Top Loans to Start Your Residential Assisted Living Facility
Sep 23, 2024
Starting a residential assisted living facility can be rewarding. It provides crucial care and aid to the elderly while establishing a profitable business. Obtaining the necessary finances is one of the most essential parts of this process. The financial environment for purchasing a residential assisted living facility can be complex, with various loan types and funding options available. Understanding these options is crucial for making informed decisions and safeguarding your organization's financial viability from the start.
In this blog, we will examine the many loan options available for owning a residential assisted living facility. We will discuss the specifics of each loan option, guiding you through the financial complexities of the different loan options and selecting the best loan type for your specific circumstances. Whether you are a seasoned investor or a newcomer to the assisted living sector, this guide will provide insights to help you raise or obtain the necessary funds and put your company on course for success.
Check out the video too:
SBA Loans: A Reliable Choice for Assisted Living
The Small Business Administration (SBA) loan is a popular and reliable funding source for residential assisted living facilities. The SBA offers loans at favorable terms and rates, making it a popular option for many firms. SBA loans usually provide affordable interest rates and terms for business owners. These loans are also collateralized by the real estate you purchase, which protects both the lender and the borrower.
The SBA offers two types of loans: 7(a) loans and 504 loans. The SBA 7(a) loan is ideal for new business owners, with terms of up to 25 years. The SBA 504 loan is another option, albeit less common with first-time purchasers. However, it is important to know that SBA loan rates are adjustable; they are set using the prime rate set by the Federal Reserve plus an additional percentage (determined by the bank). Although SBA loans advertise as low as 10% down, actual down payments are typically higher and end up being between 17-18%.
Traditional Mortgages: A Standard Approach
Traditional mortgages can also finance an assisted living facility, especially if converted from an existing home. A conventional mortgage permits you to buy the property and borrow more from the same or different lender for upgrades and running costs. While this technique offers a familiar process and potentially lower interest rates than SBA loans, it frequently requires a bigger down payment and may include higher approval requirements because it will be considered an investment property.
Hard Money Loans: A Flexible Solution
Hard money loans are another viable option, particularly when traditional financing sources are unavailable. Hard money lenders are private bankers who offer short-term loans with lower down payments than traditional loans. However, these loans normally last for a shorter time, ranging from one to five years, and are designed to serve as a bridge until you can secure more permanent finance. Hard money loans are useful for establishing viability when developing your assisted living facility. They generally are only used temporarily until you are approved for more traditional funding.
Bonus Tip: Partnering with Landlords
Consider exploring an alternative approach by establishing partnerships with landlords who have a vested interest in the assisted living model. By entering into such agreements, landlords could potentially provide financial support for property improvements while you maintain a lease agreement for the property. This mutually beneficial arrangement offers a distinctive income-generating opportunity that warrants further exploration.
Importance of a Solid Business Plan
Having a strong and well-defined business strategy is essential for your company's success, regardless of where your money comes from. A comprehensive business plan not only improves your chances of getting a loan by demonstrating to lenders that you have carefully examined your business strategy, but it also serves as a road map for managing your operations and achieving future growth.
Final Thoughts
Establishing a residential assisted living facility requires careful consideration and selection of the proper financial source. Different choices, such as Small Business Administration (SBA) loans, regular mortgages, and hard money loans, each have their own set of benefits and considerations. Furthermore, investigating the possibility of partnering with landlords may provide a novel and potentially lucrative financial alternative. To show to potential lenders, you must have a detailed and well-thought-out business plan, as well as a clear strategy for properly managing your operations.
If you need help creating a solid business plan to help you obtain your funding, download our Business Plan Checklist to get started on your journey to opening an assisted living facility.
Need help figuring out where to start? Join the next Roadmap Challenge and build your launch plan with me.
Show full transcript 👇
Transcript
00:00:01
hey there welcome back to Assisted Living investing excited to have you on the channel today today we're going to get into the topic of what are the different loan types that you can use to purchase your own residential assisted living facility if you're interested in learning about that hey everybody welcome back to the channel it's Brandon Gustafson with Assisted Living investing. net excited to have you here on the Channel with me uh for our topic today we're going to be getting into what are some of the
00:00:33
different loan types that you can use when purchasing a residential assisted living facility but before we get started and start discussing that topic we're going to I wanted to just quickly remind you about the free underwriting calculator we have on our website Assisted Living investing. net we'll have that linked down below and you can get access to that calculator it's going to help you out in just kind of understanding uh what it costs to to get started on on your facility what it cost
00:01:01
to operate your facility and how you can use that information to help you uh understand if it's going to be a profitable opportunity for you to start your own assisted living facility I'm working on a course that also is going to go through that it's going to be called the business planning guide and if you join our email list by signing up for our calculator then you will get uh you'll be made aware of that Resource as soon as it comes available I'm working on it right now and excited to share
00:01:28
that with you it's going to have um business plan templates and and some orientation on that uh the underwriting calculator with a very uh specific um overview of how to use that calculator uh including the updated tabs that I've got so if you want that make sure you get over again to Assisted Living investing. net to sign up for the calculator and uh it's going to have a few other bonus resources that I'm really excited to give to you including a list of my expenses for my facility
00:01:55
and and how much it costs us to operate so if you're interested in that get over to the website and sign up so that you will be the first to know once that becomes available for our topic today again we're going to get into the three the three main ways for you to fund your assisted living facility purchase so the first one I wanted to get into and this is one that I've talked about a lot because it's the one that I have a lot of experience in is SBA funding so using the SBA is one of the the best ways I
00:02:24
found to get started in Assisted Living SBA is small business administration they do loans that have really good terms and rates when it comes to Assisted Living especially because it's a business um they're they're also going to to be able to to do some some finagling there to make sure that uh they get things taken care of on their end but it's going to help you out uh as well just from a Securities perspective for them they they are able to secure it with the real estate that you're
00:02:52
purchasing which is good for them uh but it also lets you get started on your facility uh and the SBA can be hard to work with it can be scary uh what I'm going to tell you here in this video is it's not that bad as long as you are doing the things that you need to do you're you're really responsive and helping them uh answering all the questions that they need and getting them all the information that they're going to need to go through the process it's going to be pretty smooth uh in my
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12we course that I'm recording right now I give you a lot of tips and tricks on how to do that and coach you through the process of how to interact with an SBA lender so uh make sure you pay attention to when I dropped that drop that course out there for you cuz it's going to really help you out through the process of of getting the SBA loan uh but basically uh the the way that this is going to work for SBA is they're going to ask you a bunch of questions they're going to get a lot of information from
00:03:45
you from the people that you are purchasing the facility from and then they're going to do some underwriting that's where my underwriting calculator is going to also come into play but it's going to they're going to look at that information then they're going to tell you yes or no I want to work with you or I don't and if they do typically you're going to be looking at what's called an SBA 7A loan you could also do a 504 but I think if you're brand new to this
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you're going to get a 7A loan and uh when you start that it's going to probably be about a 25e term and once you get that you're also going to identify you know what your interest rates are something that I learned as I got into the SBA funding area though is those rates they do fluctuate they are adjustable rates and it's based off of the the prime um the prime rate that is set by the fed and so it does that it will do a a number that is that is set by the the bank that you're working with
00:04:41
plus Prime so it could be prime plus 2% or plus 2 and a half% that's just their way of doing it but every time the FED adjusts the rate your interest rate is also adjusted and so you know you could start at 6% and it could go up to 10% or you could start if you're purchasing now and you're up at 10% and it's going to come back down once rates start coming down so just something just quick tip for you to be aware of there as you get started uh working with the SBA now if you start working with the
00:05:11
SBA they're going to tell you we could do is and you'll see this if you look online at a bunch of places could do as low as 10% down um payment for your facility so if you're doing a million dollar facility purchase uh You' only need to put in 100,000 that sounds great but my experience having done this three times now on three separate SBA loans is you're typically coming out of pocket um closer to like 17 18% is is what it comes out to be so it's less than 20% it's going to be probably less than you
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would get if you're going a traditional the route of traditional mortgage but uh it's it's not going to be that 10% uh just in my experience of of working through this so just something for you to be aware of as you do your underwriting and kind of look at this it would be great if you could do 10% down and save the rest of that cash for something else another facility or whatever um but if that's not the case then just be aware that you're going to have to put a little more money into
00:06:07
into the pot to get started so SBA excellent resource I've got a bunch of videos on the channel I'll try to link one up above here that's going to help you understand a little bit more about the SBA and if you have done an SBA loan make sure you comment down below so you can help people out and if you are looking at doing an SBA loan or you're interested in doing an SBA loan make sure you comment Down Below on that and and people can get in here and and help you out through the process of of doing
00:06:33
SBA so uh that's the first option the second one is going to be more of a traditional type of a mortgage um so this one you'd be working with a with a lender uh and and you just want to kind of be transparent about what you're trying to do and but you're essentially purchasing this house on a traditional mortgage I think you'll see this a lot more if you're trying to do a conversion of of a home and you'll buy the home on a traditional mortgage and then the remaining amount you might put into to
00:07:00
an SBA loan um and so you would you know you're buying a house for 500,000 and then you need to do the renovations and you need some operating Capital that 500,000 is going to be on a traditional mortgage um but for a rental property so that's kind of what you're doing to get that one started and then you need 200,000 for the renovation and the operating expenses that when you're going to go and talk to either the same bank or a different bank and say I need $200,000 to get this business up and
00:07:27
running so you'd have two separate payments but I think you're going to find lenders that are willing to work with you on that I've not had to do that in my s in my situation but I think it's something that you could find as as you start going down this process of looking at an assisted living facility the thing that I've learned if anything from this entire process is just because one lender tells you no doesn't mean that the answer is always no and just because one lender tells you no you know we
00:07:55
can't do that or you can't do that um just take it with a grain of salt and go talk to another lender and you'll probably find uh one that's willing to work with you in doing both of those loans or doing one loan while another bank does another loan and you'll be able to find that information to kind of help you through the process of of securing the the funds that you need to get started on your assisted living facility I don't have a lot of experience with the traditional mortgage
00:08:19
route but I know it's it's one that you could go on and I think it's going to be a a pretty similar process to if you are purchasing uh you know a second a second home an investment property that's the type of thing that you want to be putting um out to to the lenders as you're talking to them is hey I'm I'm looking at starting an assisted living facility what loan products do you have that are going to allow me to do that and uh can you kind of help me through that process um so that we can get uh
00:08:46
everything there that that we need to uh to to secure the funding for for my investment that I want to go through and I think you're going to find lenders that are willing to work with you through that process and the third one that I wanted to get into to with you is hard money now hard money is is different it can kind of sound a little bit scary um but I think it's actually a really good option for you as you get started with Assisted Living uh there's kind of there there are not a ton of
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lenders that work with assisted living and the ones that I've worked with are probably ones that you're going to be end up working with or get connections with as well um big ones that I'm aware of there's Bine bank and Celtic Bank um we' did one with unqua which is more of a local bank but um a lot of lenders will have a loan product that is SBA there's a lot of SBA lenders out there and I would suggest you know Google uh or do an internet search for something like SBA lenders in my state um or the
00:09:44
state where you're going to be operating it's going to give you an idea start reaching out to them if you keep hitting roadblocks or you have purchased a facility like we did and then you're trying to turn around a few months later and do another facility with a different lender and you're getting the runaround from from all these lenders going the hard money route is not a horrible decision uh the hard money lenders they basically they're private funders private financiers and so let's say that
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you need a million dollars so you would go and talk to a hard money lender and say I want to start an assisted living facility um here's my business plan this is what it looks like and then you're going to um hand that off to uh hand it off to them so they can review it and make sure that they're interested in in doing it make sure that they're familiar and and and and feel good about the risk that they're going to be um assuming as they take that on and then they will give it to you the pros of working with
00:10:37
a hard money lender is it's lower down payment typically than any of the other funding sources so you're going to have to be less out of pocket the um downside with this potential downside is it's going to be uh shorter terms like typically one to five years so very quick the intent is you're going to do this and have that hard money lender working with you uh while you get things up and running and show that you can operate the business so then you could go back to the SBA and say hey I've been
00:11:05
operating this business now for 3 months will you f or three years will you now fund me or I've been doing this for a year will you now fund me here's our our pnls this is everything that we've been doing with the facility uh and and how it's operating and then typically an SBA lender will look at that and say okay yeah that looks good and then you'll use that SBA funds those SBA funds to then pay off your hard money lender so shorter term short uh probably worse rates than you would get with a
00:11:33
traditional lender but uh a way for you kind of a creative way for you to get started in the realm of Assisted Living another one that I'll mention just kind of a bonus tip is uh if you find somebody that's a landlord that uh is willing to kind of work with you they're interested in Assisted Living they don't know how to to do it but they're interested interested in the concept of doing Assisted Living uh you might be able to find somebody that is willing to kind of work with you and doing the
00:11:59
renovation to get it up and running and then they're the landlord and you're basically leasing the the the the real estate from them and starting the facility that way I I know of a few people that have done that so that's a bonus tip uh one thing that that came to mind as is going through this as well is you want to have a really solid business plan for this whether you're talking to SBA traditional lender hard money lender um you want or even somebody where you're leasing the property you want to
00:12:25
have a really solid business plan to kind of help you through the process of thinking through what you're trying to do but also um just kind of putting it out there so they can see on paper what your vision is and how you're going to um Implement all the things that you're trying to to do for your own assisted living facility um building that business plan is going to be key uh if you sign up for our free underwriting calculator you'll get on an email list and I'm building a business planning
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guide which includes a templated version of my business plan with an overview of how you can customize that and and get you started down the process to uh really build that business plan in a way that I know works with lenders because I've gotten it I've received funding from from multiple lenders and um it's built off of some bases that were from an SBA lender and from the SBA itself and then customized to being assisted living um specific so if you're interested in getting access to to that
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uh product once we launch it on the website make sure you get over to Assisted Living invest in.net sign up for our free underwriting calculator and you'll get on the email list for when we drop those types of tools out uh for you to to go and access and purchase and start you on your journey to investing in Assisted Living excited to again have you on the Channel with me here to go through the Journey of investing in Assisted Living it's it's hard there's a lot that goes into it if you have gone
00:13:54
through conversations with any of these types of lenders uh make sure you comment down below it's going to help people people kind of learn the process if you have questions about the SBA traditional financing uh working with a hard money lender make sure you comment those down below as well share your experience uh ask your questions and as a group we can get back to you with with feedback and what we've learned through our processes and also I'm I'm really trying to focus on building out content
00:14:21
that is specific to you and what your needs are so if you have questions or comments make sure you comment those down below and I will create some content for you based off of off of those needs are you interested in getting started in Assisted Living bu 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
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