There have been numerous questions recently on the Active Duty Passive Income Facebook Group about investing in assisted living facilities. As someone who recently invested in this class, I wanted to provide insight into the purchasing process.
Dollar for dollar, there is simply no better real estate investment than residential assisted facilities. They are typically class A properties, exceptionally well-maintained, yet yield significantly more returns than your average multi-family at the same price point. Yet, in my experience, there is hardly any competition. I believe investors are intimidated. If you can structure your deal right, you can avoid all the headaches involved with running the business and enjoy rent checks from a competent operator (and they will be grateful for the job). This blog post is my story on how I bought my first assisted living home.
How I Started in Assisted Living Investing
I bought my first house as a primary residence in 2016. The following year, I came out of the Army Reserves and switched to active duty. During the transition, that first house became my first rental. After four years, there was nearly 100k in equity! Since I had PCSed to the other side of the country, it seemed like a good time to sell and 1031 exchange into a bigger property. In a cunning move of real estate brilliance, I started looking at listings on loopnet.com (just FYI, this is a joke, loopnet is typically where real estate deals go to die.) And so, I searched for whatever listing had the highest cap rate for my price point. I was shocked to find a beautiful class-A house with a 25% cap rate.
I called the listing agent, and sure enough, it was an assisted living home that had been sitting on the market for months. Once I demonstrated that I was a serious buyer with the pending sale of my previous property, the realtor sent me the details. To be clear–I had NO idea how to run an assisted living home, but the realtor suggested she could help find a competent operator. That is just one of the many reasons it’s so important to find an investor-savvy agent to assist you with your investment purchases!
My biggest concern wasn’t closing on this property but was the operator getting cold feet. So, before I made an offer on the property, the operator and I negotiated terms. She agreed to a $2500 non-refundable deposit and a stepped-up rent agreement. I would own the property, and she would hold the business. Because of the high operating costs of assisted living, I agreed to free first-month rent, months 2-6 at 4k a month, months 7-12 at 6k a month, and 13-36 months at 7k a month. The operator covers all maintenance except the roof. Lastly, I would not sell the property for the duration of the lease.
Assisted Living Financing
I was very fortunate with my financing. I was able to find a lender willing to do a conventional mortgage at 15% down at 3.5%. For the price of 610k, my mortgage is about 3k. Considering I don’t do anything aside from collecting checks from this property, this was an absolute home run.
Because they command such high rent prices from their clients, the homes are in impeccable shape and are generally in desirable neighborhoods. As a result, they also appreciate significantly higher than your average single-family rental. Since I have found assisted living, I don’t think I would invest in anything else.
About the Author: Travis Salley is an active-duty officer in the US Army stationed at Fort Huachuca, Arizona. He is a real estate investor and a licensed financial advisor. Travis can be contacted at [email protected].
