How Much Capital You Need for Your Assisted Living Facility
Sep 18, 2024
Starting a residential assisted living facility is a great opportunity that combines financial gain with personal fulfillment. Many entrepreneurs are curious to know how much the down payment is for an assisted living facility. This blog will review the financial options and significant expenditures of starting a residential assisted care home.
Establishing a residential assisted living facility demands more than a financial investment; it also necessitates meticulous planning and knowledge of the financial landscape. Every stage, from acquiring the appropriate property to obtaining the essential licenses and recruiting qualified personnel, takes careful study and financial planning. We want to demystify the process by providing insights into the many finance options available to prospective facility owners.
Whether starting out in senior care or looking to increase your portfolio, understanding the financial criteria is critical. By the end of this blog, you'll better understand the financial requirements of starting a residential assisted care facility and be better prepared to take the next steps toward making your business dream a reality.
Check out the video, too:
Understanding the Costs and Funding Sources
Before getting into specific financial details, it's important to understand the numerous funding options for this type of project. Each financing option has its own set of qualifying criteria, application process, and pros/cons, all of which you'll want to understand to make a sound investment decision.
SBA loans are a common choice among many entrepreneurs. While the SBA promotes as low as 10%, it is wiser to budget for 20% to cover any additional expenditures. For a $1 million property, your down payment could range between $100,000 and $200,000.
Traditional or conventional loans typically require a bigger down payment, ranging from 25% to 30%. This is because the loan will be for an "investment property," and while they may have fixed rates, the initial down payment is larger. For the same $1 million property, you'd need a down payment of $250,000 to $300,000.
Hard money loans are short-term loans with more flexible terms, typically ranging from 0% to 10% down. They are perfect for customers who require speedy funding but at higher interest rates. Depending on the lender's terms, your down payment could range from $0 to $100,000. Then, once the business stabilizes, you can refinance into more traditional funding.
Partnering with investors can considerably lower your initial investment. By sharing the financial burden, you can reduce your own risk. However, it is advisable to contribute some dollar amount to demonstrate dedication. For example, if you collaborate with an investor, your investment could be as little as $20,000 to $30,000.
Leasing a facility is another inexpensive method to get started. When going this route, most of your funds are more for furnishing and initial capital to run the business rather than money for a significant down payment. The initial costs include purchasing mattresses, furnishings, and other necessities, which might range from $50,000 to $100,000.
Detailed Cost Breakdown and Examples
Let us look at a practical example to better grasp the charges.
For SBA loans, a $1,000,000 property normally requires a 10% to 20% down payment, which equates to $100,000 to $200,000. Traditional loans for the same house would require a down payment of 25% to 30%, which equates to $250,000 to $300,000. Hard money loans, on the other hand, can vary anywhere from $0 to $100,000, depending on the lender's requirements.
Choosing the Right Option for You
Choosing the most suitable funding option depends on your specific financial circumstances and investment objectives. Small Business Administration (SBA) loans are advantageous for those seeking lower initial payments and don't mind an adjustable rate. Conversely, traditional loans present fixed rates but require higher down payments. Hard money loans offer expedited financing, albeit at higher short-term costs. On the other hand, partnering with investors disperses the risk, but you'll still need to bring some money to the table. Opting for leasing favors those looking to minimize initial investment and concentrate on operational setup.
Final Thoughts
To start a residential assisted living facility, you must carefully plan and thoroughly understand your financial options. Whether you decide to pursue an SBA loan, a traditional mortgage, a hard money loan, or opt for a partnership, it's essential to establish strong relationships with lenders and investors to secure favorable terms that align with your business goals and financial capabilities.
If you need help creating a business plan so you can secure the needed funding to launch your assisted living business, check out our Business Plan Checklist.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:00
hey everybody I'm Brandon Gustafson and welcome back to the channel in today's video we're going to be getting into the topic of how much Capital do you need to start your residential assisted living facility if you've ever wondered how much money you need to get started make sure you stick around we're going to get into that in today's video hey everybody I'm Brandon Gustafson I own and operate two residential assisted living facilities and I created Assisted Living investing. net to provide you
00:00:31
with coaching that helps you start your own residential assisted living facility welcome to Assisted Living investing in today's video we're going to be getting into the topic of how much Capital do you really need to start your own residential facility I see this question all the time from people that want to know how much money is it going to take for me to get started on this I've talked about this in previous videos but I wanted to make this one that's specific to this topic really dive in
00:00:56
deep on this so you can move forward as you're trying to make these decisions and then help you get started going down that Journey so excited to get into that topic with you today before we get started though make sure you get over to the website at Assisted Living investing. net you can get access to our free underwriting calculator and you'll also when you sign up for that you'll get on to an email list it's going to give you a a mini course that's 12 weeks long that's going to give you
00:01:18
information on how to get started in your Assisted Living investing journey and on top of that you will be made aware of the the new course that we're putting out that uh is 20 plus hours of content with action steps and a bunch of different resources to help you get started on your journey to investing in Assisted Living make sure you get over there while you're there you can also sign up for the business planning guide that has a bunch of content on there for how to really do underwriting I've got a
00:01:46
two-hour course that kind of goes through that process with the updated underwriting calculator and goes really in- depth on that also business plan template how to edit it and and make it work specific to assisted living and investing in that with a few other bonus resources so make sure you get over there now let's get into the topic for how much Capital do you actually need to start your residential assisted living facility now to answer that question what you really need to answer is what
00:02:13
type of funding are you trying to obtain as you go through this process so there's a few different funding sources and I've talked about this in a previous video so the first one is going to be SBA Now with an SBA loan uh it could be as much as 20% they they will tell you it's as low as 10% and what I have learned through this process is they're always going to tell you how low it could be and that's great but that's just a sales tactic so what I want to share with you is what kind of that
00:02:43
maximum amount is and what you could expect to to spend when you're going through that process there uh because I want I want it to be realistic I want you to know what you're dealing with as you go through this process so the SBA is going to be between 10 and 20% um and I would plan on it being closer to to that higher end as you go through the process so uh as you're doing your underwriting and things like that I would suggest that you just plan on it being a 20% down payment not a 10% plan
00:03:10
on the 20% because that's going to just make things a lot easier for you next is going to be traditional or conventional loans and for this one you're looking probably I would say between 10 and 30% but more realistically you're going to be at 25 to 30% and this is because this is considered an investment property you're going to be able to to find these types of loans uh in my experience I think you're going to be able to do it we didn't pursue them actively because of the the extra down payment that it
00:03:39
was going to be and we wanted to to decrease our down payment but it's not something that's an absolute no so I think you're going to be able to find that and I've had somebody comment on this so thank you for your comments down below uh if you have things questions that you want make sure you're commenting them so that I can make content that's going to be helpful to you I had somebody comment on a video uh a couple months ago now um and they asked could you purchase a facility on a
00:04:04
traditional or conventional mortgage and then get uh a business loan an SBA loan for the operating Capital because when you're doing that traditional mortgage it is specific to the the real estate and the answer to that is yes you'd be able to kind of combine those loans and you're going to have two different down payments but that down payment for the SBA portion is while it is still going to be in that 10 to 20% range is going to be for a much smaller amount so you know think $200,000 there um for that and that's
00:04:35
that even might be a little bit high but that $200,000 so even at at 20% that's $40,000 so it kind of gives you an idea of what that looks like as opposed to a much larger purchase for the facility in the real estate itself um and we'll get into some examples here in in just a few minutes so that's traditional and conventional mortgages next is going to be hard money so hard money I've talked about this a few times before and on the course that we're going to be releasing I really dive deep into hard money and
00:05:03
what that looks like and how it works so if you're interested make sure you get over to the website sign up so that you can uh be aware of that course when it drops so you can get that information but hard money is going to be somewhere that's more like 0o to 10% and it's going to depend on the lender and and what their terms are and and their criteria and things like that are but it is a way for you to get started for a much lower amount uh of of money out of pocket now with that said your terms are
00:05:28
your terms and your race are going to to be less favorable the reason you would use hard money is so that you can um kind of get started uh because you can't find money through the SBA or or traditional mortgage type of thing and so you want to get started but uh you just don't have the money to do that and so you're going to use the hard money to get you started for one to three years and then you're going to refinance that into that longer term debt with the SBA or a traditional mortgage and the next
00:05:59
one one is partnering with somebody and that's going to make it free potentially and and you're not going to have to put any money down now I I say that tongue-in-cheek in reality you're probably going to want to put some money into the deal it shows that you have skin in the game um but if you are partnering with somebody like I did with my dad who was largely the fun financier of the the facilities that we were able to purchase I put in uh I don't know 20 to $30,000 of my own money but he
00:06:27
financed the the majority of that purchase for both of our facilities through money that he had available so I I was able to get into it for a pretty limited amount down or uh another one that is somewhat free or very low cost and my buddy Serge Le pescue talks about this on his channel on how he got into it is uh kind of leasing a space uh where you're where you're kind of leasing it and then you just need the money to potentially buy some beds or some furniture and things like that and
00:06:57
then it's a small amount not necessarily A a percentage but you're just kind of looking at the amount of money that you'd have to front to be able to purchase those things and then pay your bills and things like that so uh those are some of the options and kind of rates that you're looking at now I want to give you some examples uh and kind of do the math as dangerous as that sounds we're going to try to do the math here on the channel I'm going to try to use round numbers to make this really easy
00:07:21
on myself so let's say that you are purchasing something for exactly $1 million that's exactly what the amount is and you know this is a prettyy cool opportunity because it's exactly a million dollars and how often does that happen uh so let's say you're doing an SBA loan and let's say you're a 10 to 20% down payment and that's what you got to to to look at there for your facility on your down payment so in that scenario at 10% down you're going to be looking
00:07:50
at a payment of 100 to $200,000 um so that's going to be the Continuum that you're working off of for how much your down payment is going to be now let's shift over to a traditional Mortgage in a traditional mortgage you're going to be looking at 10 to 30% down on this million dooll home that you're purchasing it's going to end up being 100,000 to 300,000 so you got a little bit wider of a of a space here for how much money you're going to be putting down so you want to be aware of
00:08:20
that now hard money again it's going to kind of depend in my experience talking with hard money lenders you're going to be looking at like 0o to 10% is is what you're going to do your conversations may vary so with that you're looking at0 which is great up to $100,000 so a much much more narrow and also just kind of a a shorter uh you know potentially zero doar down which is great you're going to be looking at that kind of a range for them and then as you get into partnering
00:08:49
you're going to be looking at potentially zerar which is awesome um so you know you might want to put money in as I mentioned to show that you have skin in the game and things like that but the potential for you to be getting in at zero down is something that is realistic and something you want to be looking at as you go through that process so that's going to give you an idea of the range there of what these prices are going to look like for your down payment to get started with your residential assisted living facility
00:09:16
purchase so which option of these is the best and I don't know that I can answer that for you uh that's going to be specific to your situation obviously a lot of people want to do this for a smaller amount of money but uh when you're doing a smaller amount of money your rates and your terms are going to be adjusted I went the SBA route um it was something that we were really comfortable with as something that worked for us and and I really like the SBA there's a lot of things to like
00:09:42
about it lower down payment uh pretty good rates and terms uh but something that you want to be aware of is that those rates are adjustable and they will adjust whereas with a traditional mortgage you're going to be looking at something that's probably slightly longer in terms and you have fixed rates but you're going to have to do a a larger down payment on the house more than likely um when you're working with hard money you're probably going to be doing this for a short period of time
00:10:07
one to three years and then you're going to have to refinance into one of these more long-term uh versions of financing that you're looking for so there's a lot of pros and cons that go into that I what I would suggest to you is you start reaching out and having conversations with lenders and building those relationships up and figuring out what their criteria is for Investments and and how you can kind of meet their their different criteria to go down the journey tell them just have
00:10:34
conversations I'm I'm really interested in investing in in assisted living facilities is that something that you guys are interested in if it is could you kind of give me an idea of the types of rates and terms that I'd be considering uh what type of criteria do you need so I can keep that in mind as I'm looking through these opportunities uh that's the type of stuff that you want to be looking at and building those relationships is going to go a long way um and helping you get and obtain
00:11:01
funding and whether it's it's this deal that you're working on right now or the next one or one in five years from now building those relationships is going to be key to you and and figuring out how to get the funding and how to move forward with with things now I I've got to say I'm going to put a quick plug in here if you are really good at raising money um and you you're good at kind of finding those people to help do that I am looking to partner with people and looking to kind of get in contact with
00:11:30
them so I can build a good team as I go through my process and building my portfolio as I mentioned in a previous video we're going to link that up above uh I I am really good at the vision really good at uh kind of helping out through the financing process and underwriting and and kind of doing the negotiations with a lender uh what I'm not great at is more of the kind of going out and finding and building the relationships with people to raise money to purchase I don't have the time I
00:11:56
don't have the skill set on that right now so if you're good at that then make sure you email me reach out to me at ass info@ Assisted Living investing. net I'd love to have a conversation with you and kind of go through this process as as we move things uh as as we move things forward as I try to uh create a bigger investment a bigger portfolio with me now to recap the video and what we've been talking about today we've been talking about how to get funding how much Capital do you need to get started
00:12:21
with your residential facility and we talked about some of the different options that you be looking at uh SBA traditional mortgage hard money partnering with somebody um even uh going out and leasing something went through the math of it and hopefully that made sense and hopefully I didn't mess up any of the math there uh if it did I'm sorry uh hopefully you're able to to kind of figure that out I tried to make it simple for myself but math when you're talking on a camera not always
00:12:46
the easiest thing and then uh we talked a little bit about which of those options is best and why they might be the best for you if you found this information helpful make sure you like the video and subscribe um so that you can be notified when we continue making this content I'm hoping I can start doing more regular content for you more frequent content and maybe even do some live sessions so you can as ask me questions we can kind of go through this together so if you subscribe and ring the bell you'll get notified when those
00:13:15
types of things happen uh because I really want to make this a space where you can we can kind of interact and and build out content for you comment down below if there are topics that you want me to discuss and I'll add them to my queue of videos to to get create and and re search for you and help you through your process as as you get in your journey to assisted living and then get over to the website as well Assisted Living investing. net sign up for that free underwriting calculator make sure
00:13:40
that you are on the list for when we are releasing our content and the types of things that are going to really help you out on your journey to assisted living and putting it into a specific you know condensed form that's really going to be helpful in getting you along so you don't have to look at all of these videos and everything like that does residential Assisted Living sound interesting to you but you don't know where to get started at Assisted Living investing. net we're here to help you
00:14:03
through the process start to finish thanks for watching and have a great [Music] [Music] day
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