilla rentals. Gene, we did a great job here. Is there anything else you want to mention?
I want everybody who’s here to think about why you do what you do. In real estate so many times, Marco, we just get caught up in the money. There’s great money to be made and it’s fun fixing and flipping but why? Why do we do what we do? The older I get, the more important this becomes. I deal with people who are aging all the time and they look back in life with the regrets that they wish they did this and wish they did that. I don’t meet people who regret things they did. It’s only the things they didn’t do. I’m just encouraging everybody to find out what your passion is, why do you do what you do and dig in and focus on that. Everything else is a waste of time. It’s not about the money, it’s what are you doing with this.
For me, it’s teaching others how to do this. I’m doing it. I’ve got my money. I’ve got it but there are millions of people that need this help all over the country, so I’m spending a lot of my time teaching others how they can help these people and make great money. Our motto is, “Do good and do well.” You can do good helping a lot of people and do well financially. Making $10,000, $20,000, $30,000 a month with a couple of these homes is all most people meet. Really, do need more than that? Do you need thousands of employees or millions? I don’t. If you do, God bless you. Go for it. I’m your biggest fan. I’ve got grandkids I want to spend time. You figure out what your why is, find your passion and go for it.
Thank you very much for taking the time to come on the show. This has been incredible. I’m excited to look into this a little further for myself personally and I encourage everyone to take advantage of that free video training that we’re making available here. Gene, thank you so much and I’m sure I’ll be seeing you again real soon.
Looking forward to it, Marco. Thank you.
Thank you. If you are interested in that free course that Gene was talking about, which is an introduction to the lucrative world of residential assisted living, be sure to go to the following link, PassiveRealEstateInvesting.com/AssistedLiving. Other than that, if you have not subscribed to this podcast yet, please do so on iTunes. Just click that subscribe button and then you can set it and forget it. It will always update you with new episodes. If you have any questions, feel free to reach out to us. We have an Ask Marco section on our website. I want to thank you once again for making us a Top 20 podcast on iTunes. We will see you on the next episode.
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