Gene Guarino: Investing In Residential Assisted Living
Whenever possible here at Peak Prosperity, we try to surface actionable models that can make a real difference in the type of future we see coming.
Demographically speaking, the tremendous wave of aging Baby Boomers is an unprecedented event in our country's history. The sheer size of this age cohort, plus the concerningly-high level of financial unpreparedness for many of its members (which we wrote about at length last week in this report), will demand all sorts of new solutions be pioneered to address the needs of a massive number of aging seniors no longer in the workforce.
An emerging model that has caught our attention is residential assisted living — a "halfway" solution between independent living and the nursing home. It offers seniors the ability to live in a shared housing arrangement with a small number (5 to 6) of others, with minor assistance as needed by a dedicated staff. It still feels like "home", just with a few housemates for companionship. The arrangement preserves much more independence versus living in a 'big box' group home, and is more affordable than the $7,000+ per month 'retirement living' developments that are increasingly only for the wealthy.
Gene Guarino, founder of Residential Assisted Living Academy, joins the podcast this week to explain the model to Chris, as well as the ways that investors can get involved in this growing movement. Those with capital interested in "doing well by doing good" can participate in syndicates that own the residences, creating more inventory to expand this model to. The investment returns are attractive, as is being a part of a movement to offer more housing options to the fast-growing ranks of seniors looking to live with dignity.
Take the big box facilities offering 200 to 300 beds. Some are old, some are new. But it sure doesn't feel like home. The average person in the country today is paying $3,628 per person, per month to live in assisted living. Most of them are big box facilities. It's a big, huge place – it could be a prison if you put some barbed wire on the top. You walk through the front door and you just smell the neglect.
For a senior who wants something less impersonal and overwhelming, but she needs a little help from time to time and so shouldn't live alone anymore, there aren't a lot of great options. Even if they know of a nice place with great care, it's probably full with a waiting list. You'd be surprised how often I hear, "Oh my goodness, I'd be willing to spend up to $7,000 a month, but I can't even get in the front door."
There's so many seniors who need a better solution right now, and the silver tsunami hasn't yet arrived in force yet.
So the model we've created is to take a home in a residential setting, convert it to house around 6 individuals living communally, and offer a much more intimate and friendly form of residential assisted living.
Click the play button below to listen to Chris' interview with Gene Guarino (39m:39s).
Listen to the AudioRead the Full Transcript!
Gene Guarino: Investing In Residential Assisted Living
The following is a transcript of recorded content. Please note, these transcripts are not always perfect and may contain typos. If you notice any major mistakes, please feel free to report them by opening a Technical Support ticket under the Help menu at the top of the screen.
Chris: Welcome, everyone, to this Peak Prosperity podcast. I am your host, of course, Chris Martenson, and it is November 17, 2017. Today, we're going to talk about a business idea that Adam and I first encountered on the investor Summit at Sea cruise we took with the Real Estate Radio Guys, Robert Helms and Russell Gray, a couple of the best guys you could ever want to meet. Now, many of our listeners no longer believe in sending their money to Wall Street thinking it's either a big scam or at least a system that seems to only reliably enrich Wall Street by some odd hundred plus year coincidence. So by having our capital, your capital doing nothing – well, that gets old too.
So one of our missions here at Peak Prosperity is to surface revenue generating ideas that you can use. Today is one that I really like, and I’ll let the business model of the company behind this idea speak for itself. Do good and do well. The idea is around residential assisted living, and there's quite a big story behind both the why and the why now of this idea. Speaking with us today is Gene Guarino, the founder of the Residential Assisted Living Academy, a teaching organization that helps investors and entrepreneurs bring a very needed but somewhat complex idea to market to the benefit of everyone. Gene is the president. He's the CEO and founder of RAL Academy. He had over thirty years' experience in real estate investing in business. Welcome, Gene.
Gene: Thank you, Chris. What a wonderful introduction. Thank you.
Chris: Well, it's been a real pleasure getting to know you. I think we've met a few times now, and certainly have had people that we trust and know – guys at New Harbor, the financial firm, also looking at your idea, and everybody coming away and agreeing, wow, this is such a great idea. So before we get into that, just to set the stage, what I like to do is have people understand really who you are. I said thirty years of experience in real estate, but, Gene, where did you start and how did you get to where you are now?
Gene: Thirty years. I am getting old. That's for sure, Chris. I started really, really young. I was a professional musician as a teenager, and we would play at different venues. And I eventually had a music school recording studio record label, and at that time – I was eighteen – we had a building that we were renting, so we were tenants. We had a landlord. After two years of renting – the landlord was terrible in lots of different ways – we said we're either shutting down this business or we've got to move. And we looked up the street and saw a for sale sign, and that was the beginning of our real estate career.
Bought that first property no money down because we had no money as musicians. You spend more than you make, and that's what you do. And every property since then has been, in essence, other people's money. So everything that we've done from then ‘till now has really lead us to where we are today. And the only thing that I do is residential assisted living. It's a silver tsunami of seniors coming our way. It's an opportunity to help people, and we can make a lot of money.
Chris: Well, musician, of course, the definition is somebody who takes $5,000 of equipment, puts it in a $500 car to play a $50 gig.
Gene: And end up with $5 after paying the bar tab.
Chris: Exactly. It's the rule of ten, just going that way. So let's dive into this idea because I really love the idea. In fact, I got to be honest, full disclosure, I love it enough that I have my kids looking into the idea thinking that this might be something they would be interested in pursuing, and so we're absolutely going through your program and taking a good hard look at this. So you mentioned a term there, the silver tsunami. What is that?
Gene: Silver tsunami of seniors. The facts are in. There's 77 million baby boomers, but the oldest baby boomer in 71 years old, 72 maybe now. So those people, they're not in assisted living for the most part, but their parents are. There's a lot of people – I'm 56 – who are my age who have parents who are 85 and 95 who do need help and assistance. So we're paying for it on that side. And you got kids in college, kids and grandkids on the other side. And we're looking at this saying, okay, it's going to come for us. And it funny, Chris, that you said my kids are looking at this because yes, they can do good and do well now, but some day old man Chris is going to need a place. And if you own your own home you can move right into the master bedroom and live for free. So this silver tsunami is unstoppable. It's a wave of population that is aging. It's a spike in any chart you see, and as this ageing population comes they need help with their activities of daily living or ADL. That's what we call it in the industry. They're going to need a place to live and caregivers to take care of them. It's a crisis on one side, and a huge opportunity on the other.
Chris: Now, Gene, I've been working with a pair of local realtors around here and one of the people I was talking with in this realtor office – they actually specialize in this phone call where they say, hey, mom, dad, they're rattling around this big house, we've got to move them out. We're looking to put the house on the market, but our contingency is we have to find a place for them first. And they don't have any good answer for that locally. So I'm here in Western Massachusetts. But they say it's a big problem, that the biggest impediment to getting mom and dad out of the big place they're rattling around in is where are they going to go next? Real shortage here where I live. Is that an uncommon or a common sort of a condition?
Gene: First of all, that is a huge opportunity. You’ve got somebody's who's right there speaking to that person with a need, and the solution is somebody like myself or you or somebody else opening a home there that is converted into the assisted living, so they literally can move into that home and be taken care of while that real estate agent or broker liquidates the house and has all the money to be able to pay for it. Massachusetts I'm not as familiar with because I haven't been there to do presentations yet. They’ve been begging me to come to Boston, but Western Mass a different world than Eastern Mass. We know that. But there's not a lot of this, meaning single family homes converted into this purpose in Mass that I know of or New England in general. It's also really expensive there.
The average person in the country today is paying $3,628.00 per person, per month to live in assisted living. Most of them are big box facilities. It's a big, huge place, could be a prison if you put some barbed wire on the top. You walk through the front door and you just smell the neglect. And when I first faced this problem, this issue with my mom, my dad, I said I don’t want that. I'm going to create a home situation. Not a home-like, but actual home. And that's what we created. So we take a home in a residential setting, convert it, and now it's used as this residential assisted living.
Chris: So let's talk about that. Clearly, we've got mom or dad, they're rattling around the big house. Maybe they're still getting along, but it's getting tougher, and they would like some help. But they're not ready for the place that smells like neglect, or even if it's not neglectful, they're not ready for, let's say, the end of care part of life. They're still ready and able to engage and want to enjoy life, so it's a middle sort of a ground. Is that what we're talking about?
Gene: Mm-hmm. Actually, let me kind of lay it all out because your situation that you described there, if they're still "rattling around" that means they're mobile, they're independent. They just can't take care of the big house that they don't need anymore. So that might be where they're ready for independent living. Independent living is really any community that you see that says 55 and above, so it's age restricted for adults of 55 or above. But it also could be a building, a house, an apartment complex, townhome, a group where it's not all in one home, but they have their own space. They're taking care of themselves, but they're in a group or a community of seniors of like mind where the might have a clubhouse and even a golf course or all of those things. But that's more independent living.
What I do is the next step which is assisted living. Now assisted living – this is where it gets different, Chris. Nobody's going to move into assisted living until they need to. It's usually an event. Somebody is in that home rattling around, and they're going up to the bedroom on the second floor, and they slip on the stairs. And now the kids come over and say, oh my goodness. We bring mom to the doctor. The doctor takes the x ray and says thank goodness, it's not broken, but she really can't be going up to the bedroom on the second floor. As a matter of fact, somebody should be helping take care of her. And now the caseworker in this case in the hospital looks at the family and says, okay, brothers and sisters, sons and daughters of mom here, who's going to step up and take care?
At that point, really what happens – I'm actually in North Carolina right now, but I was just visiting my sister in South Carolina for a couple of days, and at that point the brothers and sisters have the conversation – who's going to move in with mom? Who's going to stop in and check on her? And then, if you can, on top of that we may need to hire somebody to come into the home to take care of mom and dad. And that's $20 an hour – $23 and hour is the national average – so eight hours of that a day, you may as well put mom into a – and then the proverbial word – a home. And that's where everybody gets nervous and feels guilty. I'm not going to put mom in a home. We should take care of her ourselves. But the reality is we're not all designed to be caregivers and take care of people that way. But there are people that are designed to do that. That's what they do. It's their professional, their calling.
So this group home that we talk about, residential assisted living, just simply put – think of the neighborhood you live in, if it is a neighborhood, not out rural area, but neighborhood, there's a home. And that home is a group home for seniors. There's caregivers coming during the day and at night, so there's 24-hour care, but it's not doctors and nurses and gurneys. Some are more capable to take care to themselves than others. But nobody walks into that saying, hey, this looks like a great club to join. They move there because there's a need, usually event driven, and they move in, and they're taken care of 24/7 at whatever level of care they need. When they're ready for medical help though, that's when they move to the next level, nursing homes, skilled nursing. That's not what we do. That's a commercial type of operation. We do a residential assisted living.
Chris: Great description of that. I get that spectrum, and it makes a lot of sense. Are you finding that when people – so here – just to speak locally here, I'm in Western Mass. I would assume that in many cases if I was getting towards that part where I'm looking for getting into assisted living, I'm not sure I would want to stay here in the cold New England area. But are people moving for this, or are they wanting to stay where their family already is typically? How does the mobility factor into this?
Gene: The family really is the key. And let's assume – I'm going to make a rude assumption that we love mom and dad. We want to near them. They want to be near us. So that's the situation. Typically when somebody retires, let's say they're 65, that's the proverbial retirement age, they move south where it's warm. I get that. But a lot of people, the majority of them, stay where they're at, so the age in place. Now they're in Western Mass, it's cold, the winters seem to get longer and colder every time. And now they're 85, and if the kids don’t live nearby. It's not let me now move to Florida and hope the kids come visit. They definitely want to be as close as they can to the family. But really, it's almost the other way around.
The client then – we talk about this in our training – is that the resident sits in the home, but the client is you and me. We're the two brothers paying to take care of mom and dad. They may not know what it costs to live there. If they knew if cost six thousand a month they'd have a heart attack and die. So the kids are the ones who are picking the home, and they're going to pick a place that is nearby them so they can conveniently go visit, and it's going to be in a good location, a good condition, good services, good care. A location near the family is really critical.
Chris: Now, how long have you been turning the key on this idea?
Gene: I had my first home four and a half years ago, and I've been training people how to do it pretty much since day one. But I heard about this like fifteen years ago, maybe even longer. It was a gentleman in the front of the room saying assisted living's going to a great thing to do. You should all get into this. I remember running up to the front and saying, tell me more. And he said, well, I can't, I don’t actually do it, I'm just telling you, you should do it. So I was disappointed. And the people that I found that were doing it even fifteen years ago really weren't willing to share with me how to do it, or they weren't capable of teaching. Not everybody's a teacher and can explain. So it kind of dropped in my consciousness, and it wasn't until five, six, seven years ago when my mom started to need help that I realized that, wow, I'm in this situation. It's not just money and opportunity, it's real world. What am I going to do?
And it's going through that with mom and then finding out that, really, the choices out there – when you go to see what's in your community – like, Chris, if you're saying there's nothing out here like this that you're talking about, Gene, a nice home in a nice neighborhood that it's all a group home and there's nothing like that, your choice is not the big box facility. 200 beds, 150 beds, 300 beds. Some are old, some are new, but it ain't home. And somebody walks in the front door, and it's eye candy for the kids. Look at that, there's a dining hall, there's a movie theater, there's a garden, and mom's thinking I just want to stay at home. But she needs help, so we walk through that process. And if you do have a nice place with great care, it's probably full with a waiting list. And now it's like, oh my goodness, I'm willing to spend seven thousand a month, but I can't even get in the front door. And that's the need and the opportunity that we have. There's so many seniors who need this now, and the silver tsunami that's coming, this is good now, and it's just getting better and better and better.
Chris: Now, this idea then is – you’ve given the outlines of it, you’ve hinted at it – it involves buying a house that might be just a residential house that would be no different from one you would see in an ordinary neighborhood, but that there's a process by which you can convert that into a group living situation. Is this – if I have that right A), B) how does that vary by state and zoning? As far as I'm concerned, many small municipalities their town officials ought to answer the phone by saying, "Hello, Department of Business Prevention, how can I stop you?" How hard is this, and does it really vary by location?
Gene: Well put, and yes it does. That is a great way to say it. I'm going to record that on a message, and that's great. So the reality is it is different in every state, and it is – the key here is – anybody who's listening who's a real estate investor, this is where the Fair Housing Act works in your favor. The Fair Housing Act is a federal law that's been on the books since the '70s, and most of the time as a landlord it works against you – we have to accept this tenant. I can't kick this person out until the weather breaks or whatever it is. In this case, they can't discriminate against age and everything else. So when a community says we're going to limit you to four unrelated adults, six unrelated adults, well, according to the Fair Housing Act that is discrimination. Who's to say what a family is and what size a family is?
Now, it's a group home for the elderly, not a business. You know, we're very specific in our training. We talk about when you operate, when you do this it's a group home. It's a rental home, one, but we're not leasing it to individuals; we don't have tenants. We're doing a group home that licensed by the state, or a Commonwealth, and every state has its own unique paperwork or documentation or who runs it and so on. But every state typically has a limit. You can have eight, ten, twelve, sixteen people in a single-family home, and then individual areas, counties or towns or cities, may have additional rules and regulations, but it's not something that's federally covered. Each state has their own set of rules and then locally. So there's a need. Some states prevent – business prevention – and I can name some states which I won't – California, New York—which are like that all the time, just trying to put the kibosh on anything. But the need is so high that many states are having to relent and do this.
Now, I'm going to give you both ends of the spectrum. I'm in Arizona. That's where I live. In Arizona it's God's waiting room. A lot of people move there, and they age in place and so on. So we have lots and lots of seniors. There's over 3,0000 of these homes. Now that's 3,000 licensed homes. There's other homes that are not licensed that are operating, I am sure. But out of those 3,000 homes most of them only have five people in them. So it's really not that many people. It's 30 times 5, 15,0000 out of a million five that need this help. But in other states – we had a student in Rhode Island who literally opened up the very first residential assisted living home in the entire state. Never been done before, didn't have rules and regulations. We helped them get it through the state because it had never been done before. So they have a home licensed for ten or twelve, I believe, and that home itself is – it's ten now that I think about it – licensed for ten in a home in a residential setting and is the first and only one at this time. So different areas, different rules. Some have rules, some don't. Arizona there's a whole department, an entire floor of a government building. Florida, same thing. Other states, it's all new. So we walk students through this process all over the country.
Chris: Now, it took me a minute to find it because they call it something slightly different, but the rules and regulation around what they call residential care in Massachusetts, about 31 pages, very detailed. Everything from how are you going to – what's your policy around self-directed medication – like the old person living there wants to take their own aspirin to how often the place is checked, feeding. I mean, there's a lot of rules around this, so part of your program, I assume, there's clearly a lot of business operations that – and rules and regulations. There's a lot of things that need to be factored and considered to do this and do this well. And it varies, I guess, by state. So is that part of your program is to begin walking through that process or maybe even tell us about how this person in Rhode Island did it?
Gene: Yeah. And very well put. And everybody, I want you to hear what Chris said that it's called a certain thing in Massachusetts. It's called a different thing in New York and Arizona and Florida. So you need to, first of all, find out what is it called exactly in your area? Easiest way to do that whatever state you're in is to go to Google and put in dhs – department of health services – the name of the state, and it's going to get you to a government website. Then in the key word search put in assisted living, even if they call it something different like in Georgia they call it a personal care home. So whatever it is, put in assisted living. It's going to get you to that area, the government website that has what Chris discovered. In his case, 31 pages of here's some rules and regulations. So now, the rules and regulations – most states have 31 pages or something similar where here's a bunch of guidelines and what we do and can't do and how you do it and how it's done.
I want everybody to take a deep breath though. You don't have to do that operations part. There's two parts to this: real estate on one side and then business on the other. I operate both. I own the real estate and the business. I lease the real estate from myself in a different entity, but I'm not the manager or the caregiver at the home. So I've hired a manager who knows all those rules inside and out, and fill in the paperwork, and they are the ones that hire caregivers, and the caregivers are the ones that are there day to day. So I do this in a hands-off approach where my job is to manage the manager. I don’t need to know all the nuances of that, but I know how to look it up, I read through it. As I teach others around the country, like I said, I'm in the Carolina's right now, so I've looked up all the rules and regulations for where I'm going to be speaking tomorrow in Asheville, North Carolina, and I'll be sharing with them here's all the rules and regulations. Now, not 31 pages worth.
There's a lot of that is just kind of basic stuff – you have to feed the seniors, it has to be balanced meals, you need to have a menu. There needs to be an entry process, an assessment. There needs to be an exit process. There's paperwork. There's a residency agreement. So in our training we do cover a lot of that, and I show them here's the policies and procedures or SOP, standard operating procedures, that we use because when you get licensed there's really three requirements: the house needs to be safe, so seniors safe, and different states require different things, 2) you need to have an administrator or manager, so the state's going to have some kind of qualification on the low end, 18 years old, fog and mirror, you're not criminal. That's the low end. There's states that it's that simple.
And then there's other states like Arizona where I am where you need a manager either two years of a direct care experience working with people like seniors, you need 104 hours to become a caregiver and another 40 hours to be trained to be a manager and the two years' experience, so I'm not going to do that. No way. I just hire that person, pay them money to hang their license on the wall. But it's different in different states. The SOP, the standard operating procedures, is the third piece. Safe house, administrator and then policies and procedures. You need documentation so the state can say, well, we know that Chris is going to run a good operation. Here's his rules and regulations internally, it follows our guidelines, begin.
Chris: I got that. Fantastic. So there's a number of ways to get involved in this, and you are fairly direct being both the owner and the business manager, leaving the operations and caregiving to others. Is there another way for people to get involved in this that's even further from that? Is there a role for investors only, or how does this play out, right now?
Gene: Absolutely. As a matter of fact, I'm actually transitioning from owner/operator only to investing in other projects. As we bring more people in and through this process and they get their homes, I'm seeing tremendous projects all across the country. So we teach people how to syndicate, raise capital for this on one hand, and on the other hand, as I see good deals I'll be investing in them myself. My goal is to not just own and operate a handful, but to be involved in dozens or many more than that all across the country. Because this industry – just bigger picture because you're a really great – you an amazing big picture thinker and all of your listeners, I'm sure, know that, but big picture – right now the big money, the hedge funds that collect money from investors who just write checks and put it in a mutual fund, they invest in senior housing from nursing homes, hospitals, big box assisted living, but their cap rates have gotten crushed or compressed because they're chasing the same projects. So they're battling over the same deals, so they don't make as good a rate of return as they used to. Fifteen years ago they were making fifteen percent, and now they're making five, six, eight percent.
But as an individual, if I own that home and I operate this business I can make 30 or 40 percent cash on cash, and if I leverage I can make over a 100 percent, so it's very lucrative. But the concept of what I see in the future looking forward here is that the big guys were doing the big box facilities. Eventually they're going to come and look at the 40 thousand individual homes that are all across the country now. And they're going to look for operators who have ten, twenty or a hundred of these homes and say, I want to buy what you got. Because then they can write a big check for 50 million, 100 million, 200 million and deploy the capital that they so easily attract. And they'll buy us out at two, three times what we have into it, what I'd be willing to pay for it. So I'm looking bigger picture whether that's two years or five years, I can't tell you, but that is what I predict what will happen there.
Chris: Now, let's talk about the inevitable downturns of the come along. It's been a long part of the business expansion cycle. You’ve hinted at the fact that these cap rates have gotten crushed, meaning that we're pretty late in the game when you're talking cap rates down all the way down there. Is there – what sense do you have of the ability of this idea we're talking about, residential assisted living, to weather the downturns?
Gene: One of the things that I know I've experience at 56 is two significant changes, downturns, cycles in my career. There was one before that, but I wasn’t really paying attention. So in those there's winners and losers. There's people that were aware and prepared and others that were caught short or just didn't get prepared. I went through this industry when we had the downturn because, frankly, that's when I got in. When I got in that's when things were just starting to come out. And what I found is that a lot of these people that were in this industry, they saw their occupancy rates in assisted living go from 92 percent on average – and it came down to about 87 percent. So what that told me is that even in a very bad – the great recession that we had – even in that time people were not, not putting mom in the homes. What they were doing thought was delaying and waiting until they absolutely had to.
Now the economy is better. People are putting mom and dad into the homes sooner and faster, but on the next downturn whether it's – see that's just it – we don’t know if we're in the ninth inning or extra innings, or we don't know where we're at in this cycle. It could all end tomorrow, and we all know that. But when mom is living in a home and being taken care of it is absolutely counter intuitive to think they're just going to say, uh, we can't afford it, we're going to take mom back home and take care of her ourselves. And they're going to figure it out. And whether they pay us in gold or silver or water or bread, I don’t know. They're going to pay, and they're going to take care of mom. One way or the other they're going to pay for mom and dad's care. Now, if the market goes down that person who's needing the care may delay and wait, but the people that are in the home are going to stay. And now the question is how do you compare to other homes? And if you have a better mousetrap, a better product or service or care, you're definitely going to be full while others are empty because the quality always rises to the top.
Chris: This seems like an opportunity here to provide better care. You mention the large institutional approach with many, many beds. They have a corporate way they need to do things, but here you have the opportunity to create little, let's call them microclimates, five people, ten people in a home through the intake process sounds like you could potentially get sophisticated and selective, and make sure that you’ve got more of a customized sort of approach that I think would increasingly appeal to people more than the institutional approach as we move forward here.
Gene: Two things. One is ratios. When you go to a big box facility, Chris, where the have 150 residents you can ask them and say what is your staffing ratio. They might say ten to one. When you come to me I'll say five to one. Six to one. Well, what's the difference? Ten to one, that includes the chef, the cook, the cleaner, the janitor, the accountant, the marketing person, the lawyer, everybody. Alright. Change the question. How many direct care staff do you have? Uh, well the ratio there is fifteen to one, twenty to one, thirty to one in a big box facility. In our home, it's five to one, six to one. So the ratios there, the direct care is much different. Instead of the nameless, faceless person that's interchangeable and not accountable in a big box facility, we're in a home where the caregiver knows that resident, and they know each other intimately, and they're family. So there's that side of it.
On the other side when we talk about – there's so many things that you just came up with – I mentioned that part on the care, but you mentioned kind of unique strata where somebody may say we have students that are opening kosher homes. We have other ones that are opening up lifestyle homes, LGBT. We have other ones opening up just all women or all men, or whatever it may be. So you can niche it down as far as you want, and you will definitely attract those people, homes with pets versus without. Homes that specialize in certain activities or healthy eating or certain types of – and all of those are opportunities. So some of the people listening, they’ve got a passion, they want to help and do good, do well.
I really appreciate you opening with that. The idea of doing something good for other people. Wel
– Peak Prosperity –
NOTE: Comments from the old website are still being migrated, but feel free to add new ones. Please be patient while we complete this process. Thanks!