Do you know about RAL? What it stands for? You probably should because you or a loved one may need it someday. Today, Clint Coons of Anderson Business Advisors welcomes Gene Guarino of Residential Assisted Living (RAL) Academy. It’s never too late to start an RAL business, which provides a tremendous service and peace of mind for residents and their families.
- When and how Gene got into real estate business; no money down, no credit, no clue
- What’s not RAL? Old-folks home, hospital, skilled nursing facility, nursing home, or independent living
- What is RAL? Single-family home converted to house seniors who receive 24×7 care; about 98% of them are moving into the last place they will ever live
- Conversion can include grab bars, smoke detectors, wider doors, and other changes
- Real estate investor can lease home to an operator as a long-term, low-impact tenant
- Location, Location, Location: Buy new vs. repurposing existing property into RAL
- Do good, and do well; protect assets and generate income
- Finding a home to buy for RAL is easy; find the tenant/operator first
- How much can you earn with RAL? Avg. $4,000 per month/person to live in home
- Potential Risks and Liabilities: Do you operate properly? Do it right, don’t get sued
- Professional Liability Insurance Policy for RAL costs less than $1 per day/resident
- Dispelling RAL Myths: Doesn’t need to be multifamily or commercial setting; residential and commercial financing is possible
- 3 things needed: Senior-safe house, standard operating procedures (SOPs), and qualified manager
- 3-legged Stool: Residents, caregivers/staff, and business
Full Episode Transcript:
Clint: Welcome everyone to the Anderson Business Advisors podcast. This is Clint Coontz here from Anderson Business Advisors. Today, we have Gene Guarino of Residential Assisted Living Academy. Gene is a good friend of mine, we’ve spoken together on multiple stages, and a lot of our students have found with him. I thought, “You know what, I want to get this information out to people,” because so many people, when I run into him at an event, and we’re talking about asset protection, real estate investing, and all throughout the word RAL, I get so many puzzled look on people’s faces. They’ve kind of heard of it, they don’t know what those initial stands for, so I figured, “You know what, what I’m going to do is I’m going to bring out the nation’s premier expert in residential assisted living. Everyone listening on this podcast can hear from the expert about what this means to them and what they can do with it.”... Read Full Transcript
Gene, thanks for coming on.
Gene: Thanks, Clint. Great to be here.
Clint: Excellent. You just got back from a cruise. Where did you just go?
Gene: We were in the Southern Caribbean cruising for about nine nights. Robert Kiyosaki, G. Edward Griffin, Tommy Hopkins, and 200 other people, we had a great time for a week floating around in the ocean. It was great.
Clint: Wow. You’re all some power players in the industry; some real makers there. How did you get involved in that?
Gene: Essentially, I had Russ Gray, who’s one of the real estate guys, Russ and Robert. Russ came out and saw me speak in Dallas. We sat down and he said, “You know what, I want to start working with you.” He had me out to one of his events and next thing you know, I’m on the cruise, the next thing you know it’s five years later. I’ve done it five years in a row. It’s a fantastic event.
Clint: You don’t get bored going on the same islands all the time?
Gene: This was one was a little bit different. We did Curacao. We did Bonaire. We did some other places I hadn’t done before. But it’s the people and that’s what’s great. It’s just like hanging out with you. The few times that was in different locations. We get a chance to catch up and it’s great hanging out with real people.
Clint: That’s awesome. Now, let’s just talk about your business. How did you get started?
Gene: I started in real estate when I was 18 years old which is a lot younger than a lot of people. It was because I was in business already, I was a teenager for fashion musician’s small record label, recording studio, music school, and we are renting a building for two years. The lease was coming up, the house was bad, and the landlord was worse. We said, “That’s it. We either shut this thing down or we’re going to go buy a house,” and so we did. We bought the first house, no money down, no credit, no clue, bought it and I haven’t stopped since. But it was about 20 years ago that I first heard about what we do now which is residential assisted living. I heard about from the business perspective, but it didn’t become real to me until my mom needed help, that’s when I got into this business in earnest. I’ve been teaching others how to do the same for the past six years.
Clint: Wow. It sounds a lot like my life story getting started in real estate. You started on your own. You didn’t have a father that made you go out there every Saturday and Sunday or you weren’t in sports or something?
Gene: Well, I had a choice. You want […] either way. It’s either music or sports and music was a lot more fun. I did some sports, but I knew I wasn’t going to be a pro so forget that. Dad was a college professor, so it wasn’t a lot of going out to play in the weekends. I was off playing at the clubs by the time I was a teenager.
Clint: Nice. Great place to get chicks I bet. RAL, residential assisted living, can you maybe explain that to people what that actually means and how that can benefit them.
Gene: Whenever somebody hears assisted living, they think old folks and they think about big institutional buildings. When I say residential assisted living very specifically, it’s a single family homes, it’s been converted—and we can talk about that—and it’s being used specifically for housing seniors where their carers are taking care of them 24 hours a day, seven days a week. There might be 8, 10, 12 seniors in that home, 24-hour care. It’s not independent living. They’re not playing golf, and tennis, and fickle ball, but it’s not a hospital. It’s not a skilled nursing facility. It’s not a nursing home. They don’t need that medical care, but they can stay at home alone. It’s right in between. And that’s we do is we provide the housing, the care. The ability to help these people is tremendous. The money that you can make is great as well.
Clint: Alright. If I’m in real estate and I have single family rentals, it sounds like then, do I have to go out and maybe buy an apartment building or hotel to set something like this up?
Gene: The answer is you can but that’s not the model. We take a single-family home and the conversion we talked about might be grab bars in the bathrooms, maybe smoke detectors, fire suppression, maybe wider doors, take out carpets, a little bit of conversion. Again, if you just want to be the real estate investor and lease it to an operator, that’s one play. It’s a great play because if you do that, you can charge higher rent because the business, the assisted living business itself is going to be making significant money, they can pay a higher rent, and they’re going to want a loan release. A long term, low impact tenant in that home, maybe a five-year lease with somebody paying twice the market rent, so a real estate investor can really use this for that exact purpose.
Your question probably is, you said apartment building, think of a home where there is one kitchen, one family room individual bedrooms or shared bedrooms, but it’s a home not a hotel. Everybody doesn’t have their own kitchen or maybe even own bathroom but they’re living together kind of like a family in the shared housing setting, and the caregivers are taking care of their needs on a daily basis.
Clint: Then really, if I already own real estate, I don’t have to go out and buy a new type of property. I could take what it sounds like is my existing property and just repurpose it to an RAL. Is that what I’m hearing?
Gene: Yeah. The answer is that yes but let me expound on that a little bit.
Gene: The location is critically important; it’s not the house. A lot of times, people will come up to me and say, “I’ve got the perfect house.” I look at the house and I’m like, “You’re right. The house is perfect. It’s just in the wrong location.” When I say location is important, what I mean is you want it to be near people that have parents who are 80, 90 years old, they have upper income not lower income, so they have the ability to carer for the mom and dad. The best place to have these homes would be where people like me live, 50, 60 years old, parents are 80, 90. Not low end, not the top of the top, cream of the crop, but that upper middle income because that individual might be paying $4000, or $6000, or $8000 per month to take care of mom and dad.
We don’t do Medicare and Medicaid. If somebody has long-term care insurance that’s terrific but very few people have that. We do private pay. The homes are typically going to be larger. The average rental property that somebody listing right now is probably three-bedroom, two bath home, it’s probably 2,000 square feet or less. We do bigger homes with more bedrooms, more bathrooms. My homes are 4000, 5000, 6000 square feet. They may have started with four bedrooms but now we’ve converted space and there might be 8 or 10 bedrooms in that home. Maybe it started with three or four bathrooms but now it may have six, eight, or ten bathrooms. We do some conversions to make it nicer area because the nicer the home, the nicer the area, we’re going to be in the correct demographic area, the more they pan on monthly basis.
Clint: This isn’t about warehouse and people and putting bunk beds or something in a room. It’s about providing a nice facility for individuals because you wouldn’t want to take your parents to a home and they’re just going to be thrown into this place and treated like orphans. We want to actually give them a home where I would want to live, sounds like.
Gene: Yeah, that’s actually how I got started when I said that my mom needed help. We then went out to look to see what are the solutions, the options for us. They were pretty bad. They were pretty depressing. The good homes were very few and far between, they were full with the waiting list, and even the bad homes had waiting lists. There was a real need for the beds but also the caregivers. It’s not just the real estate, the […] and stakes, it’s the people that are there taking care of mom and dad. That’s where you really can provide a tremendous service and we can make some great money. I keep going to that because I know there’s a lot of people listening that are about protecting assets but generating income. But we have a motto, it’s called, “Do good and do well.” We want to help people do good, do well financially, and we do it with a real estate play; right home, right location, right size, right whatever it is. Then on the business side, this operation of that residential assisted living, that’s where we can charge $4000 or $6000 or $8000 per month per person to live there.
Clint: It can be for real estate investors who already have properties or looking to buy but you keep coming back to this that, if I don’t have a house, it sounds like I can still get into this business and start making a play here if I find a property. I guess you would just lease it, is that how it works?
Gene: If you want to be the real estate investor and that side of things—this is a key point, I’m glad you asked—I want you to find the tenant first, the person you’re going to lease it to first. The house is easy. What you really need is that operator. Now, I’ve used the word a couple of times, your business, it’s actually residential home in a residential setting, we’re not operating a business, it’s a group home for the elderly. We’re protected by the Federal for Housing Act. We can do it even with HOAs and so on. We can have that conversation but that house itself that we’re going to buy to rent out, most people just buy a house then they look for a tenant.
I want you to do the complete opposite. Find that tenant. “Well, Gene, where do I find that tenant?” You could come to my training and they’re sitting right in that room or find an existing one. One that is operating in your area now. Ask them, “Do you want another home? Would you like to expand?” A lot of them would. And then you can say, “If I buy the house, would you be interested in leasing it for me or maybe partnering with me?” That’s’ the way to take that angle, that play. Find that operator then let them tell you where the house should be, how big it should be, what it should look like and feel like then go buy it and lease it to them for that five years with five year renewals at twice the market rent.
Clint: Yeah, because it sounds like now, you’re putting it into a niche, and you have something that people need in that area because they don’t want to spend their own money to buy their own homes. The money you keep talking about sounds really attractive to many individuals and that’s why they have seen so many people at your trainings.
We’re going to take a quick break and when we come back let’s talk about the money.
We’re back with Gene Guarino from Residential Assisted Living Academy. Right before the break, we started talking about how much money you can make with an RAL. Gene, I mean, the numbers are there. I’ve worked with your clients on the asset protection side. I know that they’re making really good money with this, but how about the listeners. Why don’t you tell them what they can actually expect to ear by putting together one of these deals?
Gene: Alright. I’m going to give it to you, fire hose. Here we go. The average person in the US today is spending $4000 per month/per person to live in an assisted living home. Now, if you take out Medicare and Medicaid and even the long-term care insurance, what we focus on is a level three or level four. We break it down into five levels, so not the bottom, which is level one, not the top, which is level five, but level three or four. So, $48,000 per month is really what we’re focused on. I’m going to use the $4000 since that’s the average. Take an average home in the US today. Some of those homes have 6 or 8 people, some have 10 or 12 people, some have 16 or 20 people in them. You’re not warehousing grandma; these are big homes that are well-appointed.
Let’s use 10 as the average, so $4000 per month/per person times 10 residents, that’s potential gross income of $40,000 per month. Now, you’re not going to be full all the time, so you need a factor in vacancy and so on which are expenses to pay for the caregivers, the food, the insurance of real estate and everything, is going to be around $25,000. That leaves you $40,000 minus $25,0000 brings this down to $15,000, $10,0000 so that $15,000-$10,0000 net per month is a real number. That’s what we look at. Now, I’m going to give you […] in a different form. If you’re grossing $40,000, you can expect 20%-30% netting out of that gross income of $40,000 on a monthly basis.
Clint: When I was doing the numbers that you’re talking about; it sounds like you get about $1000-$1500 per person net that you put into your home. Alright, on the flip side, you were talking about if I had a property. I don’t want to run this, but I want to bring someone else in that’s already running these homes and lease my house to them. If I have a house and I’m currently, say, renting out at $1800 a month, that’s a three/four-bedroom home, I can turn around and then lease that to someone else. What do you think I could get off of something like that? $2500? $3000?
Gene: It all depends. You get if you ask. It’s so interesting to me, Clint, because you and I speak at a lot of events and I’m in front of people and every once in in a while somebody just raises their hand and they’re like, “I had been leasing a home to people that have been operating that business for years and I didn’t know I can charge them twice the market rent.” The answer is, “You can charge them anything you want. If you didn’t ask, you’re never going to get.”
Gene: […] for 18, I would start at $3600, twice the market rent but that four-bedroom home, two bath home, the key is in the location. If it’s in the right location, it’s worth paying twice the market rent. Again, I want to go back , you own a home—that was the scenario—find an operator then say, “Hey, I have a home here. Is this a good area for you? What would you need me or want me to do to this house for you to lease it for five years for that twice the market rent?” And then they say something like, “Well, I need you to put in smoke detectors or fire suppression or grab bars.” “Well, Gene, am I going to do all that work?” It’s all negotiable. If I’m the tenant, I’m going to negotiate that or let the landlord do it. If I’m the landlord, I’m going to negotiate to have the tenant to do it.
But pause, how many of you listening would be willing to invest $20,000 into your own property to get twice the market rent with a five-year lease, no vacancies, no hassles. I’m guessing everybody is raising their hand in front of their computer right now while listening on this podcast. Don’t be pinch and pennies. If the home is in the right area, if it’s an appropriate home, you can certainly lease it for more. The key is finding the right tenant first.
Clint: I mean, you brought up two things there. Not only finding the right tenant but also finding the operator. In the show notes, we have a link where anybody is going to be able to go to, and they’re able to get a book that you’ve written. That probably explains that, I would imagine, on how to go out there and find these people because I wouldn’t know where to begin to find an operator that I could lease my home to especially, how do you know if your home is in the right area as well. We don’t have time to go into that on this podcast. I know you teach a great class on that but that’s all important. I mean, you’ve got links, you know how to find those people, and you educate people on that.
Gene: Absolutely. Just to clarify, when I say tenant and you said operator, they’re kind of one and the same. The operator is going to be the one that’s renting that property from you; you’re not renting it out to grandma or that individual on their need. That’s their job. They’re the ones that are going to find those people living in the home and so on. You’re just going to find the operator of the RAL, who’s going to lease that for that five years, so they can operate this business in that location.
It’s a great real estate play. We also have a lot of people, Clint, that are building brand new. You know that because they’re a client of yours as well. They’re like, “You have the right location and we want to have the perfect home,” so they’re building it from scratch and that’s a great investment as well. When I gave you those rates of 20%, 30% of the gross income, that converts to a 20% cap rate, a 30% cap rate. Those are huge, enormous numbers because this is not just an apartment building. If you’re operating that business, making that 20%, 30%, that’s because of all the moving parts that you’re involved in of owning and operating that business.
You just want to do the real estate twice the market rate, long-term tenant, you want to be involved in the business, 20%, 30% cap rates are certainly possible.
Clint: Wow. Alright. When you think working with elderly people, because I’m the attorney, the first thing comes to mind is liability. Right?
Clint: It’s not, “If I’m going to get sued.” It’s, “When I’m going to get sued.” If I’m listening in on this, what do I need to be aware of from a liability standpoint would you say?
Gene: I love talking about this with somebody who’s knowledgeable like yourself because you understand that a lot of people have no idea what the risks are, what their potential liabilities are. We do. We know when somebody moves in, it’s not, “If it’s when.” We know that they’re going to pass away in that house, 98% of the time, they’re moving in, and it’s the last place they’ll ever live. Think that through.
If you have a rental property, two kids, a mom and dad, two dogs. The five-year-old jumps the fence, two doors away, drowns in the pool. Tragic. They’re upset that your fence wasn’t big enough and strong enough and so on. If they don’t have the right insurance and if they’re not ready for it, that could be a big problem. With us, rent a house, could be the same house. Grandma is not scaling the fence but at some point, she’s going to pass away inside that home. But the family isn’t expecting mom to live forever. As a matter of fact, they may—and don’t take this wrong—get to the point where they thought mom was going to be there for a year or two and she’s been there for five or six and they’re like, “Well, that is tragic but glad she’s gone.” They never say it out loud, but I can see by the smile on their face.
Now, they are going to be concerned was there was any problem, issues. You need to be a good actor. Nobody getting into this business should be somebody looking to take advantage of people or just gouge people financially. I want you to have the right heart as well as the financial incentive. But if you’re doing a good job, if you do it right, the bottom line is you really should not be getting sued because people know that when they moved in, grandma is going to pass away. The question is, do you operate properly or you’re doing it the right way?
The insurance policy, it’s a professional liability insurance policy specifically for this industry. The cost is less than $1 a day per resident/per month, so 10 people, 30 days, that’s $300 a month, it’s a line item. It’s not that expensive. It’s not medical malpractice for a non-medical institution but it protects you $1 million per occurrence, $3 million for the policy. I’ve been in business for six years; we’ve never had a lawsuit in a home because of these issues. It’s a question in people have all the time but it’s not really something that comes up very often if you’re a good actor and do your job right.
Clint: I think some people may be discouraged from looking at RALs as an opportunity as investing. I mean, you just go on the news and you’ll see that there’s a lot of bad actors unfortunately out there that I think give the industry a bit of a taint. People then shy away from it. You really have to fight through that.
Gene: When you think about that, those stories that we hear, are usually what I call big box facility, 200 beds where there’s 200 residents and there’s 10 caregivers there during the day and two caregivers at night. Very little oversight, very little care, very little interpersonal relationship. Now switch it to a home. It’s a house. There are 10 seniors in there. There are two caregivers during the day and one at night. The caregivers know those residents by name. The residents and their families have eaten at the table together. They know each other. They love each other. Those caregivers are just as upset as the family members when they pass away because there’s a bond, there’s a love.
That’s one of the reasons why I get into this; not just the money or the lawsuits and this and that. If you have a mom or dad, you understand. Somebody’s going to need to take care of them and it’s either me or somebody else. I want to bring them to a home where they’re going to love them and take care of them. You’re providing a tremendous service and a peace of mind to those people, those families, those residents, and it’s something that you can be very proud of. When I started mine, my whole goal was to have it be a home that I’d be proud to have my own mother, my own father to move into. That was the benchmark and that’s where we started.
Clint: Wow. Alright. We’re going to take another quick break here. When we come back, I’ve got another question for you about the myths surrounding RAL that are out there.
Right before break, we were talking about lawsuits. I mean, here I am, an attorney, of course I’m going to ask him some questions about that. But there’s also some things that I asked him right before the break about the myths that surround residential assisted living because I know people have preconceived notions about this, about what they can do. I’ve listened to people before that throw out this crazy numbers at what you can make in this space. What are—maybe two myths or three myths—would you say, Gene that are out there that you’d like to dispel?
Gene: There’s so many. I’m not going to hit you with a whole bunch. It doesn’t need to be in a commercial setting. You don’t need to do multifamily; it’s a single-family home. You can do residential financing. You can do commercial financing, SPA, USTA, and so on. How do I find caregivers and managers and so on?” There are people that are attracted to this industry where they don’t want to be a barista or a waitress or something else, they want to take care of the elderly. “Well, Gene, everybody is going to move in and sue me.” “No.” We just went through that, listen to the last question, see you’ve got it there.
I think one of the biggest myths is that there’s, “Maybe I’m too late into the game.” Or, “I didn’t know that I could do this.” Or, “I’m competing with this big box facilities.” How many of you listening have seen big box facility open at Birkdale, Sunrise, Altria? They didn’t open it up there by accident. They did the market research for it. They know that there’s hundreds and hundreds of seniors that need the help, can afford it, and they’re going to be there for decades. Your location is simple, at the end of their driveway.
If you’re wondering, “How am I going to fill the house?” Marketing the house and filling the house itself, that’s a big part of what we teach you how to do and what to do and what not to do. But referral-based marketing is your absolute best way. You need to prime the pump, get that first resident, that’s the hardest one then the second, third, fourth, by the time you’re half-full, it goes like a hockey stick because people don’t want to be locked out, “The home is full. I can’t even get in.” There’s so many that I could do but there’s a half dozen for you right there.
Clint: Perfect. Alright. If we’re listening to this and no one’s ever been exposed to this before, now they’ve got the understanding of what the RAL is, you’ve got to be thinking how easy is it to get started in the RAL?
Gene: I always love to answer that but it’s saying, “It’s simple but not easy.” If everybody could do it, it was just simple then I’d have too much competition, so I’m good with having some hoops to jump through and some barriers to entry. Here’s the deal, in order for you to do this, you need three things: you need a house that is senior safe, we need to have policies and procedures or standard operating procedures—the state is going to want to see what you’re doing— and the third is you need a qualified manager. Every state is a little different in what that qualification is. But those three things. You fill in an application. The application will be one page or in Texas it is 17-pages long. Don’t’ let it bother you; six of those are just redundant in case you have 48 partners.
It’s simpler than people may think but if you know what you’re doing and learn it form somebody who’s done it before, can walk you thru, my goodness, things get a whole lot easier. But do it with the right attitude. It’s a three-legged stool. We’ve got residents, you’ve got the caregivers, the staff, and it’s a business. If you do this right, three-legged stool, in the right location, you absolutely can do this simple but not easy, or will make it as easy for you as possible.
Clint: Just one other point on that, if I lived in New York and I’m listening to this podcast right now, and you said you’re from Arizona, it sounds like you’ve got this dialed in. It doesn’t matter where I live, I can do this if I have the right training to find out what New York requires versus Arizona because you just brought up Texas and you said there’s a different form that you fill out. Is that something that people would need that type of training, I imagine?
Gene: Absolutely. Every state calls it something different. I say residential assisted living, but 20 states call it an assisted living facility. Other states call it a personal care at home or assisted living residence. There are different names in different states. There are different paperwork qualifications. Short answer, it definitely can be done in any state. Certain states are better or easier, if you will, to do it in. But backing up for a minute, live where you want to live but invest where the numbers make sense. There are some areas where I’m say, “Yeah, you can do it there, but I would suggest/recommend it.” Some areas are easier to do business in than others. You know that so well. It’s one thing I love about Anderson Advisors is you guys not only know the legal and the tax but you’re business guys and you understand business and how it works together. I really like working with you guys and I appreciate you very much.
Clint: That’s just what we teach. You don’t know what you don’t know. You don’t want to make that mistake where you talked about just the terminology because if you start using the wrong terminology, you’re going to hit roadblocks right away. Education, this space especially, I think is so much more important because there are very few people that offer it and it’s not like buying a single-family home and just putting it up for rent. You have to know what the rules are and regulation in your location. Once you found that location, like you talked about. That’s going another level deeper which we don’t have time to go into on this podcast. Maybe we’ll get you back and we’ll do another one to go deeper on it.
You’ve written a book it’s called, “Insider’s Guide to Investing in Senior Housing.” The link is in the show notes. But if people want to learn more, as we talked about, they can go to andersonadvisors.com/ral. You’ve given us a copy of your book that they can download, and there’s a video as well that they’re going to get as well. Is that my understanding?
Gene: Yeah. There’s a webinar there and they can download a copy of the book. You can buy it on Amazon, happy to sell it to you there. But get it free right here just for you. If you just want to call and have a conversation, what we call a discovery session, feel free to do that as well.
Clint: Perfect. Everyone, make sure you take advantage of that if you’re looking to get into residential assisted living or even if you’re not, I’d still go download the information because you don’t know what you don’t know and there are opportunities out there. Being an avid real estate investor myself, I’m always looking for ways to get a higher return on my investment properties. What we just presented today through what Gene teaches people, is how to do that. Anything else you want to pay in passing, Gene, before we sign off?
Gene: Just one last thought is you’re all going to get involved in assisted living one way or the other. You’re going to own the real estate, the business, or your loved one is going to be living in a home, writing a cheque to somebody who does, right now, you’ve got a choice. Leave a blessing to your kids, not a burden. Imagine moving into the master bedroom living for free with 9 or 10 other people writing you a cheque for $5000 or $6000 instead of leaving your kids the burden of deciding, “What do we do to take care of dad or mom?” you’re going to get involved one way or the other. Make a good choice.
Clint: That’s great. Alright, Gene, thanks for coming on. Talk to you soon.
Gene: Thank you!
Clint Coons is a licensed attorney, active real estate investor, successful entrepreneur, and published author who specializes in asset protection and business planning. Clint shares his knowledge and strategies at seminars nationwide with real estate investors, stock traders, and small business owners. He is nationally recognized for his ability to take complicated laws or structures and explain them in crystal clear form. He helps his client’s protect their investments through his innovative and dynamic approach to asset management.