How Profitable is a Residential Assisted Living (RAL) Business?

Transcript

00:00:02 - 00:00:56
hey friend it's Brandon Gustafson with Assisted Living investing excited to have you here with me on the live this morning uh as we head into the holiday season uh today we're going to be talking about how profitable is a residential Assisted Living business so I get this question all the time I see it uh everybody wants to know how profitable it is and so I wanted to create this video so we can kind of give you some of that guidance here um and and help you understand what that's going to look like uh before I get

00:00:29 - 00:01:23
started let me bring up this screen uh I just want to remind you get over to the website Assisted Living investing. netb checklist you can get access to the free business planning checklist that I've built for you to kind of help you out along your investment Journey so make sure you get over over to that uh as well uh to give you a little bit of background on me if you're new here um well if you're new type in newbie down below and if you've been here uh you own your own facility type in operator i'

00:00:56 - 00:01:52
love to hear who who's here watching and uh who you know what what type of information you need type in your questions and things as well uh my name is Brandon gustofson I own and operate two assisted living facilities and I created Assisted Living investing. net to help people like you learn the ins and outs of investing in Assisted Living I live in Utah operate my facilities one in Colorado one in Idaho and have been able to secure over1 and a half million dollars in SBA funding so kind of gives

00:01:24 - 00:02:18
you an idea of of what I'm doing um here in the business I know what I'm doing I've done this before and can kind of coach you through the process uh so get over to the website again you can get I have a calculator assisted living investing. netal the business plan checklist we'll link that down below and I have the business planning guide as well that is linked below that will help you along your investment journey and we're releasing um really soon so stay tuned get on the email list uh there's a

00:01:52 - 00:02:53
waiting list for our accelerator course which I'm super excited to to release we're just finishing things up on that right now let's get into the topic um how profitable is an assisted living facility and the thing that I want to emphasize here is you will earn the money it's it takes a lot of work um to do this this is a lot of people will tell you that this can be passive and and it can be like I like I mentioned I live in Utah um and have two facilities they're both out of state and in different states so it is relatively

00:02:22 - 00:03:20
passive for me I'm able to do this remotely um and I do that have a video on this on how I do that it's it's not about how it's more about who um who is helping me and having the right people my administrators um at each of my facilities and coordinating with them and working through things with them but there's still a big component especially in the beginning of needing to work and set things up and go and talk to City zoning and planning and talk to the state to get the right license and talking to Medicaid to get certified and

00:02:51 - 00:03:48
all of the things that go into it there's just a lot and and you can figure it out but it's it's a lot it's really hard and once you started that business once you're running the business you're still going to have the stress of everything that comes with it um you can be profitable you really can I I talk about this in in a lot of my videos and show you exactly how you can be profitable so it's it's possible for you to do it but if you're looking for something that's like super passive might not be the best one especially

00:03:20 - 00:04:15
here in this smaller realm where you're looking at the residential Assisted Living you're looking at a care home there's going to be work that goes into it now if you want to expand that you want to get into more commercial style stuff and you're hiring more people you can start getting that to be more passive people could passively invest with you where they just give you the money and you operate it that is also something that could happen um but if you want to be the owner and the operator it's going to take you some

00:03:46 - 00:04:46
time take some effort and involve some stress as well um for sure um it is it is stressful because you are you are dealing with the livelihood of other people all of your staff and all of your residents you have you're you're basically their livelihood and so it have a lot of pressure on you to make sure that you're doing things correctly that you're not going to get the facility shut down that you're paying people appropriately that you're giving people food on time all of those things that you go into is it's

00:04:17 - 00:05:16
kind of like having kids you've got to care for them you've got to provide for them and and make sure everybody is is where they're at that can just add some stress to your life um and when you have payroll coming due and it's 15 to $20,000 uh every other week it it's like sometimes if if money is tight it can be really stressful and and helping you get across that finish line so I just want to make sure that you go into this knowing that there's you can do it uh it can be profitable but you're going to

00:04:47 - 00:05:47
earn it and whether that's earning it through a lot of hard work and a lot of time or earning it through just the stress of of having a business and and being in charge of people's livelihood um one of those things um you know that it's true can you hit a million dollars you absolutely can um I I would say this is definitely has the ability to become a million-dollar business what I would say though is doing this with just one house you're not going to get to be profitable and what I found is operating

00:05:17 - 00:06:15
this in different states I don't get the ability to really scale my business and so what I'm trying to do now is trying to focus and and figure out where we want to operate so my dad and I who are partn on this we actually just last night we're having this conversation about where we want this to go and and how we're going to get it to focus there so we've got a vision and I'm sure I'll share that with you all um once it once we have a little more information on exactly how it's going to fall into

00:05:45 - 00:06:39
place um but we're trying to figure out how are we going to do that because we want this to be a million-dollar business and I truly believe that it can be it's just going to take some time to get there you need more than one and you need to get some economies of scale so those are all things that you want to be aware of but you can get there I I'll say that for sure um now let's talk about the math of all this how do you actually become profitable it's a simple equation it's your income minus your

00:06:12 - 00:07:11
expenses is going to equal your profit so if you have more income than you have expenses then you're going to be a profitable business at its core it is a super simple math problem that's that's all it is um but there are two big levers so we're going to really dive deep into here and they are your income and your expenses so if you want to increase your profitability you need to adjust those different levers you need to figure out a way to get more income or you need to figure out a way to lower

00:06:42 - 00:07:36
your expenses so we're going to talk a lot about those two things here in this video because I want you to understand those different levers and how they work because that's going to help you reach your profitability goals and and help you see exactly what that's going to look like and this is what I teach in the business planning guide so make sure you I I've got the link down below for that um but in the underwriting calculator that you can also get on the website for free um it it talks to you a

00:07:09 - 00:08:06
lot about what profitability is and what your income versus your expenses are so you can get to that point I have other videos on the channel as well that talk about um how you can increase and what that income lever looks like I have some that talk a lot about the expenses so go and watch those videos because they're going to help you get some context as to what the actually looks like so let's talk about your income lever lever this is the money that is coming into you the money that you are earning and there's a

00:07:38 - 00:08:43
few ways for you to just kind of pull that lever and get more money out of it um one is to increase the amount of residence that you have in the facility this is a simple one right so if I'm if I uh have a a facility that is licensed for 10 beds and I only have five residents in there the easiest lever for me to pull probably is going to be figuring out a way to get more residents to come into the house and uh so getting my census back up to that 10 residents which is where I am licensed for so the

00:08:11 - 00:09:20
more residents you can have the more money you're going to get come in just by virtue of of having more people um I talk about this a lot um I would say that expecting even with a Medicaid resident expecting $ 3500 to $4,000 per bed in the house that is very reasonable I think you can get that so if you have five residents and you're making $4,000 per bed that's $20,000 now all of a sudden you bump that up to eight beds um your your census gets up to eight beds at $4,000 you're up to $32,000 right so

00:08:45 - 00:09:42
that's a huge gap that's $112,000 in in extra income coming into you huge huge deal for you the next one is going to be raising rent now if you're Medicaid it's going to be you can't really raise rent um when it comes to medic Medica a you could work with a nurse do assessments and uh go back to case managers and say we are actually providing more care they can reassess it they can give you a higher daily rate to build Medicaid that's how you do that with Medicaid uh so it's possible but it's a lot easier

00:09:14 - 00:10:15
with private pay so if you have private pay residents and um you want to raise the rent then you just you know send out a memo and tell people uh give them 30 days notice hey we're raising your rent it's um we're doing this because of XYZ typically that's going to be because of Market rates um Market rent so you need to back it up and tell people why you're doing it give them 30 days notice and make sure it's a reasonable amount as well you don't want to just go in and double the rent on somebody um that

00:09:45 - 00:10:46
probably isn't going to go over well but if you're seeing that rents are increasing in your in your area and you want to bump it up from 4,000 to 4,400 or 4500 that's reasonable it's like a 10% bump you know depending on when you last raise rents and what the market is telling you all those things seem reasonable so that's a lever that you can pull in getting more income is raising the rents for for your residents you just want to make sure that you're following those guidelines a lot of different states will have different

00:10:15 - 00:11:12
rules as to how much you can raise it and how you go about raising it and things like that so make sure you're getting familiar with that that with what that looks like in your state so that you know you're you're following the laws there um so you don't get in any trouble with that the third lever here with or the third thing with the income lever is getting higher paying residents so um as you are getting in and starting your facility uh let's say let's use the example where you're licensed for 10

00:10:44 - 00:11:36
beds you've got five of them filled and you need to start filling those beds not only should you be getting more residents but maybe you want to go out and find some higher paying residents and maybe you're going to start getting a little bit higher end things in the house um maybe you're going to start offering a few other things and now you're justified in raising the rent and you're able to attract those higher paying residents as well and so that's something there or if you are able to do memory care you can actually make a lot

00:11:10 - 00:12:07
more with memory care now if you do that you're going to have a reciprocal um increase in the expense Libor which we're going to talk about here in a second but um that's something you kind of want to look at here you could get some higher paying residents and you could do that in a variety of ways but that will also increase your your income and the next one is more houses so if you have more houses you're going to be able to scale a little bit more and it's going to help you out a lot so um Gan

00:11:39 - 00:12:42
Gino if if you have been researching assisted living for any amount of time uh he he taught this before he passed away he called it the three pack I think um so if you go and watch some of his old videos he'll he'll kind of explain that a little bit but it's basically um you get you you got one house licensed for 10 residents and let's say you got eight residents and they're each paying you $5,000 that's $40,000 in income now you do that another one and another one so now it's 40 plus 40 plus 40 $120,000

00:12:10 - 00:13:09
in income you're in the same area so your administrator can be over all three facilities so that's a huge economy of scale right there that you're going to be able to to leverage and and decrease that expense lever which we'll talk about here in a second and now you've got all this other income coming in this is where scaling becomes a lot uh comes a really good idea for you in getting more than just one of them it's kind of the thought process behind me in getting multiple facilities what I realize now

00:12:40 - 00:13:35
that I didn't I knew at the time but I just didn't like it didn't click in my brain um was having one in Idaho and one in Colorado doesn't really allow me to have economies of scale there uh it's just way too different and so that's what I just talked about we're going to try to shift and and make sure that we're doing that and getting those economies of scale because it's going to help out in getting more income coming into the house so that's the income lever there's a lot that you can pull there a lot of ways to increase your

00:13:08 - 00:14:02
income so you want to make sure that you are looking at those and evaluating your situation to see how you can get more income coming in so you can become more profitable now let's talk about the expense lever there's a few things that you can do here as well number one is going to be finding some cheaper services so we use a guy um and he's with um schoolie Mitchell is the company if you're interested in in doing this you have a facility and you want to know how how I go about this process I'm

00:13:35 - 00:14:39
about to explain to you um comment down below schooly Mitchell um or get on the website and go to the contact me and just like um send me a message and say hey I heard you're talking about schoolly Mitchell on on the live the other day um give me some contact information there and I can get you in contact with him but basically what what they do um is this guy goes out and he has contracts or contacts with with all of the different vendors so let's use waste as an example so in Colorado we had a dumpster and we used Waste

00:14:06 - 00:15:17
Management um there at our at our house and so we were using that and we would fill up that dumpster nearly every week um with just stuff that would come through and so we we're spending a lot of of those um I see your question jacine I'll I'll get to that here in here at the end when I get to questions so um hold tight um so we we had waste and we're trying to to save money and so we started talking to this guy at schoolly Mitchell and um what he ended up doing is uh he's got all these contacts he goes out and he puts it out

00:14:41 - 00:15:44
for bid for us and he he goes and he says um hey I've got this assisted living house and they want to save some money from waste uh what do you guys have what other options do you have through that process we ended up saving it was like $3,000 a year um and just our who we chose as our Waste Management service provider and they do all of the interactions with that service provider so they go in and they talk to to them they negotiate the contracts if we're having service issues I talk to him and

00:15:13 - 00:16:12
his team goes and talks to uh talks to the waste management company that we're working with and they resolve all those issues and um they do all those things so things um like Waste Management um internet uh phone faxing um you can't really do the City bills because those are just kind of set but uh you can look at those things and you can find you can do a lot of this by yourself if you really want to um finding a company like schoolly Mitchell helps because I don't have to spend the time going and

00:15:43 - 00:16:32
negotiating and sitting on an an hour and a half long wait with Xfinity to upgrade or change my internet plan or any of those things kind of helps out through the process so that's a really good one uh and one that we found to be really beneficial so again if you're interested um type schoolly Mitchell um or get on the contact phone it's probably the easiest way and then we can have a conversation via email and I can help introduce you there um if that's of interest to you next is your economies

00:16:08 - 00:17:06
of scale and we just talked about this on the income lever having multiple facilities and I just use the example of the three-pack where you can have um three facilities and if they're in a within a certain amount of distance and this is going to depend on the state like in Idaho it's I think it's like a 100 miles they have the the facilities have to be within a 100 mile radius of of each other and then you can have an administrator cover multiple facilities um so having the ability to have that

00:16:36 - 00:17:47
three pack is going to let you have that administrator who you might pay a little bit more if they're covering multiple facilities but it's not going to be a multiple of of what they're making so let's just say I'm paying my administrator $50,000 and I go and I add another facility another house that's 5 miles away from me and now my administrator is going to be over those two houses I'm not paying her $100,000 to do that I'm paying her maybe 60 65,000 and then I add another one I'm not paying her

00:17:10 - 00:18:38
150,000 I'm paying her 70 80,000 so that just you can see the difference in income or the differ in that expense that you can see there it's huge right so going from 50 let's use the the three houses um 50,000 um to 15 that's a $100,000 Gap 50 to $80,000 that's a $30,000 Gap and the gap between 80 and $150 is $70,000 I have I've just realized $70,000 in savings by doing this okay and my income is but my income is multiplying it's going from 40 to 80 to 120 okay so it's in monthly income so my income grows as a multiple my

00:17:55 - 00:18:59
expenses will grow as a percentage so it's it's a much smaller amount so when you do those types of things you get the economies of scale maybe you're working with a vendor that's providing you with food or uh cleaning uh yard work those types of things and you've got three houses they're not going to necessarily give you a multiple they might cut you a deal and give you 20 30% off because you are uh giving them a solid chunk of work and so you get these true economies of scale which is going to pull out expense

00:18:27 - 00:19:28
deliver and increase or decrease those expenses and create more profitability for you and the third one here is just working on a budget so you want to set a budget you want to make sure that you are putting something together here that uh that you can follow that is um in line with uh what you would want or or what what you expect to happen with the facility evaluate that budget make sure you're kind of staying on top of it and then when you're doing that you're going to see areas where you know oh crap we

00:18:58 - 00:20:00
have been spending spending um like 50% more on food the last three months what's going on and then you dig into that and it could be you know oh we got more residents that's make that makes more sense or things are just more expensive at the grocery store that makes sense or I'm not sure why and and that's where you have the conversation with your administrator hey I see that we're like spending you know 50% more on our groceries can you tell me why what's going on there um and you start digging

00:19:29 - 00:20:24
into it and and maybe you find uh we're buying a bunch of stuff that we end up throwing away we don't need or you kind of dig into that and you can see uh what's looking at that using a software like QuickBooks is really great for this because you just run a report and you can see how that's that's working that's a huge uh lever as well that you can pull on the expenses so there's profitability for you there your income levers your expense levers how it's going to help you get to the point where

00:19:57 - 00:20:51
you you feel comfortable and how you can get to profitability as well um if you have questions about that I'd love to hear them um so any other questions make sure you type them here in below um and I'll get to get to those here in just a second just want to remind you to if you're not already uh subscribe and ring the bell on the channel uh so that you get notified every time I go live on these um we're doing this on a weekly basis I'm sure I'll do it next week with it being the day after Christmas um but

00:20:24 - 00:21:27
other than that we're going to be pretty consistent with this and uh getting this information to you I I do a bunch of research and figure out what it is that you need what questions you have and so I'm super excited to to do these things for you so let's get over to Jack Jacqueline's question here she said why did I choose the states that I'm in so um the the big reason why I chose Colorado is it just kind of fell into my lap honestly it just kind of it's what came up it's what was available um I was

00:20:54 - 00:21:53
looking here in Utah and we found a a house here just beautiful home and it was like I we we loved it we were like oh man this is 30 minutes away from us huge beautiful home that was expensive but we're like oh we could we could figure this out and and get it to work and it would be so fun to like go there and and be able to to pop in whenever we wanted and and things like that uh as I ran the numbers though I just realized this doesn't make a lot of sense we're not going to become profitable with this

00:21:24 - 00:22:33
one my expense lever was too high and there was no way for me to pull more on the income lever to give me enough of a cushion of profitability for me to feel comfortable with it so I started looking elsewhere and through a real estate group that I was a part of U was introduced to um a guy in Denver who was buying a house there uh an assisted living home in Denver and through that conversation found out that he um was buying from a group that had a second facility in Colorado Springs so he introduced me to his broker and long

00:21:59 - 00:22:55
story short um we ended up purchasing that facility that's how it got to that point as we're getting closer to the end of the purchasing process there I kind of got bored and um Wanted to find another one we had enough money available I started doing some research so I created u a market research tool which is a part of the business planning guide it's one of the bonuses that you get when you purchase that uh and I give that away for free or I guess as a bonus um in there and then also I update it on

00:22:27 - 00:23:39
an annual basis so you'll get the updated versions of it if you buy the business planning guide anyways so as I started doing that I started looking at where are the best what where should I be in investing in assisted living I just kind of went with it in Colorado and you know we're it's great I'm I'm excited we're going to figure it out uh as I started researching it though I started looking at things like um where are people going to retire and um uh crime rates and um tax situations income tax situations um politics in in the

00:23:03 - 00:24:06
areas that we're dealing with just like how do they handle Healthcare regulations and things like that not not necessarily politics but just what how do they regulate the the industry um which I equate to politics but um I could go into that another time um so I I go I I started like looking at all of these things and created this holistic market research tool and I narrowed it down I actually had uh I think I had three locations but I can only remember two of them right now um and one of them is one of the dtas I just can't remember

00:23:35 - 00:24:41
I think it was South Dakota but it might have may have been North South Dakota um and and then the boisey area was the other one and so I started looking at those areas and then also like proximity to me uh it made a lot more sense for me to to do Idaho and so we did that started looking and we found that one and Idaho has been a lot better for us um and I I equated to a few things one I knew what I was doing so I was able to get more in operating Capital um from our lender when we did when we did our

00:24:07 - 00:25:10
SBA loan which just gave us some extra breathing room in the front up front um number two I had done it before so I knew how to better negotiate and the process and and things like that the house was less expensive um for the same amount of residents and um it's it's also um Elderly Care and and Colorado we do mental health and mental health is just a little more difficult especially with what we're dealing with in Colorado and and so there's and I think there's a few other factors there but just kind of

00:24:39 - 00:25:40
doing that research um helped me feel comfortable with it and uh just yeah that that's kind of how we we got to those those two spots and and why we are operating in the the two locations so hopefully that answers your question um thank you for for asking uh any other questions uh make sure you type those in below and uh for those of you that are watching this after the fact U make sure you type in questions even uh below at this point I can get in here and uh just kind of give you overviews and and

00:25:10 - 00:26:03
answer questions do another live topic on it whatever it is that you need help with excited and happy to do that so make sure you like the video U subscribe ring the bell so you get notified as we do this going forward I want to remind you as well to get over to the website Assisted Living investing. netb checklist you can get access to the business uh the business plan checklist I've got that linked down below as well and get on the waiting list because we're going to be releasing the accelerator course here in a couple of

00:25:35 - 00:26:09
weeks and I am super excited for it uh does residential Assisted Living sound interesting to you but you don't know how to get started at Assisted Living investing. net we're here to help you through the process start to finish thanks for watching and have a great day and Merry Christmas happy holidays thanks everybody see you