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Real Estate Rookie
Making $3,000/Month Cash Flow (Per Property) with This Scalable Rental Strategy
00:42:47
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- [00:00]
A
Most investors underwrite the upside. Today's guest underwrites for everything that can go wrong first, because that's how he was trained to plan missions as a Navy seal, and he's applying that same discipline to a real estate niche most rookies have never even considered residential assisted living.
- [00:18]
B
Today we're talking with Luke Frizzell, who went from a struggling house hack on active duty to running a $975,000 assisted living deal that nets his investors an 11% return while he still collects roughly $2,000 a month in cash flow, all without ever becoming a licensed care operator himself, which is crazy to think about. We're going to break down exactly how he built this out and how he uses a military framework to make every single deal decision.
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A
This is the Real Estate Rookie Podcast. I'm Ashley Kerr.
- [00:54]
B
And I'm Tony J. Robinson. And with that, let's get into it.
- [00:56]
C
Luke.
- [00:56]
B
So thank you for joining us on the Real Estate Rookie Podcast today, guys.
- [00:59]
C
I'm so excited to be here. Biggerpockets was a huge part of my early investing journey, and it's really cool to see how time has gone on, and it's kind of a full circle moment for me. So I'm honored to be here and thank you guys for having me.
- [01:13]
B
Yeah, Luke, the pleasure is all ours, brother. And before we jump in, thank you for your service. I'm very confident in my manhood, but whenever I get on the line with, like, a Navy seal, I just feel like I'm like a rung lord because you guys have gone through so much, man. So thank you for the service and I appreciate you joining us today, brother.
- [01:30]
C
I appreciate that. I gotta say, we're just normal, normal guys, maybe with a little bit of a crazy streak in us, but definitely, maybe a screw loose. I don't know. But I gotta say, it was. It was. It was my honor. And it was like, all I wanted to do. Once I found out what a Navy SEAL was, that was all I wanted to do. So it was just a desire to do that, and that's what got me through everything. And it was the time of my life I was in.
- [01:58]
A
Well, Luke, you actually got started in real estate investing while you were a Navy seal. Then you found bigger pockets, so kind of give us the 62nd version of how that all happened. While you were in Navy seal.
- [02:11]
C
Yeah. I actually didn't even know what investing was until I was a Navy seal. So I actually looked over the shoulder of one of my. My buddies who was in my platoon with me, and Saw that He had like $150,000 in his TSP, which is military's version of a 401K. And I was like, how do you have that much money? And he was like, oh, you just put it into this thing that grows over time. And I was like, oh, I thought I was. That was risky. You're supposed to go into the low risk things. And he was like, no, no, let me explain. So that was my first investment experience and learned a lot about what risk means in the investment space. But real estate is really where what I consider myself as an investor. I got my start actually with a mistake, which maybe we can talk about, because my first investment was a syndication that did not go according to plan. And that's why you need to have good due diligence. And that's why you need to understand what you're investing in and not go for appreciation only. But my first real estate deal was just buying our own house, and it was using the VA loan in Southern California, and we could barely afford it, but ended up making it an asset and copying that strategy again. That got my start into it and with the help of bigger pockets, turned into an investor after that.
- [03:33]
A
So with that first property, where was it and how did you purchase it and how was it actually an investment as your primary?
- [03:41]
C
With the first property, we just bought our primary residence with the VA loan. So we got to put 0% down on a seemingly unique, unfinancially feasible market of San Diego on a young military salary, $650,000 purchase price. We could hardly afford it at the time, but. And as I would go and deploy and go on training trips, I would like be mad at myself for having bought the property because in 2017, the interest rates hadn't really dropped down to the bottom. And because it was just a liability, we weren't making any money on it. It was just draining our. Our bank account. But this is where copying what works comes into play. Because I had seen other investors and my mentor doing what was then the ADU strategy and now has been coined that. So what we did was we converted our garage, which was 400 square feet, into a studio apartment, started making fifteen hundred dollars a month off of that, and I was like, okay, I can get behind this, because this was a way to actually cut down the cost, also force some appreciation, and I decided to do it again. So we did that a second time, and that was kind of like what scratched my itch on, okay, this is going to work. And when I looked at the TSP that I started investing in versus the real estate appreciation and value and cash flow. I was like, okay, I'm just making little TSPs for myself, except they're paying me every month, so I think I can get behind this.
- [05:16]
B
Luke, how, how much did it cost? And obviously this was. You said 2017, 2018. How much did it cost to build out the ADU? How did you fund it? And then what impact did it have on the actual value of the property
- [05:30]
C
once you were done? So a lot of my early investment journey was a, let's call it luck. Sure, I put myself in the position to get lucky by purchasing the house, but we bought in Southern San Diego, which obviously has appreciated well over time. We refinanced out of the VA loan into a conventional loan, pulled out some money and put that 50. We put that $50,000 into the garage conversion, put an extra $20,000 from our own pockets into that conversion. And the way I figured it, hey, $1,500 a month times 12. Can't do that math off the bat. Is going to, over time, pay for that $70,000 into this conversion within five years. So that makes it a no brainer on the cash flow side. And then separately, it forced over $200,000 of appreciation on our home. So you add a lot of value with that. And I'm a huge proponent of house hacking and ADU strategy because of that. But ultimately we found an even better situation with residential assisted living, and this is. That's why I pivoted over to that in 2022.
- [06:40]
B
Luke, I just want to make a quick comment because I did do the math really quickly, and 1500 bucks per month over the course of a year is $18,000, $18,000 in cash flow because, I mean, essentially the mortgage and everything, you're already paying for yourself. So this is just like pure income coming back into your pocket on a $70,000 investment. That's a 25% cash on cash return. That's a really, really solid cash on cash return in most investment vehicles. Right? So I think for a lot of new investors, sometimes we get so caught up in how can we go take down the next deal, the next deal, the next deal. But sometimes it's like, what if I just reinvest a little bit more capital into some of the real estate that I already own? Can I actually get a better return by doing that as opposed to going and buying something new? And this feels like the pressure. Perfect example of taking an asset you already have and just extracting more value from It.
- [07:26]
C
Yeah. In a time where interest rates are high and prices have not gone down, you gotta look at what you currently have. And if you're not in a home yet, we can talk about, we can talk about that. And, and, but if you, if you're already in a home, how can you maximize what you currently have to generate an ROI and make it make sense? Like, my wife and I had a young family at the time. My wife didn't want to share a house with someone else. And house hack the traditional way where we have roommates, but we could put a wall in between our garage in our main house, live in the main side, and then have kind of a separate unit where we rented that side out. And it made sense for us. We were already living kind of in a smaller footprint of a home, so we just didn't use the stuff in the garage and made that into a unit and made it make sense for us. And that move really set us up to open my eyes to the opportunities that we saw with residential assisted living and into my entrepreneurship journey that allowed me to confidently leave the military the way I did. So definitely, definitely agree with that sentiment.
- [08:32]
A
Now, how about other ways that serving in the military has kind of helped you as a real estate investor? So, for example, kind of taking your mission planning frameworks and putting that into deal evaluation. What does that look like and what does that even mean?
- [08:49]
C
That's. That's a really good question. So I, I look at every deal and I couldn't help but think this way because the SEAL teams I was, I was a SEAL before I was an investor. So I just looked at everything through that lens and I figured every deal is like a mission, and we want that mission to be successful. And in the SEAL teams, we pick the missions that we do. We don't like to just go and be told and wait for something to happen. We want to. We want to go and do something that we pick on the battlefield of our choosing so that we stack the deck in our favor. So first and foremost, you have to know your buy box. And what I equate that to is mission first. First you tackle the mission and then you can talk about the execution. So if you know your buy box, then you can look at what your mission is going to be and maybe that's a home, and then figure out how to make it happen. On the execution side, first you have to look at the situation, which is the macroeconomic environment, what deals are being done by other investors in the area, and where money is moving. So the Whole framework that I use is called smiac. Situation, Mission, Execution, Admin and logistics, and then Command and control. That's the acronym. It's super simple, but it works. So starting with the situation, as I talked about, getting into the mission, which is your buy box, I'm going to buy this type of home for this return on investment by this amount of time. And then you got to figure out how you're going to do that and that's the execution. Who do I need to talk to? What parameters do I need to set? What underwriting do I need to practice so that when I see a deal, I can figure out by looking at the property price and looking at the picture of the home within about one minute, if I'm going to dig deeper into that home and actually do the underwriting to figure out if it's a deal or not, it's going to match the mission. Then you go and execute admin and logistics. You set up your lenders who you need to talk to. You set up the bank financing, figure out with a letter from them how you're going to tackle the home. And you know what that interest rate's going to be because you've already talked to them. And then command and control, who are you going to talk to once everything's done? How do you manage the tenants? Do you have a property manager? How do you run the whole ecosystem with you as the commander setting the parameters for your mission and how you communicate with everybody on the team?
- [11:06]
B
All right, coming up, Luke is going to walk us through the model that's actually generating his cash flow right now, which is residential assisted living, and specifically a structure that lets you own the real estate without ever running the care business yourself.
- [11:18]
C
That's right.
- [11:19]
B
After a quick break, to hear a word from our show sponsors.
- [11:22]
D
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- [14:03]
A
Okay, welcome back. So Luke, let's get in to the residential assisted living and the lease to operator model because I think that is going to be brand new territory for a lot of our listeners. So for someone who has never heard of US assisted living as an investment, what is it? And what made you walk away from comparing doors and chasing appreciation to focus on this strategy instead?
- [14:29]
C
Yeah, so back to kind of the core tenets of my investor philosophy. I believe in cash flow over door count and what that really equates to is quality over quantity. There's this fallacy in the real estate space that however many doors you have is how successful you are or how how you can measure yourself. And I've never subscribed to that mentality. I would rather have five homes that are generating well over the cash flow of 100 doors because that's going to be a whole lot less hassle and you can actually manage that a whole Lot better. No matter how you skin it. If you have 100 homes, 100 doors, or maybe it's a huge apartment complex, that's just going to be more problems that you have to deal with. And as entrepreneurs and as investors, we need to think about the mental fogginess that that's going to bring about whenever you're clouding your space and what you own with more and more things. So I got into residential assisted living because I noticed that and as we had done the Southern California deals and I was not seeing, as interest rates increased and prices increased, I was not seeing more opportunity for the mission that I wanted to complete. So that was the pivot. I looked macroeconomically at the, the city of Phoenix, Arizona as a major metro and a place that seniors retire to. And all of this was, was brought about because I was looking for cash flow first and I was looking for hands off because I was a working professional in the Navy and I was not able to have a bunch of extra time to go and visit properties. But I did want cash flow because I wanted that, that base to work off of, for future, for future opportunity. So that's what made me find residential assisted living. And I can get into, deeper into the why, but that was kind of how it started and what got me into it.
- [16:31]
A
Now tell us about the lease to operator model. How does that work with assisted living and kind of explain, explain to us in plain terms what that actually means.
- [16:41]
C
Yeah, so my two things were cash flow and hands free. So I needed a model that worked with that, that worked with the numbers. So my ADU strategy in Southern California wasn't going to work anymore. I had looked at short term rentals and sure I had talked to people who made decent amount of cash doing that, but every single person that I talked to was pulling their hair out with the stolen paper towels and the guests that were a huge problem and the legal. And I wanted no part of the amount of bandwidth that that was going to take for me to do that. When I found about, when I found out about residential assisted living, I saw that you can buy a regular assisted living home or a regular, let's say my house, that's a four bed, three bath here in Virginia. And you can convert that into an assisted living home that can fit, let's say in this house, eight residents, two per room. Or in Southern California where I had the three bed homes, six, six residents. And in Phoenix it was 10, 10 residents. So I was looking for four or five bedrooms and I actually find an operator who's going to run the care home because I don't live in Phoenix, I lived in Virginia whenever I found this. So I needed to find the right operator, vet them, make sure that they were, they had the right mindset, the right mentality, they were going to actually care for the residents the way I wanted to actually happen. And I got them in there and they run the actual home and they pay me a commercial lease to be in the house. There's a lot of operators out there that just don't want to buy a home right now, but they do want to operate and care for residents the way we want to see. So just on the macro level, I knew that there was a senior care housing problem. I had personally experienced bad, bad care through, through loved ones. So I knew that in everybody, when you hear senior care or assisted living, you' not thinking good thoughts generally you're thinking where people go to die and not be taken care of. But I wanted to affect that and I didn't know a way how until I saw this strategy. So lease to operator encompassed is buy a regular residential home, convert it into ADA compliance, set up an operator in the home to pay you a commercial lease and let them run it. And I set those leases up for three to five years. So it's long term. They have ownership in the home, they treat it like it's their own. They cover the utilities and everything inside the home cosmetically. And I talk to my operators once or twice a year if there's more problems, maybe more frequently than that. But it is not that even the bandwidth suck that I had managing my own single family rental properties. Luke, this is, this is a really
- [19:25]
B
interesting take because you're basically doing or allowing for rental arbitrage from these operators. So they're leasing the place from you at one price, but then they're getting their spread by charging the residents a little bit more. We interviewed Han Stone back on episode 7 14, 714 and he also does assisted loving facilities in Southern California. But I think he has three facilities. But he said part of the reason that he's kept his portfolio small is because he actually operates those himself. And as he talked to folks that like kind of scaled beyond a certain number of facilities, the headaches started to outweigh the potential profits. But with the model that you're talking about, it's basically like a, like a triple net lease, right? Where they're kind of coming in, they're taking care of everything. So I can see the benefit to this. I think the question that I have Maybe it's a two part question, but number one, what kind of spread are you able to make in terms of your, your own expenses, mortgage, you know, whatever else associated with owning that property, property taxes, all those things versus what you're leasing it out for to these operators? And then how are you actually finding them? Is there like a, a Facebook group where there's a bunch of operators you're going to or are you going to other facilities and ask them, hey, do you want to convert my other one? So what, what's the margin look like? And then how are you finding these folks?
- [20:44]
C
Yeah, that's a, that's a great question. And there's so much in there that I can expand on. But I'll start with just commenting on the model. You can set this up and let these operators run it. And if you look at the numbers across the country, it's about $6,000 a month across America for a resident to be taken care of at this level. So when you look at a home like our homes in Phoenix and we have five of them, you can, you can just in 10 of 10, 10 residents per house. So if there's 10 residents in a home and the average cost of care is about $6,000, that's $60,000 gross coming in for that operator. Now that operator has the ability to, to pay you a little bit more in lease than you would normally get from a regular single family rental. My first deal in Phoenix, $875,000 purchase price, it was listed and the asking price was $1 million. But the, the lease amount over the course of five years is $8,000 a month. If I were to rent that out as a regular single family rental, the rental rate is about $3,000 $3,200 a month. That would not even cover my principal and interest on the property. My principal and interest is about 4,150amonth and with taxes and insurance it gets up to about $4,600, $4,700. But $8,000 a month in lease, well covers that amount in the spread. So my cash flow in the $3,000 plus range and what I'm covering is basically the taxes, the insurance and overall capex and everything else is them. So I don't need to get my name on the utility bill. That's them. Once that home is licensed and they're running, running it in there, whenever there's a vacancy, they are filling the beds. So if they're not full up on 10, they need to get 2 more residents that's on them to do that. And I really like letting them have the ability to have that ownership. And it is a partnership. And I, and I do like to have a good relationship with our operators, but that can be as much as I want. I am at a basic level. I'm the landlord and they are the operating business. And I really like it. And I can get to your other parts of your question. I'm sure you want to follow up.
- [23:14]
B
Yeah, let me ask one follow up question there. Because why wouldn't these operators just go to Zillow and find a market rent property? Like why are they willing to pay you this premium as opposed to just whatever's already on the market that they can go rent without, you know, with saving more money themselves?
- [23:30]
C
Well, I think there's a, there's a hesitation across the country in general on buying homes right now. People see where interest rates were, they see the, where, where the prices of homes were and they don't want to get into, into it with that. There is a decent amount of risk at, at play whenever you're starting your operations business or you're expanding. And when you, when you can have that type of spread and let's, let's just use the $60,000 gross example and you're paying me a $8,000 a month lease and let's say your staff is getting around 20, $25,000 a month, the food and all the miscellaneous expenses in there and the liability insurance, another 10,000. I'm just throwing numbers out there. Your spread is still in the above 10, maybe $20,000 if you're running the operation. So if that's what you're focused on, a lot of operators just want to stay focused on that and they don't want to get into the game of real estate now in the ral room. And this is the business that my partners and I started after we had bought five residential assisted living homes. We had two paths that we could take. We could either continue to buy more homes and kind of take over the market as we thought about doing, or we could start to affect the space at a national level and try to decentralize the way senior care is done in our country and empower other people to start doing residential assisted living to more personalize the care, make sure that we're rewriting the script on seniors just going to an assisted living home to die. And we actually want to have more personalized care. Cause that is just happening at such a better level at these residential homes than it is at the big Facilities where they're just a number on the wall, Luke.
- [25:14]
B
So that makes sense on the purchasing side. But what about just renting a house? Like let's say that I want to start up another residential assisted living facility. Why would I go to Luke versus just finding. Because you said market rents in Phoenix were like, you know, 3, 500, they're paying you 8. Why wouldn't I just go rent the house for 3, 500? Like what are the benefits of renting from Luke versus renting from the. The market priced property?
- [25:38]
C
That's a great question. So you can't just get a regular house and do it. You have to get it ADA compliance. So you got to put the wheelchair ramps in, you got to put the grab bars by the toilet. So that's the easy part. But maybe putting fire sprinklers in the home, which is state by state on the rules and regulations on what all the code requirements are. But you have to get that check from the city and the state to get licensed. So the home has to have that piece before you can. Just so they wouldn't be able to just rent out a home and then start operating it unless they're going to be out of regulation. The good news is cities and states are getting more and more accustomed and finding out about what residential assisted living is instead of like just hearing assisted living and thinking a hundred or more unit complex that houses seniors. But there's still just enough. There's still a lot of opportunity in that. They haven't figured it out to where investors are getting in there and doing it at the kind of widespread level yet.
- [26:42]
B
So they're basically paying you this premium because you've already added, added the necessary infrastructure to that home to make it qualify for, you know, whatever the, the local city government, state, whatever wants out of a residential assisted living facility. So that's, that's what they're paying you the premium for is because the house is already ready. Yes, got it. And then how are you finding these people again? Is, is there like a, you know, is there like a, an event that you guys go to and everyone's hanging out together.
- [27:07]
C
They're a Facebook group.
- [27:08]
B
So you just like posting on Dillo saying ADA compliant. What, what are the best ways to actually find these operators?
- [27:14]
C
Well, when we first started, we were going through a specialty Realtor in, in Phoenix that would help us find operators that were already had the background check. And then I would, I ideally wanted to talk to five different operators and interview and vet them to see which one were the best Fit have them walk the home and, and if all the boxes were checked, that's who I would pick. And I did pay a premium to that specialty realtor for that basically finders fee. However, as our network grew, we started to just log every single operator that we talked to or vetted or interviewed and we would bring the opportunities of the homes to them. You can also go to networking events where you're finding other operators that want to expand and they're already doing this. There are a lot of Facebook groups. There's also franchises out there that they actually run kind of the operating system and they've done it successfully. So franchisees who want to operate will kind of buy into that franchise and get connected through that. So we talk to those franchise partners and say, hey, do you have an operator in this area? They'll connect us. And then the great thing about those is they're actually backed by the franchise. So like there's a fail safe. If, if they're not operating to the capacity you want or they're struggling, they can either put somebody else in there, grant it to someone else. There's a number of different ways. We've even directly mailed the all the operators in the Phoenix area at one point to see if we were trying to buy another home. But you could use that same mentality and look for operators that way. You have to get a little bit creative and that's, that's probably the biggest hurdle for a lot of people. But these things are figureoutable. And that's a word that I've heard on a Bigger Pockets podcast before. Everything is figureoutable. You just have to have a little bit of creativity in how you do it. And it's not just your mark one motto. Put a tenant listing up on rent.com now.
- [29:14]
A
Luke, what about evictions? I'm going through an eviction right now and I'm telling, being told by my lawyer it's going to be a long, rocky road. But what about if your operator does not pay rent? So is this treated like a commercial tenant or is it treated residential because there's actually people living there where there may be more grace depending on your state.
- [29:37]
C
Great question. So that's one of the contingency plans that you got to plan for in your kind of mission planning. And it's definitely one you got to think about. And in a. Here's the thing, evictions are going to happen whether you're a real estate investor at, at the single family level, at the multifamily level. This is no different. However, there's a lot more vetting that takes place before you put an operator into the home. So I actually like that that vetting happens a little bit more extensively the way we do it and the way we teach in the RAL room to set that up for success. However, vetting can only get you so far and you could check every box and still find somebody who is lying or, you know, unforeseen circumstances happen. I'll give you a story to answer the question. The second home that we had bought as partners, the, the operators got into the home expecting to run it as a, as a behavioral health home because that's where they had experience before. However, a moratorium went out across Phoenix stopping any new behavioral health licenses from going out. Just coincidentally, like the day after, we had signed with these operators and they had agreed to do this, do this lease with us so they could not get their license because it's a commercial lease. They continued to pay their, their lease amount and what we didn't. And I'm not going to just say, yeah, you have to pay full amount. I worked with them and this is the relationship part that you have to, to work through. Hey, I will give you a reduced lease amount just to help you get through this time. They, they never did not pay us during this time, but I said in exchange, I need you to help find a new backfill for who we're going to get into the home. And in the meantime, I'm going to reach out to our operator network and start looking at other home operators who can get in there and fill the void. And that's how we, that's how we did it. We never had a negative month during that time and of course there can be worse stories than that. But it is treated as a commercial lease and if an eviction has to happen, it's more cut and dried than a tenant eviction. Especially in states that are more tenant friendly than landlord friendly, which I think is a benefit.
- [31:55]
A
Well, don't go anywhere. We're wrapping up with Luke's biggest piece of advice for any rookie who wants to apply the same discipline to their own investing, no matter whatever strategy that you are pursuing. We'll be back in a minute.
- [32:07]
B
If I had to hire someone to join the BiggerPockets team, I wouldn't just go looking for someone who checks a few boxes on a resume. I'd want someone who understands real estate, can move fast, communicates well, and can jump into a fast paced environment without missing a beat when you need that kind of person. This is a job for Sponsored Jobs Sponsored jobs posted directly on indeed are 95% more likely to reported higher than non sponsored jobs. And look, that makes sense to me. In fact, people are finding quality hires on Indeed right now in the minute that I've been talking to you. Companies like yours made 27 hires on Indeed according to Indeed data worldwide. Join 3.3 million employers worldwide that use Indeed to connect with quality talent that fits their needs. Spend less time searching and more time actually interviewing candidates who check all of your boxes. Less stress, less time, more results when you need the right person to cut through the chaos. This is a job for Indeed Sponsored Jobs and listeners of this show will get a $75 sponsored job credit to help get your job the premium status it deserves@ Indeed.com podcast just go to Indeed.com podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com podcast terms and conditions apply. Need to write Hire fast then this is a job for Indeed. Sponsored Jobs at the Home Depot get up to 15% off all installed carpet projects for a limited time, featuring brands like Lifeproof, Lifeproof with Pet Proof Technology, Home Decorators, Collection and Trafficmaster. Take your pick of carpet built for real life and designed for real comfort. Plus with installations starting as low as 49 cents per square foot and a free measure to get you started, we'll handle the hard parts for you. Offer valid July 16, 2026 through August 2, 2026 exclusion supply for licenses see homedepot.com licensenumbers all right, we're back here with Luke and Luke. You've given us a lot to think about today between the mission planning side and just your entire model of the lease operator. But I've got a few more big questions for you. If a Ricky who's listening takes away just one thing from this episode about mission planning and one thing about the lease to operator model, what should those two things be?
- [34:25]
C
Before you get into your journey as a newbie or a rookie, think very carefully about why you want to do it and what you're looking for. Because it's it's it can be very it seem very sexy to get into business and become an entrepreneur and investor, but you don't realize the toll that that's going to take on your mentality and your overall bandwidth as a human being until you're actually in it. So think carefully about what you want. Set your Buy box We started buying these homes and realized that we want to start helping and enabling other investors to open up. Our goal is a thousand residential assisted living homes in the next two years and I think we're going to beat that. So we pivoted from kind of just buying more properties to this entrepreneurial path because we were so clear on our initial intent and we acted on it. We were able to pivot creatively after we had done what worked. So go in with the mentality of, hey, do you want cash flow? Do you want hands off? Well, this might be an awesome opportunity because you have, you have the entire real estate landscape ahead of you. If that's the path you choose. Are you going to get into a single family rental that you're not going to cash flow in? Are you going to get into short term rentals where you're going to. Your bandwidth is going to be pulled into every direction? Or do you want to take a path that is off the beaten path not well known? You can get support through the RAL roam and everything we have, but you have to be willing to do creative strategies in the real estate space today. I believe that lease to operator path in the residential assisted living strategy is the best path for an investor who wants hands free cash flow. And of course it's not hands free. You are going to put some work into it, but bang, for buck, quality over quantity. There's nothing better in the space and I will die on that sword. From my perspective, this pivot was an easy one for me and I have not looked back since.
- [36:27]
A
Luke, what tools or software are you actually using to manage your portfolio right now?
- [36:32]
C
I use no tools. I talk to my operators and I talk to them kind of on a schedule. Just have a calendar update to reach out to them every once in a while, hear about how the property is doing, maintain the relationship and see what's going on. There have been times where even though the lease says, hey, the operator takes care of the H Vac, in the heat of Arizona, I have bent that rule and said, you know what, you guys have been doing such a good job, I'm going to cover the cost of this. And a $15,000 H vac was kind of nothing in the grand scheme of the two or three or $4,000 of cash flow we get per month on each property. And I would just ask investors, like, how many properties do you want to invest in? And I would reframe that to how much cash flow do you want? What are you affecting in the space of the purpose side of what you're doing with your investing and can you do that a lot smarter? Than just buying more rentals before you're, before you're too late. As far as other tools and resources, we have a free podcast called the RAL Room Podcast that my partners Alex and Charlie run, which is free information, great information about this space. And if anybody wants to find out more about the RAL Room and what we do and learn about the leased operator space more in depth, the entire thing that all the experience that we have wrapped into that in a community of other people in this network that actually can teach you how to do this, then go to theralroom.com webinar that's T H E R A L r o o m.com webinar and we are obviously biased, but it is the best resource that you can get bang for buck on learning about this space. It is not well known and we aim to change that.
- [38:30]
A
Now, Luke, what about like rent collection and you know, your bookkeeping, things like that? Are you using any software for that?
- [38:37]
C
For bookkeeping? We use QuickBooks online. We bill our operators directly through ACH, through Mercury is our banking that we use. Mercury is very user friendly. There's a lot of local banks. There's a local bank that we started with that the user interface wasn't great and we ended up pivoting over to Mercury. But it's as simple as mercury banking and ACH transfers. And then we do QuickBooks Online.
- [39:12]
A
Yeah, I think there's two hot debates here. In our closing segment here is first that you, even though it's stated in your lease agreement that they are to pay for the H vac, you still did that. And I want to hear everyone's take on that in the comments because my brain automatically goes to well, if you're willing to take care of that, why don't you put it in the lease in the beginning and increase your rent a little bit with them coming into the property knowing you're going to take care of it. So I'm interested to hear everyone's comments on that because I've definitely done it your way too, Luke, where I've had great tenants, where I will say, you know what, I'm just going to take care of this, even though it's your responsibility. And then the second thing here is that you're not using a lot of tools, software, AI, automations, to actually run this business and run your portfolio. And you're kind of back to the basics, which sometimes can actually make it easier. So I want to hear everyone's thoughts in the comments. If you're watching on YouTube do you think that it's easier to go back to the basics than have all of these different tools, softwares, automations, and, and what do you think about that clause in the lease agreement?
- [40:18]
B
Now, Luke, you've said to copy success before you get creative. And for a rookie eyeing a strategy as specialized as residential assisted living, what does responsibly copying someone else's success actually look like? Like, like what would someone need to do if, if they want to copy Luke's steps to success?
- [40:36]
C
Well, just look at what I. Look at what I've, what I've explained. So my first deal that I ever did in this space, I heard it, the idea, from a podcast. Now, did they say everything exactly according to what I explained to you here? No. Did I extrapolate and think a little bit creatively on what and draw on my previous investing experience to put things in between the lines? Yes. But you can take an idea like that and take the framework of literally what I've shared with you guys, and you can copy that idea and implement it. If you want to make that path shorter and easier, by all means, join our Facebook group, start listening to the podcast, join the RAL room, because it's going to shorten that timeline a whole lot. But find out. When I initially got into the ADU strategy, I just listened to a mentor, formed a relationship with them, and then talked to them about what they were doing. People that are entrepreneurial or investing, they want to share and that's something I've always been impressed with in the space. People want to share their ideas and they want other people to be successful. And I'm just going to go back really quickly. Ashley, to your, to your point. Obviously I'm going to defend my answer on why I paid for the H Vac. I didn't have to do that. And there is the letter of the law and then there's. So there's the emotional quotient and how you manage and lead. Because even residential assisted living, regular residential real estate, you are the leader of your organization. You have a, you have a business, albeit a more hands free one than a traditional business, but you have the opportunity to step in and do things at different times. I'm in it for the long haul. I want those tenants to succeed as operators in the home. And after they're done with their first five year stint with me, that increases 3% per year annually on the lease amount, I want them to sign up for another five years afterwards. I'm not sweating this. And I had noticed in my previous conversations with them that they had struggled to have the number of beds filled that they wanted. And they didn't complain about the H vac cost, but they did communicate it with me and I decided to step in there and do it. Yeah, you can. You could. Certainly everything is negotiable as well in real estate and especially in this space. And the steps you take and how you treat your partners as operators will probably pay dividends over time. And I'm counting on that with that decision.
- [43:11]
A
Well, Luke, thank you so much for joining us today. Where can people reach out to you and find out more information about your real estate journey?
- [43:18]
C
Well, I already plugged theral room.com webinar and I plugged our podcast. There are a number of Facebook groups out there on operators and investors. You're not always going to get the best experience and you're just going to be at the whims of what people are sharing there, though. So if you want to be in a community of people who are dedicated to the space and whether they want to own and operate or just operate homes or develop homes, we have members that are doing all those different things and even passively investing and different deals across the country. Certainly reach out to us at the RAL Room and check out our website. But I would say that those are the best places to start and that's what I'll leave it with.
- [44:09]
A
Well, thank you so much for joining us today and to share your journey and your experience with us. My name is Ashley and that's Tony. And thank you guys so much for joining us on Real Estate Rookie and we'll see you next time.