Managing A Residential Assisted Living Business
As we get older, most of us know we’ll need help and have to give up some control when it’s time to be spoiled and waited on hand-and-foot. Today, Toby Mathis of Anderson Business Advisors talks to Rocky McKay of Peak Care Assisted Living Homes on important things to consider when it comes to managing a residential assisted living business.
Highlights/Topics:
- What is a residential assisted living business (RAL)? Remodeled homes in residential neighborhoods that fit the needs of geriatric residents
- Activities of Daily Living (ADLs): Basic physical and mental tasks, including bathing, brushing teeth, laundry, and cooking
- Typical Age Group for RAL: 85 to 90 years old
- Why invest in RAL real estate? Need for good quality, high-end homes to provide great care; and strong margins rival any other real estate investment
- Typical Monthly Fee: $4,000 to $7,500 private pay per month, per resident for 24/7 assistance/care
- Three RAL Businesses: Real estate property/home, investor/money person, and operating an actual business
- Biggest residential assisted living business (RAL) Pitfalls: Not understanding the operations side and daily involvement required
Resources
Peak Care Assisted Living Homes
Rocky McKay’s Phone: 1-800-906-1030 Ext. 101
Arizona Assisted Living Homes Association (AALHA)
Anderson Advisors Tax and Asset Protection Event
Managing A Residential Assisted Living Business Transcript
Toby: Hey, guys. This is Toby Mathis with the Anderson Business Advisors Podcast. I’m joined today by Rocky McKay whose with, is it Peak Care, Rocky?
Rocky: Peak Care Assisted Living Homes.
Toby: We’re going to be talking about assisted living, residential assisted living specifically, but before we jump into that, I just want you to get to know our resident expert today. Rocky, let’s give them a little bit of background on who you are, where you grew up, all that fun stuff.
Rocky: Hello everyone. I’m Rocky McKay. I originally grew up in Idaho and I’ve been living down here in Scottsdale, Arizona since 1997. I got into residential assisted living homes about almost 40 years ago now when we started researching about what needs to be done. We launched our company and have been successfully operating now for a little over two years.
Toby: That’s fantastic. A lot of folks don’t know exactly what assisted living is or residential assisted living. Could you break it down into bite-size pieces so they understand what we’re talking about?
Rocky: Yeah. Really, in the basic unit, there are two things for assisted living: you have the big box facilities that you always see everywhere, the big hundred person places, something like that, and as residential assisted living is you’re really in homes and neighborhoods. You can drive by one of our homes and not even know it’s a residential assisted living home.
Toby: It’s a shared home with a bunch of residents and maybe it’s been tailored so they each have a bathroom with their bedroom and something.
Rocky: Yeah. The insides usually have been remodeled depending on what the individual is wanting to accomplish with that individual home. With my homes, they’re all 10 bedroom homes, so we do have a lot of bathrooms, a lot of bedrooms that we’ve remodeled our homes into. This varies from state to state, how many rooms you can have, how many residents. In Arizona, we can have up to 10 in a residential setting.
Toby: Are these people dementia patients? Are they just elder folks? Are there regular adults that live in these?
Rocky: Most of them, they have some sort of need for their activities of daily living, ADL is what we call them. […] help in managing medications, helping do some washing. Usually, people come in here after independent living. They might be in a big box or independent living, but then they need more care because they might be physically disabled, they might be in a wheelchair, walkers, they need more help. Or they do get up to dementia, Alzheimer’s that we have here that are forgetful. They might be physically able to do a lot of things, but they can’t remember to do it. That’s the type of individuals that come into our homes.
Toby: So, an activity of daily living like brushing your teeth, maybe getting dressed, eating.
Rocky: Yes, all that stuff. We’re there to help them, assist them from bathing them, to brushing their teeth, to help them remember to do the basic things. Like I say, we’re dealing with dementia, Alzheimer’s. They can’t remember doing things, so they might think that they already did it. Basically, they can do it, but they just need help remembering to do it.
Toby: They just need a helping hand. In other words, maybe somebody shouldn’t be living alone.
Rocky: Correct.
Toby: And instead of living alone, they live with a few other people in a home, in a house.
Rocky: Yeah, in a house. They have access to the kitchen, everything that you see when you walk in, and you’re thinking you’re going into a normal house when you first walked into it. We just have a lot more bedrooms.
Toby: What’s the typical age group that’s in your homes?
Rocky: In my homes the typical age is roughly between 85 and 90.
Toby: So it’s basically, “Hey, you don’t need to be taking care of this stuff.” My mom’s 80 and we have a conversation every time I see her. She loves being independent, but she also needs a little help everyday. She said in two years she’ll probably transition out. I keep trying to say, “Don’t go to a big box. Where are you going to go?” and she has her ideas. This is the idea of somebody actually there that maybe does cooking for you, maybe does your laundry.
Rocky: Yeah, we have everybody that does all that stuff from cooking, cleaning, their laundry. They’re technically just being waited on hand, but they’re able to do as much as they’re able to do with […]. But, when it comes to cooking, we have residents that are remembering recipes and they’ll sit there and tell the caregivers how to cook. We’ll come up with a menu, it would be like that, and caregivers will cook for everybody else in the house. It could become nice and personal.
Toby: What caused you to go into this area? What was the draw?
Rocky: Me and my partners were looking at a different place to invest in the real estate market. Senior living kept on coming up more and more. We came across residential assisted living. We started really researching this little niche market and found out that there was a big need for good quality, high-end homes that provided really great care. We started researching that thing. The homes that were offered in the areas that we were looking at here in the Phoenix metro area were nice, but there was only a handful that we would really feel comfortable putting our own parents in. We decided to jump in to do this better and buy the type of home that people would really like to live in.
That’s where we started really focusing on doing this stuff. Every home that we’ve had, we’ve remodeled and brought it up to our standards of what we think it should be at. We’d far exceed what the state and city even mandates us to do in the home. We feel that it’s better for our residents and for our caregivers, who are going to take care of the residents. The more at ease that we can make them have, ease of use of things, the better for everybody.
Toby: Changing topics here a little bit, let’s talk about the money of it. You’re into a house that has 10 people. What is the typical monthly fee that you receive so you can operate this per resident?
Rocky: Between all my homes I average anywhere from $4000 up to $7500 a month.
Toby: Wow. Okay, so let’s say you have 10 rooms in a house. You have $7500 coming in and your responsibility is providing round-the-clock care?
Rocky: Round-the-clock care. We offer 24/7 waitstaff all the way around. We have 2-3 caregivers on during the day and then one awake at night sitting there doing bed checks, making sure anybody who needs help wakes up in the middle of the night, go to the restroom, that we’re there to help them. If they have an accident, we’re changing out their […] like that.
Toby: How are the margins? Are they pretty strong?
Rocky: Yeah, they’re pretty strong. If you operate a good, high-end quality home the margins are very, very well that would rival any investment out there.
Toby: Who should consider getting into residential assisted living, not to become a resident, obviously, but if you’re an investor or you own a real estate, what should you be looking for as to when you might want to do residential assisted living?
Rocky: Everybody has what they’re really looking for. If you want to come into residential assisted living, if you own homes that you think would be a good fit and that each city might have their own little qualifications in what you have to do to make sure your home is able to be an assisted living home. If you’ve just been renting out this home, let’s say you have a 5000 square foot home and you rent it out for $2500 a month or something like that, then you’re only making a profit of $500–$600 on it. You can convert this house, put a little bit of money into it, and you can turn around waiting to make anywhere from $10,000 a month in profit.
Toby: Is that pretty common, to have that type of margin?
Rocky: On the higher-ends, yes. If you go to the little bit lower, where you’re present, well you may only have the 45, you’d probably be looking at $7000–$8000.
Toby: I’m going to set the table for these folks real quick. There’s three business when you’re talking about residential assisted living. There’s the real estate itself, having the house, there’s being an investor and perhaps doing the loan on the home or being the money person to start one up, and then there’s the actual active business. The active business means hiring, having the employees. Is there a magic number of how many homes you should be running when you’re an operator and you’re running the active business?
Rocky: It really depends. We try to do everything in twos because I can hire one of my managers and they can only apply state law to oversee two homes. I only have one, so if I’m going to hire one person, that manager, you’re probably not giving your […] if you’re not running two.
Toby: So you should do two. You should do two at a minimum.
Rocky: In Arizona, yeah. In other states, it’s a little different, but let’s just keep it on Arizona. Two at a minimum is very beneficial.
Toby: What’s the hardest state to run in a residential assisted living that you’ve seen?
Rocky: California.
Toby: Yeah, you’ve got to get a license first and all that too. What are the big pitfalls with residential assisted living? Where do you see people trip and fall?
Rocky: Not understanding the operations side of it and how much daily involved you got to be into it. You get investors come in here, they know real estate, they come in here, they buy a good home, they convert the home, they do everything, and then they struggle at trying to find somebody to manage it.
This is such a niche market where it’s very hard. They’d want to know who the owner is or who’s making those decisions. These investors are real estate people, they own real estate, and they might be out of state or anything like that. It’s very hard for people to come into terms of, “Who is this? Can this home disappear on us really quickly?” That’s the biggest pitfall that I can see.
Toby: That’s fair enough. Do you see people getting in this, getting in over their head, and then dumping it or bailing it?
Rocky: Oh, yes. I’ve talked with three different people that has done this before. They got into it, remodeled it. It wasn’t able to get it filled up or get the attraction they wanted to and they ended up just turning around and selling the home to other people.
Toby: Rather than doom and gloom, do you have any success stories? Anybody that’s done a really great job or you’re like, “Man, that’s really awesome, what these people do.”
Rocky: Yeah. I sit on the association; there’s one association for assisted living homes. I get to know a lot of great homeowners around here. I’ve seen some great people that come in here, open up homes, just really good at right and hire the right people, […], come in, do all right, and they’re happy with their investments. There’s three or four homes that I’ve helped out with that have been becoming very successful.
Toby: If there was one thing that you wish you knew prior to getting into assisted living, what would it be?
Rocky: Prior to getting into assisted living, just knowing how much you know, especially on the operating side of it. I’ve been involved in the business everyday. It’s not a 9-5 job where you’d be like that. When you’re taking care of people, you have to have a drive and dedication. You want to be able to do this. It’s been rewarding for me. Just getting in here, I really didn’t know how much day-to-day operations I would be in, but I probably put myself more into it just because I care so much about it.
Toby: Coming back to you guys. I understand that you’re different. A lot of folks will tell you how to do assisted living, but a lot of folks won’t run it for you. Your company is a little different. You’ll go in and you’ll act as the operator for these folks?
Rocky: Yes. We have some of our own homes that we built and done and we operate for ourselves. But we also have a company that operates if we’re […]. If they want to come in and like, “Hey, I really want to do this. I have this big house I think we can build,” I can help him from the start, making sure it’s being built or reconstructed and remodeled right, if they’ve already done it, to come in and hire the staff to operate it, and help get the license for the house […].
We are really focusing on running the operations for them. We hire everybody and we file the losses for them, we’re out there marketing for them. We do all the bills. Just like anybody that’s in an apartment complex, they go buy an apartment complex. They hire a management company who comes in and do it. That’s pretty much what we do at the same time.
Toby: Now, if I have an apartment and I hire a management company, they’re charging me probably about 10% of whatever’s generated. Is that in line of what you guys do?
Rocky: Yeah, I charge 10% on the assisted living. The payroll is dedicated to what is happening at the house. Each caregiver clocks in, clocks out of the house. No matter if we use caregivers elsewhere, it’s just what they are working at that specific location. The payroll, the worker’s comp, everything’s done, is broken out just for that specific location. The meals are ordered specifically for that location.
Everything is based right down there. We take a 10% management fee of the gross revenues and then everything else goes down to their bottom line.
Toby: That’s not bad is it? That’s actually pretty good.
Rocky: They get a pretty good deal from all that. We take the headache away from them.
Toby: Is this only in Arizona, by the way?
Rocky: I am only operating in Arizona now. We’re looking to expand, but that’s going to be a year to two years down the road, before we expand to other states.
Toby: Right. If you’re in Arizona and you’re listening and you don’t like running your own home and you’re saying it’s worth 10% to let somebody else deal with the headaches then they should contact you. How does somebody get a hold of you, by the way?
Rocky: They can email me at rocky@peakcareliving.com or they can go to our website which is www.peakcareliving.com and just hit the contact button or they can call me at 800-906-1030 then with the extension 101.
Toby: If I was in Arizona and I had assisted living I’d probably be doing that because I don’t want to run my own homes. I actually rent houses or lease houses to operators. I have several on the east coast where it’s different. Everybody’s different. It’s not just the elderly. It could be autistic adults where somebody just needs to have somebody watching over, still wants independence and they live in a house.
Rocky: We have some younger gentlemen in our homes that had just bad accidents. They can do a lot of things. They’re in their 50s that are going to be with us. They just had bad accidents. They don’t want to be a burden on their families. Somebody’s sitting there taking care of them. They can’t do a lot of things. Whatever insurance they had or if it was […], they just pay monthly. A lot of times people come in here to relief because now they’re not burdening their family to try and take care of them.
Toby: Sometimes you don’t want your family being around. Again, I dealt with this enough to know that sometimes you just don’t want the hassle of having to maintain your house. You don’t want to change you own lightbulb. You don’t want to cook your own meals unless you want to. Could a resident in your home cook their own meals if they wanted to?
Rocky: No. We usually do it for them just because we have so many people that we have to cook for, 10 people. And if something happens, the liability reasons is hard to pass by. If they want to design the menu and tell us how to cook it, we try to get them involved that way.
Toby: There’s a little bit of give to these residents is what you’re saying. The whole idea is it’s not your family. Now, are most of these private pay? Is this long-term care policies? What’s paying for the $4000 a month?
Rocky: Ours is private pay, but a lot of these people do have long-term care insurance laid out. We don’t get paid from long-term care insurance so what usually happens is the long-term care insurance pays the families 30-45 days after. Let’s say June 1st, I have a family pay me, and on July 1st, we submit the paperwork to the insurance company saying they were here everyday because most of these insurance companies are paid out daily rates. We want to make sure if the resident was here everyday. We submit to the insurance company that, “Yes, the family paid us. Here’s a pay invoice. They were here every single day,” and then they turn around and check back with the family and reimburse.
Toby: I understand it. That’s pretty good. In closing, which one piece of advice would you give to somebody? You can go back a few years, and say, “Hey, before you got into this,” what would be the one piece of advice you’d give to somebody who’s looking at this as a potential?
Rocky: One piece of advice is, make sure you’re bringing in people that know what they’re doing around you. I was lucky enough to have people around me that really helped me get this off the ground. It’s a lot of work. You’re going to be involved in it daily. If you don’t have the time, resources, the drive to do it, make sure you hire that out, to do something like the management because it takes a lot to take care of the elderly people and people expect a lot. Because you’re dealing with somebody’s parents and trust me, if things are not going right, they’re sitting their complaining to you everything they note.
Toby: I’ve been lucky enough to go down and actually teach some continuing education with some of these groups. Are the groups in Arizona all licensed if they’re in this realm?
Rocky: Yes. They have to be licensed by the state. Everybody, even if they only 1 resident up to 10 residents on the residential site have to be licensed.
Toby: You guys probably have a bunch of associations. I know of a couple down there, but you got some associations that you work with. Would this be something you’d tell somebody, to work with folks that are with an association or would you go outside of it?
Rocky: Arizona Assisted Living Home Association is the main one that goes to the state. We try to lobby everything for them. We work with the cities and everything like that. I sit on the executive board of that association. We’re the largest association. We do represent roughly 1800 homes in the State of Arizona.
Toby: Let’s just get that, 1800 homes, not 1800 residents but 1800 homes.
Rocky: And they could be […] from, 4, 5, all the way up to 10.
Toby: That’s pretty amazing. I think that’s really great. You can just tell that there’s a need. I don’t know all the stats, but it seems like the baby boomers are really hitting it right now, right?
Rocky: Yeah. We’re starting to get a lot of the early baby boomers. The early baby boomers are starting to really look at this, maybe start to live independent and come in here. My youngest resident that’s in here, besides the two that I talked about earlier, were really in need of being from elderly reason is 74. It does ride on the cusp of the first generation of baby boomers.
Toby: It just seems like there’s a growing need for it. I’ve looked at this. You have the big box. You have some of the higher end. Some of these things I’ve seen you pay $250,000 just as an entry fee and lose it. It’s gone. Then you see these where people are actually saying, “Hey, let’s get a really nice house, golf course or something like that, or some nice neighborhood. You’d love to be there, anyway.” I think our friend Jean used to say, “You want to drive to it, you don’t want to drive by it,” type and some of those big boxes scare the heck out of me. It always feels like laminate.
Rocky: You don’t get the personalized feeling being in a home in one of those places. The care ratio where it really differentiates on that is that the big boxes usually running in with one caregiver to 10-15 a night. You can save up to 20 residents and one caregiver trying to take care of them. Here, we run more of 1:5 even sometimes better than that during the day, depending on what we’re doing that day. You’re getting a lot better quality care, hands-on touches.
For work, we usually tell family members, “We’re seeing a slight change here with your mom or dad.” Their family is like, “Okay, we might need to have this checked out. Why don’t we go have this checked out,” things like that, where they’ve really relied on us we really give feedback with what is happening with what is happening with their families.
Toby: You have eyeballs on them everyday. A lot of folks can identify with it. I think everybody relates to it as they want independence, but you want the piece of mind in knowing that somebody’s checking in.
Rocky: Check them, making sure they didn’t fall out of bed. You wouldn’t hear that stuff.
Toby: And if they have medication, making sure that they are at least taking it or if they do trip or fall or something that they’re not sitting there for two days before somebody figures it out. I really appreciate you coming in and spending some time.
Rocky: Thank you.
Toby: Again, I’ll post your information. If you’re in Arizona and you don’t want to run your house, call Rocky. If you’re interested into getting that realm, you call him too. He’s a good guy. Lots of information, really, I could just say from having known him for a bit here that he’s a good person surrounded by good people. You don’t go into this just because you decided you’re going to have rental properties. You get into this because you’re drawn to it, because you want to help your elders out there and make a difference, so I think that’s great. Again, thanks Rocky for being with us.
Rocky: Thank you, Toby.
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