← The Rich Somers Report
The Rich Somers Report
The Boomer Wealth Transfer ($2.5M/Yr Opportunity) │Boris and Amanda Palomino E507
00:50:14
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- [00:00]
A
Hey, guys. We are buying two more boutique hotels along the California coast here with Summers Capital. 45 rooms off Market in Catalina island and a second deal up in Bodega Bay, which will make a total of eight boutique hotels owned and operated. Our investors get passive income tax benefits. And the best part is, unlike investing on Wall street and a lot of these other asset classes like multifamily, our investors get to go and stay and experience these boutique hotels firsthand to see how their money's working for them. And so if you want to learn to see if we can help you before this opportunity fills up, you can go to summerscapital.com invest to book a call with my team again at summerscapital.com invest to book A free call. My team now. Let's jump into the show.
- [00:37]
B
By 2030, majority of the baby boomers are going to come into the age of care. The age of care is 65 and older. Right. Right now I'm going to talk about California. California right now has 6 million seniors. By 2030, that number is going to be at 9 million seniors. There is a massive shortage of beds right now nationwide. It is projected that there's going to be a shortage of 500000 beds minimum nationwide. This is a recession proof business. During, during COVID people preferred our boutique style homes versus the big facilities right here. Here's a big thing too. Nobody's going to shut us down like they're shutting down Airbnb. We are getting a lot of students that they're shutting down. The Airbnbs are losing money. Why? Think about it. Who would shut me down? Who would lobby against me? Big pharma not tapping into their pockets, insurance or helping insurances. Why? Because they much rather whether it's Medicaid, whether it's private, pay the resident, pay me 6,10,000 versus them paying up to 50,000 for them to be in a skilled nursing facility. So they're not going to come after me. There is nobody that really is going to come after us because we're helping the senior community. Right? We're not tapping into anybody's pocket. That's what, that's why Uber started having problems. That's why Airbnb started having problems, because they poked the hornets.
- [02:05]
A
Nice. All right, guys, Today I got a husband and wife duo that are doing big things, making big moves in the residential assisted living space and they're going to be dropping a lot of game, a lot of value. They are good friends of mine. And I got Boris and Amanda Palomino. Welcome to the show, guys, thank you.
- [02:24]
C
Thanks for having us.
- [02:25]
A
Yeah, appreciate you guys coming on. This is a asset class that I think is, is really, really taking advantage of the tightening while the 40 million retirement baby booms that are happening right now across the country, they call this the greatest transfer of wealth in American history. And just to put it in perspective for the listeners today, the baby boomers own about 51% of all the wealth in America. And the millennials only, only 9% currently, which is crazy, right? And so all that wealth is going to shift hand. But also with all these folks retiring, they're going to need to go into residential assisted care facilities and all that sort of stuff. So I love that you guys are taking advantage of it. What do you guys like about this, this time right now, to get in the game?
- [03:08]
B
It is a perfect time. There's a lot of businesses, as you say, it's the largest transfer of wealth in America. And for some reason, the millennials, the other generations, don't want to take advantage of that. So to give you an example, one of the homes we just acquired, the landlord sold it to us finally because his kids didn't want it. The kids didn't want to manage it. They don't want to deal with it. And we're starting to see that trend a lot. And so that's a huge opportunity for a lot of entrepreneurs or future entrepreneurs to jump on these deals. You know, get the, the assets that are out there, get the properties and turn them into something that is highly, highly sought after.
- [03:50]
A
So now I always say, when you're investing in something like, look at the macro perspective, look at the supply demand, look at the fundamentals, like what kind of shifts are occurring. And you guys have earmarked the shift of 40 million retiring boomers. This is not going to slow down. And so, you know, you think about the demand that's going to be coming out of this with the demand to have enough beds and assisted living care facilities for these folks. Amanda, what, what are some other things that you like about this time period today?
- [04:21]
C
I think the population is aging and aging very quickly. There's a lot of new medical conditions that are popping up recently. We have care personally in our care facilities. We have cared for a handful of 65 year olds. So when you think of senior living, you typically think 90 and up or 80 and up and who truly can't care for themselves. In fact, we have 60 year olds in our care facility who aren't able to care for themselves, who thought that they were going to have These big dreams of retirement, but unfortunately need full assistance with all of their daily living tasks. So I think right now the population is aging and it's something that most people don't consider.
- [05:05]
A
Do you think that putting your parents or grandparents into these facilities is considered taboo?
- [05:11]
C
Absolutely. From many, many cultures, it's definitely taboo. However, we live in a different generation now, and it's called the sandwich generation. For example, me, I am part of the sandwich generation. I have young children that I am caring for, being pulled in so many different directions. At the school drop offs, at the sports, busy chauffeuring them around everywhere. And then we've got aging parents as well. And so now I'm being pulled in two separate directions, caring for aging parents, caring for my young family. I'm not always there to care for my aging parents. Therefore, this is the sandwich generation. I'm sandwiched between these two generations. We're now finding alternative measures for assistance with our aging population, I think. Absolutely.
- [05:56]
A
Yeah. And I think that, you know, I. When I think about my family, my mom grew up in Taiwan and it's a different culture. And so I could definitely see like what you're talking about with the taboo thing, But I think it's definitely more accepted, like widely accepted in our society. I think about my dad's had a family like his. His mother, she's not around anymore, but she was in one of these larger assisted living care facilities where it was kind of like a little community and that sort of thing. And we would still go visit her, but everything was kind of taken care of. The food, the treatments, the Medicare, the medicine. And she had her own little social circle there, which was pretty cool to see, and she actually enjoyed it. And so I can see the pros of this. When folks go out to, to buy these residential assisted care facilities, is there any sort of strategy in terms of like market selection?
- [06:41]
B
Yeah, you got to look at the city. It's like anything in real estate. You got to make sure that that area is not over saturated with. In California, they're called RCFEs, residential care facilities for the elderly. In these homes, we're allowed to care for up to six residents. And you want to make sure that there's not a lot of those in your area. One, two. You want to, you want to look at the demographic.
- [07:07]
A
Okay.
- [07:08]
B
You want to make sure that it's not an area where there's a lot of young families, that even your neighboring cities, you have seniors around there and whatnot. And also you want to make sure that the property is going to appreciate. Right. Because one thing, I tell everybody that about this, this industry, this is the McDonald's. I always compare it to the McDonald's. For everybody out there who thinks McDonald's is in the business of hamburgers, sorry to break it to you, they're not. They're in real estate. So this is the same thing. You're acquiring assets, properties, and you're, you're turning them into a business. And so that's another thing you need to look at. You want to make sure that these homes that you're purchasing are going to appreciate because that's how you're able to pull money out and buy another and another and another.
- [07:58]
A
Yeah, and that's a good point. I mean, for the folks listening this that aren't aware, you know, if you think McDonald's is in the hamburger industry, the cheeseburger industry, they are really one of the biggest real estate operators in the entire world. And you know, they have the franchise model and so they'll find a franchisee to come in and operate one of their locations. But McDonald's owns the majority very close to all their assets. And so it's a big real estate play. They're collecting, they're collecting rent from the, the, the franchisee also taking a franchisee fee and then they got the depreciation, the tax benefits, and then all the long term appreciation that goes with own and land state real estate long term. So you guys are essentially running the same playbook. But this is residential care facilities. You're buying in great locations, adding a ton of, you know, amenities and areas to where you can bring in active income. And then the real estate's going to go up over the long haul. And then you can get a cost seg study and use the depreciation from the cost seg study to offset a lot of the income that this thing is spinning off. That's a huge tax play that a lot of people listening to this, you know, if you have a tax problem right now, getting a cost sex study and getting into a piece of real estate that is producing high income like this is, is a huge play.
- [09:15]
B
Yeah. And you, we haven't even talked about, you know, you brought it up right now, the tax benefits of having an RCFE or a residential assisted living, huge. The depreciation now with the new bill with 100% depreciation, that's huge. Also there's so many other aspects that come into play when it comes to this industry that people don't even know about or just scratching the surface Question
- [09:39]
A
for you about the tax benefits. So does the IRS consider this an active stream of income, meaning you can use the cost seg study to the depreciation from a cost seg to not just offset that the, the income that this property spits off, but also use it to offset any active streams of income that you might have a fear like a high income earning W2 employee, for example?
- [09:59]
C
Absolutely. Yes, yes, yes.
- [10:00]
A
I love that.
- [10:01]
C
Yeah. And this is a really neat industry too because we kind of talked about the real estate and the properties, but most people don't know is cities can't deny you from opening these care facilities either because we're protected by the Fair Housing Act.
- [10:14]
A
That's huge.
- [10:15]
C
Seniors are a protected class so we can open up a residential senior care facility in any city and they cannot deny you.
- [10:21]
A
That's huge. And I want to go back to the tax benefits just real quick because this is important for anyone listening to this. Most real estate investments and asset classes that you get into multifamily long term rentals, investing into self storage, office mobile home parks, you know, or maybe you have, you know, a property that you're going to operate as, you know, long term rental. You're, you're not going to. Unless you're considered or qualified for professional real estate status in the eyes of the irs, meaning you make the majority of your income as a real estate professional. You can't use the depreciation from these real estate investments to offset your active income. And so if you are an active, your high, high income earning W2 professional, making a couple hundred grand a year, or Maybe you're a doctor attorney, making 3,400k a year, you likely have a huge tax problem. Right. You're paying, you know, 60k, 80k, maybe 150k a year in taxes. Well, that's a big problem. And so getting into this asset class similar to hotels, the IRS considers it an active stream of income. And because of that, you can use the depreciation to also offset your active income, which is a huge tax play.
- [11:32]
C
The reason for that is because we're actually running a business. We have employees, we have not only the income part of it, but we have a lot of, a lot of expenses that offset that income. We're running an actual business and my business pays for the mortgage of that property.
- [11:49]
A
Yeah, that's huge. So Boris, how much can one of these assisted living care facilities make in
- [11:55]
B
a month on average? It. And it varies state by state. So I'm going to speak about California on average for six beds, you can make around 38,000.
- [12:06]
A
Damn.
- [12:07]
B
40,000 growth.
- [12:08]
A
40,000amonth.
- [12:09]
C
Sometimes more than that, depending on. Yeah, so you bill by bed.
- [12:15]
A
Okay.
- [12:15]
C
And any bed in a shared room up to a private room can go from anywhere from like 5,000 to 10,000 per month.
- [12:23]
A
Damn. 10,000amonth? Yeah.
- [12:25]
B
Again, think about it. I mean, you open up a home in Malibu or like here in San Diego would be like La Jolla. Right. Which is high end area. You can charge a lot more. Right. So it really depends on the area. So on average you're looking at 38 to 40,000 grow and then up from there. Yeah, up from there.
- [12:45]
A
Okay, so 60k, potentially $60,000 a month. And then what is the, what is the typical length of a, of a care? Like, like a stay? Is it typically 12 months? Is it two years? What does that contract kind of look like?
- [13:00]
C
It definitely varies. We've had residents who come into our care just to pass away. So they're only with us for a few days. And then we've had long term residents who have been with us for seven, eight years. So it really depends on their level of condition, what's going on with their medical diagnosis, and then how much are you really able to care for them. And then the service that you provide too, plays a huge role in that.
- [13:20]
A
Is it typically like pretty low turnover? Because once they get in there, they're, they're, they're less likely to leave, assuming that everything is going well.
- [13:28]
C
Yes. Our residents come into our care expecting to pass away and that's the last home that they'll live in.
- [13:34]
A
Damn.
- [13:34]
B
Yeah, we, we've rarely had anybody move out. We've had a few, but that's because they were there for respite, just temporary. And then they move out back home or whatever because that's because they're able to do it. Majority of our residents cannot go back home. A lot of the times the doctors will say, hey, it's unsafe for you to live at home. So that's why we called it the oh shit industry. It's a lot of people don't prepare for it. Nobody thinks about this. It's not until, oh shit, mom fell. What do we do now? Right. And so that's why like most of our residents are with us the rest of their life.
- [14:16]
A
That's really good. So, okay, so 60k a month, top line. If you have a really nice property, 6k per bed or per per room. And then what do the expenses look like?
- [14:27]
C
Okay, so our overhead typically looks like employees, your food all of your insurances, there's liability, there's commercial property insurance. Even though it's a residential property, you're still, you're still running a business out of it. Workers comp, all of your employer taxes and payroll, associated fees, your food, your activities, your marketing. Sometimes you do have to pay agency fees, meaning an agency will find clients for you to move into your care facility. So that's all under the umbrella of marketing as well.
- [14:58]
A
Okay. So you don't even have to lease your own place out. There's, there's third parties that will do it for you.
- [15:02]
C
They will do the marketing for you and you just pay them a fee to find you the clients. And then you are still showcasing the services that you provide in your care facility.
- [15:12]
A
So you know, we're in California, so California, for example, is there a minimum in terms of like nursing and nurses? You gotta place for these, these, what do you call them by the way?
- [15:22]
B
Great point.
- [15:22]
A
I, I keep coming up for. I'm like thinking of the word, I'm like, what do you call them? They're not tenants, they're what?
- [15:27]
B
Caregivers?
- [15:27]
C
No, residents. Oh, the residents caregivers and then there's caregivers.
- [15:32]
A
Okay, so is there a minimum number of caregivers that you need per number of residences?
- [15:38]
B
No, we abide by what's called Title 22 and Health and Safety Code.
- [15:43]
A
Okay, what's, what's Title 22?
- [15:45]
B
That is the regular, the regulating laws for RCF. Okay. And so when you become an administrator, you have to take an 80 hour course and you basically study Title 22. Your test is based on Title 22. And in there there's no set mandate for minimum caregivers. Normally we like the standard is two caregivers during the day. Okay, one and okay, so you, for six residents, you, you know, you only need two caregivers. That's pretty, pretty easy.
- [16:19]
A
And how much is a typical salary for 1? 1 full time caregiver.
- [16:23]
C
A full time caregiver starts at minimum wage actually. So there's a misconception that you have to be a nurse or have a medical background to even work in a care facility. That's not true. We hire caregivers. We as administrators get to train our caregivers on the day to day duties. And then it doesn't mean that we don't provide medical care. We actually work with home health or hospice through the client's doctor's office and they will send nurses into the facility to provide that medical care. We as a care facility are a Social model of care, not a medical model of care. So we employ caregivers and these caregivers start at minimum wage and up. And then if you choose to have like a house manager or hire on an additional administrator, then you pay them accordingly.
- [17:09]
A
Got it. And is there a general rule of thumb for having a house manager with one care facility?
- [17:14]
C
It's not necessary. Your caregivers, as long as you have really solid process and procedures, because that's really what running a business comes down to, process and procedures. You have a solid blueprint of how to run that care facility, then your home runs itself. And there really is no need to have a house manager if you choose to be involved. If you don't choose to be involved, there's a lot of people who do this as passive, then yes, definitely hire a house manager because at the end of the day you're still caring for somebody's life.
- [17:41]
A
That makes a lot of sense. Are there third party property managers that, that's solely just operate these facilities?
- [17:48]
B
There's a lot of people out there that will open them up and you know, they'll, they'll put like an administrator or someone to run them. When you really scale is when you're kind of able to do right. Once you start scaling and having more homes, you're able to do that more and more and more. And that's, that's kind of what we did as well. When we started over 10 years ago. It was us like we were in there the whole time. And as we scaled, as we said, processes and procedures, like Amanda said, we're able to step back, step back, step back and then work on our business, not in our business. And so yeah, is it possible? Yeah, a lot of people are, are doing that, but for the most part, most people want to be involved in it because you're caring for somebody, right. You want to be involved in the day to day of, of the, the care of the residents. See, seeing what's going on and whatnot.
- [18:42]
A
And by the way, if you guys are listening to this right now and you're like, damn, this sounds really cool. I want to be a part of it. I want to learn more. Boris and Amanda are giving away all the listeners a free ebook to learn exactly how to get in the game. All the details, the A to Z. You can go to the Palomino. It's Palomino Senior LivingAcademy.com and get your free e book there. And then make sure to mention the podcast. So you got me thinking, how do you go over Six beds. Is there a way to like legally do that? What if you have a property with like an ADU in the back? Or is there a way to like buy two properties next to each other and combine the lot? Like, what are some ways to, to go above the six beds?
- [19:20]
B
So there's two. There's several ways about it. Okay. Number one, you have to ask your local city for conditional use permit. Some cities are going to be very reluctant because Most homes are R1, low density. And they want you to go through the process of city council to go through an R2, R3. That's. It's really difficult. It's rare when cities do that. As we mentioned earlier, if you stick to six beds or under, no city can deny you the other way. And this is a loophole that you're talking about ADUs. As long as that ADU has a separate entrance, separate address, you can now make that one a facility. Because of the sizes of an adu, you got to keep in mind you want your residents to be comfortable. This isn't just about money. Okay. You want your residents to be comfortable so comfortably you can fit about four in an adu. Four residents. So four beds.
- [20:18]
A
Okay.
- [20:19]
B
But still, you know, now you're at a, you know, you've expanded your operation. You can share resources, meaning your staff. A lot of the things that, you know, go back and forth and, and you increase the value of your property because now you have made sure.
- [20:36]
A
Yeah, that's true. I like the idea of having like private rooms because it sounds like they're going to pay max, which is like they have more likely to be willing to pay 6K, especially if you're in a good location. If it's a nice private room, private bath. Correct?
- [20:49]
C
That's correct.
- [20:49]
A
Okay. So, Amanda, so what Boris is saying is, is essentially you could have a six bedroom single family house and have six in the front, and then if we did an ADU in the back, that was a four bedroom ADU, you could potentially go up to 10.
- [21:03]
C
Correct.
- [21:04]
A
And do you need a special permit or approval with the city? Assuming that four bedroom in the back is an adu?
- [21:10]
C
Yes. So it's not necessarily with the city. What you're doing is getting a separate license on that property since you're maxed out at six on the first location. Now this second location is a completely separate license. You go through a separate fire clearance process with, with your city. But because it's on the same lot, you do get to share a lot of the resources. So you can still have care, for example, like caregivers in, in facility number one in the front, they're doing laundry for all 10 residents. They're cooking and then passing meals over to the second facility. So there's a lot of shared resources that really make that model profitable.
- [21:47]
A
Curious. If you bought a lot next to a current facility that you're already operating and then you, you bought the property next door, do you need to get a special permit to operate that one as well?
- [21:56]
B
As long as it's under the same corporation as the same owner.
- [21:58]
C
No, it's just separate licenses. If you're zoned prop a, higher zoning R2, R3, you can have more residents. You're not capped at six. You can definitely increase it. And you can have a 15 bed location. A14. Yeah, absolutely.
- [22:13]
A
Okay, so the key is to find a single family house with the R rezoning.
- [22:16]
B
Yep.
- [22:17]
C
Yes.
- [22:17]
B
That, that's, that's a jack.
- [22:19]
A
Now we're spitting some games.
- [22:20]
C
Yes, you can increase your capacity. The only difference is the state will require you to have some, you know, different caregiving positions. Maybe you need a one caregiver to be an activities director. One employee has one specific role. Maybe you have some extra things in the home. It's not impossible right now with the 6 bed though. My kids are the activities directors. I've got the girl Scouts coming through and doing activities. Right.
- [22:47]
A
So if we can go up to 15 beds, we're looking at potentially $90,000. If you maxed out $6,000 per, per room, you're looking at $90,000 top line. And then give us an idea on like just generic. What, what does a typical expense ratio look like, for example? I'll give you an example. You know, in the multifamily game, this is very generic. It's not a one size fits all. But Generally speaking, about 50% of all the gross income is going to go towards expenses on a multifamily deal when the hotel game, because there's a lot more on site staff, there's a lot more variables. You got housekeeping, all this stuff. The expense ratio for hotels, generally speaking, is about 65%. So for every 100 grand you make about $65,000 of that is going to go towards expenses. 35,000 to the bottom line. So give us an idea with, with the residential assisting living space. What is a general rule of thumb for expense ratio?
- [23:37]
C
It's actually very similar to the hotel space because employees will always be your highest expense in this case. Absolutely.
- [23:44]
A
That's good. That's, that's Pretty good though. I mean this is single family residence. And then I mean guys, you can pick up these properties for relatively low money down. Talk about that.
- [23:54]
B
Yeah, there's so many ways to pick up these properties. You don't need a turnkey property. That's a big mistake. People think you buy houses needs some renovation, which it works for you. You're buy, you're getting it at a lower rate.
- [24:09]
A
Right.
- [24:09]
B
You're going to put a little elbow grease in there, make it nice. Remember, we do not need to be ADA compliant. That's a big misconception because we're not a medical facility. So there are some things you have to put, bar grab bars, things like that, you know, some ramps. But even your ramps don't need to be ADA compliant. Right. So you, you grab a home that at a relatively low price, you do the renovations and it's a win win for everybody.
- [24:41]
A
Yes. Which brings my next point with the loan. No money down. I mean we're talking primary residence loan. You've got the FHA three and a half percent down. A lot of these banks and credit unions will do 5% down. Here's a hack, here's a pro tip for listeners. I've done two of these in the past and Navy Federal Credit Union. If you get a membership there, you don't need to be prior military or a veteran. But if someone in your family is, that's usually the easiest way to get in. So could be an uncle or a grandfather if they were part of the, the military at some point or a veteran, you can use that to get access to become a member. They will do up to a million dollar loan amount with 0% down on a primary residence. And so theoretically you could use that loan product to get in 0% down, negotiate the seller, cover your closing costs and get into assisted living care facility for zero money down and then live on the property. Right. When you're signing a loan docs it's like hey, like as long as you have intentions to live there as a primary residence, what happens after? You know, people go through divorces, people get uprooted from their careers, they lose their job, plans change. This is not prison. They can't make you live at any properties is not prison. So plans change. Hey, I decide I want to, I want to go get a permit and operate a assisted living care facility. How long is the permitting process?
- [25:57]
C
Take anywhere from four to six months.
- [25:59]
A
Four to six months, okay, so then six months in you get the permit and then you convert it and boom, now you got A cash flowing business. You own the real estate, you own the asset and you got in for zero down. Amanda, what other expenses? Permitting the equipment. Break that down. How much does all the other stuff cost for someone to get into this?
- [26:19]
C
Yeah, so the application fee is about a thousand dollars that goes directly to the state. And then they do require three months of operating expenses, anywhere from 40 to 70 thousand dollars.
- [26:30]
A
And who requires that?
- [26:31]
C
The state. When you collect that, they don't collect it. They just want to look at a statement that you have funds available for three months to pay staff. And they just want to know that you know how, you know what if
- [26:42]
A
you said, hey, I'm going to use a 0% credit card, then you pull
- [26:46]
C
your money out of a credit card
- [26:47]
A
and then put it into a check.
- [26:47]
C
What we did, you stick it into your business account. They don't care where the money comes from. They just want to know that you have access to these funds.
- [26:55]
A
That's huge. And so that's all you really need to get going. What about the equipment, though?
- [26:59]
C
It's just furniture. Furniture and fixtures. So the way I like to equate it to is Airbnb. The same way you would furnish an Airbnb is exactly how we are furnishing our senior care facilities. Only difference is instead of a regular twin bed, I may be using a hospital bed. So you want to make our residents comfortable too.
- [27:17]
A
Are those beds really expensive or.
- [27:19]
C
No, not at all. In fact, a lot of our residents are approved for hospital beds through their insurance.
- [27:25]
A
Okay.
- [27:26]
C
Yeah. So we haven't even talked on about any of the insurance programs too. We mentioned rates for private paying clients. There's actually a lot of amazing insurance based programs that pay equivalent rates for low income seniors.
- [27:41]
A
Okay, so. So what does that mean for someone listening to this? They could get into a care facility. And. And how's the insurance company going to help them out?
- [27:48]
C
Because insurances works with Medi Cal here in California. So it's Medicaid nationwide. Medi Cal here in California. And there are managing care plans with certain insurances that will pay for the care of a resident in a care facility.
- [28:03]
A
So it's guaranteed payment 100% of the cost.
- [28:06]
C
They will pay 90% of the cost.
- [28:07]
A
90%?
- [28:08]
C
Yes.
- [28:08]
A
And 6K, they're paying like 55,600, something like that.
- [28:12]
C
Yes. And the resident is responsible for paying 90% of their Social Security income, which comes out to about 1500amonth.
- [28:18]
B
Mm.
- [28:19]
C
And then this managing care plan will pay the remainder of your private paying.
- [28:23]
A
Damn. That's really good.
- [28:24]
C
It is.
- [28:25]
A
And is it, is it hard to get approval for that or is it relatively easy to get set up?
- [28:28]
C
It's relatively easy. You just need an active license.
- [28:30]
A
Damn. Okay. That's huge.
- [28:32]
C
Yeah.
- [28:32]
A
And so essentially 90% of a lot. Like I'm. I guess I'm curious for you guys, what percentage of your residences are using insurance?
- [28:40]
C
I like to do a mixed bag of private pay and then I definitely love to help out our lower income seniors who typically can't afford to be in a boutique style senior living facility where we, you know, cater to their personal care needs. Right now we're probably doing 10% of this insurance based program. Most of it is still private pay.
- [28:57]
A
Hmm. Yeah. And another thing I thought of is like the primary residence lending for a single family is some of the most competitive rates out there. 30 year am very, very low aggressive interest rate. Even in today's environment relative to what you're going to get, you know, buying an Airbnb, for example, where you're going to pay a premium in the rate because the lenders see that as more risk. So that's pretty cool. Amanda, I'm curious, what are some levers that one could pull, like just some, some strategies to really make your facility stand out? Reference to the other ones in the neighborhood.
- [29:31]
C
So most people think that when we give tours, we're giving a real estate tour. I'm not showcasing a house. People could care less about the house. We're showcasing our services. What is it that we can do to promote quality of life for our seniors? What type of activities do we have? What type of meals? How can we customize the day to day for our residents? So when you go to a hotel, what amenities do they have? What is going to make you feel so comfortable that you never want to leave that hotel? That's exactly what we do in our senior care facilities. We want to, we want to customize the care for each of our residents. That's why we love the smaller scale.
- [30:07]
A
Is a pool too risky to, to, to provide as an amenity for some of these older folks?
- [30:13]
C
I'd say so. We actually specialize in dementia care. Yeah. So 90% of our residents do have some form of dementia. So pools are probably not recommended.
- [30:22]
A
What if Grandpa Dave wants to go for a, a nice morning swim in a Speedo?
- [30:27]
C
You know, Grandpa Dave is probably skinny dipping then.
- [30:31]
A
Okay. Okay.
- [30:32]
B
No, we, we actually do a lot. We actually started this and a lot of RCFEs weren't doing this when we started. We implemented an exercise program so when therapists would come into the facility, we would say, hey, can you give us some range of motion exercises that we can incorporate into our exercise routine? And so every single day, our residents, Monday through Friday, we give them the weekends off. They. They get range of motion exercises. Right. Because that, it helps in several ways. One, they exercise, they live longer, they are more at peace, they're calm, they have quality of life. But also it helps our caregivers because the more they're able to do for themselves, the less work it is for our caregivers. And it just helps everybody around. And that's one thing that we implemented from day one. And if we get a new resident, for example, and he has specific therapies that he needs to do, a lot of the times the therapist can show us, and we can just create those every single day versus the resident just doing them once a week when the therapist comes in, and that's it. So we kind of follow up with stuff like that. Yeah, go ahead. Wanted to touch back on up on the point where you said about the lending.
- [31:49]
A
Yes.
- [31:50]
B
There are now banks or they are specializing in lending and RCF.
- [31:55]
C
It's an SBA 7 loan.
- [31:57]
A
Okay.
- [31:57]
B
All right, okay. And what was happening is they were seeing people come in to the bank asking for a loan, and they were looking at this the, you know, the traditional way. The average rental property goes for 6,000 or whatever. Right. And that's when we started. We started explaining to a lot of banks and a lot of lenders like, no, no, no, you're looking at this the wrong way. Let's go back to that. 40, 60,000amonth, because you're looking at the income of the property. No, it's per bed. So now a lot of banks are jumping on it and saying, that's a great industry. That's a cash flow industry. Now we can lend on that. Not only that, I'm glad we talked about all of this because it kind of brings it all together. We talked about the licensing process, which takes six months or it gets. It could take longer if you don't know what you're doing. Let's just say six months. You don't have to pay on that property until you're licensed and you're cash flowing. So that's another incentive that the banks are using in these SBA loans for assisted livings.
- [33:06]
A
Yeah, that's huge. Can you get these, like, dscr, non QM loans can. In the real estate space? Like, now I'm talking, you know, no tax returns. They're just Going to size it up based on the income of the property.
- [33:20]
C
Yes.
- [33:21]
A
Yeah, we've done them all. I can't personally, I can't stand getting loan because we're always refinancing stuff. And the girls on the team will tell you, like, because they, they do all the back end paperwork.
- [33:31]
C
It's the paperwork. I hate it.
- [33:33]
A
Some of these lenders especially like the, the more conforming, like lenders that are looking at every little thing. I'm like, dude, they want your, your, your blood type, your spinal fluid, your first born, they want you to take a drug test. I'm like, dude, it's insane. Yeah.
- [33:48]
C
Yeah.
- [33:48]
A
And so, but then there's also like really great lenders that are more relationship based and they're just like, hey, like, we trust you guys. They, they look at, you know, the experience of the, the sponsor, the operator. They look at your schedule. Real estate owned. And then they really look at the asset and they don't want to look at like 19, 20 different entities and all this. I'm like, guys, it's just like never ending. And so we got a couple of loans done last year and I'm just like, it's just so much paperwork. It's like fricking insane. You got push and pulling them every single morning.
- [34:15]
C
That's my department line is like crazy.
- [34:19]
A
But anyway, so I always, I always appreciate getting loans done to where they're very relationship based.
- [34:25]
C
Well, this isn't actually. This loan program Boris is talking about is a pretty solid one for this industry because the SBA 7A lends on projections.
- [34:36]
A
Oh, wow.
- [34:37]
C
And they give working capital and construction funding on top of the loan to purchase the real estate. So it's a, it's a really great program that they're offering right now. We've actually utilized it to get into one of our properties.
- [34:50]
A
I love it.
- [34:51]
B
Utilized everything we've done, we've done it all. Seller, seller, finance. Yeah, We've done a hard money loan.
- [34:58]
C
Yeah.
- [34:58]
B
Like all of them. We've done all of them.
- [35:00]
C
Yeah.
- [35:01]
A
Yeah, I love that. I personally think seller financing is the best. I mean, we're, we're in the hotel game and, you know, it's, it's quick and easy. Negotiate your own down payment. Sometimes it's low even no money down. And then, you know, very competitive interest rates. Negotiable, no prepayment. So I got a question.
- [35:18]
B
Yeah.
- [35:19]
A
Because there's residential care facilities on the market for sale, right?
- [35:23]
C
Yep.
- [35:23]
A
Is there a big play to buy a portfolio? Like, you know, build up, you Know, four, five, six of these things in. In the same market, you have one, you know, core set of operations that can operate all of these together. And then going to the marketplace and selling them as a portfolio. Is that a. Is that a play?
- [35:40]
B
Yeah, it is. It is. You absolutely can do that.
- [35:43]
A
Okay.
- [35:44]
B
We personally are not building our portfolio. Sure. That we're building a legacy. He just had a legacy.
- [35:53]
C
Yeah, yeah.
- [35:53]
B
You just had a guest. I forgot his name. I'm sorry. I was listening to his podcast with him and he said, build a business that builds a legacy. And that's what we're doing because my daughter wants to take over eventually. But yes, you absolutely can. Yes, you.
- [36:08]
C
It's not that simple, though.
- [36:09]
B
Welcome to my life. Here comes the bad news.
- [36:12]
C
I'm always like, hold on, guys, listening.
- [36:14]
A
Okay.
- [36:15]
C
It sounds really sexy to just buy a portfolio of these senior care facilities. However, you cannot transfer the license of those locations.
- [36:24]
A
Oh, seriously? That makes sense.
- [36:25]
C
You still have to go through the entire licensing process under your own llc.
- [36:31]
A
Now, what if you sell the llc,
- [36:33]
C
then you're also purchasing any issues, problems, workers, comp cases, liabilities, lawsuits.
- [36:40]
A
Because I bought one multifamily deal out in Cincinnati. On the Kentucky side is eight in a building. And it was the guy. The guy was gifted this property by his uncle and he. And he didn't want anything to do with it. He didn't want his uncle to know that. That he sold it. So he was like, I need to sell it with the llc. So I actually bought the LLC knowing that risk, and I was okay with that risk.
- [37:04]
C
How was the revolution?
- [37:06]
A
It worked out fine. There was no back end stuff on the back end. I was okay with the risk. I didn't have investor capital is all my money, and I was getting a really good deal. So I was okay with it now and it worked out. But in the event that the buyer knew all the risk and they're like, hey, like, I'm good with it. Can they essentially buy the LLC and have it come with the. The licenses transferring?
- [37:24]
C
They would trans. They would have to do a transfer within the state and still go through partial licensing applications. So it's. There is still some transfer that has to be done at the state level to approve that. But yes, then at that point it is possible. But just keep in mind too, with these care facilities, we do get random inspections by the state agency to come through and walk through and comb through our properties. And all of these reports are public record. So do your due diligence, read those licensing reports, make sure that these facilities have really clean, solid records. No bad reputation because there are several, and it's all public. You can go on, on the state website and search these up, but you can look up the record to see if they've had. It's called type A or type B deficiencies if there's been any elder abuse in the homes, things that you could technically inherit just by keeping the business name. Sometimes you want to change everything.
- [38:19]
A
Sure. Amanda, what are the biggest risks that you see new investors make or the biggest mistakes you see new investors make when they're getting into this industry?
- [38:28]
C
Gosh, so many. So, so many. Where do I begin? The very first mistake is the property acquisition.
- [38:36]
A
Okay.
- [38:37]
C
Not all properties will work for a senior care facility.
- [38:40]
A
What type of properties don't work?
- [38:42]
C
I'll tell you what does work, because it's a lot simpler than we think. Single story, for sure. As many bedrooms as you can get. You have to remember we are working with seniors who use assistive devices, which means canes, walkers, wheelchairs, hoyer lifts to transfer them to and from a bed if they can't walk anymore. So you need a lot of square footage in these, in these rooms to maneuver that equipment comfortably. Preferably bedrooms on one side of the house for safety reasons.
- [39:11]
A
Really break that down.
- [39:12]
C
Yeah. So you are required to get a fire clearance through your city, and part of that fire clearance is egress, meaning safe exit during a fire. How do your residents who are asleep at night, how do they exit that facility? Do you have caregivers running all over the house?
- [39:29]
A
Got it. Okay. I see.
- [39:30]
C
In an emergency situation to evacuate your residents, or are they all located in one central location where you can easily evacuate?
- [39:40]
A
Interesting. I was also thinking, like, while you're just telling me this, this might even work for a. And you tell me, you guys tell me if this is something that will work. What if you bought an apartment building that was, I don't know, let's just say a 10 unit or 12 unit apartment building. Could you theoretically rent out and it's all one bedrooms, all 10 of the units at 6K.
- [40:03]
B
That. That's not gonna.
- [40:04]
A
Unfortunately, that wouldn't qualify.
- [40:07]
B
I actually had an investor call me and he's like, hey, I have this property in the Valley. Can we do it?
- [40:12]
A
Yeah.
- [40:12]
B
I said no, because once again, you. You have residents who have dementia, right. You want somebody in the house supervising. Everybody got it at once. So if they're in separate rooms. Now you're talking about like the independent assisted living, right? And that's kind of what they are, you have your big box facilities, as they call them, and those are almost like a resort style. I think you mentioned your family member was in one of those. Yes, they have the activity room.
- [40:40]
A
It's called leisure.
- [40:41]
B
Yeah. So there's like the Brookdale's, the Athertons. You have those big ones. Right. So that's kind of something similar to that. Unfortunately, for what we're doing, it won't work.
- [40:50]
A
You need more than more intimate care.
- [40:52]
B
Right. You need more intimate care. And also, one of our goals is to have quality care. We've heard all the horror stories of all these big facilities, and even on the smaller ones, Right. The caregiver to resident ratio, you're lucky if it's 10, 15 to 1 in our homes is 2 to 1. So two residents per one caregiver. So that's how we're able to customize the care. And also, once you go, you know, over one, one floor, the regulations come in, you go over multi bed, a lot of things change. So for our business model, that unfortunately wouldn't work out.
- [41:32]
A
Sure. What's a way that someone could look up and see, you know, if. If a particular neighborhood doesn't have a ton of other care facilities and kind of look at the, you know, the market selection, if you would, that you were talking about earlier, Boris.
- [41:45]
B
Yeah. So our governing agency is dss, Department of Social Services.
- [41:50]
A
Okay.
- [41:50]
B
That's who. When we say the state, and we've been saying it throughout the podcast, it's Department of Social Services. Same people that go and do childcare and adult living facilities. That's the same ones that oversee us. So, yeah, you go on DSS's website and you can look it up. You can type in either facility name, zip code, city, whatever, and then you can see how many are out there. You can see how. How many bets they have. And Amanda touched on the reports, the annual reports. That's where you're able to see the reports. That's where you're able to see if they have deficiencies. That's where you're able to see if there's issues with the staff or any issues with the ownership or whatever. Yeah, you're able to find everything there. Then you can see how many facilities are in that zip code or in that area in the neighboring cities or whatever. That's one tool that we use to identify. That's just one of the tools that we use to do a market analysis on potential homes that are going to open up. Okay.
- [42:48]
A
I love it. All right. I want to I want to do something kind of fun here. I'm going to ask you guys just like rapid fire questions as if I'm like someone brand new getting in this industry and I'm just going ask you guys rapid fire questions like how much can you make a month? What is a typical bed sell for down payment, all that sort of stuff. You guys ready?
- [43:05]
C
Ready.
- [43:06]
A
Okay, so to start, Amanda, how much, how much can one residential care facility make in one month gross?
- [43:16]
C
You're looking at maybe 50,000amonth net about 10 to 12,000.
- [43:21]
A
Okay. And how much of the typical bed sell for whether it's a shared versus a private room?
- [43:26]
C
Shared rooms on average Across California, about 5,000 is the current average. Probably 5,500 is current average. Private rooms, about 8 to 10,000.
- [43:36]
A
Really? I thought 6k was the cap. No, no. Oh, there's no cap.
- [43:39]
C
There's no cap.
- [43:40]
A
Really.
- [43:41]
C
There's no cap.
- [43:42]
A
So if you, if you had all
- [43:43]
C
privates, if you had all privates, then you can charge 8 to 10,000 for those privates or up, depending on level of care.
- [43:49]
A
Okay, so like 6 to 8 to 10. Okay, I see what you're saying. So potentially 60k.
- [43:53]
C
Correct.
- [43:53]
A
Got it. That makes a lot of sense.
- [43:54]
B
Yes, but that's if you stay within the six bets.
- [43:57]
A
Yes.
- [43:57]
B
If you go over, that's a different number.
- [43:59]
C
Now you're increasing.
- [44:00]
B
If you go to 14 beds. Yes, that's a different number.
- [44:03]
A
Got it. And, and what percentage down does it take to buy one of these care facilities?
- [44:08]
B
Are you talking about a established care facility or the property? Is start one just buying the property?
- [44:13]
C
Just buying the property?
- [44:14]
B
It depends. It depends.
- [44:15]
A
If you as low as what?
- [44:16]
B
If you're at 0%, 0%, you can get in these homes as low as 0%. Like 0 down. It depends on your situation. If you're, you're a veteran, you get great deals. If you're a first time home buyer, you're in and you can buy several for zero down.
- [44:34]
A
And how much does it cost to get one of these permitted and up and running?
- [44:39]
C
About a hundred thousand.
- [44:40]
B
I was going to say anywhere from like 70 to 100,000. Yeah. To get up.
- [44:44]
A
But you could use a zero percent business credit card.
- [44:46]
C
Yes.
- [44:46]
B
Oh, absolutely, absolutely. The number one thing we've learned with working with mentors, you never use your own money. If you can utilize other people's money, that is the way to go. And that was a huge mistake we made. We used our own money. We don't do that anymore. We use other people's money. And now there's so many resources. Zero percent credit cards, loans. There's so many ways where you can get into, into these businesses with very little money out of pocket.
- [45:13]
A
Damn, that's huge.
- [45:14]
B
If not zero.
- [45:15]
A
So just to recap, we're looking at potentially zero percent down. We're looking at using zero percent credit card to get all the funding to get this thing up and running. And Amanda, you said $50,000 a month, top line. And how much NET?
- [45:27]
C
Net about 10 to 12.
- [45:28]
A
Damn. 10 to $12,000 net. And that's huge. That is absolutely massive. Why is right now the best time to get in the game?
- [45:36]
B
Because by 2030, majority of the baby boomers are going to come into the age of care. The age of care is 65 and older. Right. Right Now I'm going to talk about California. California right now has 6 million seniors. By 2030, that number is going to be at 9 million seniors. Let's, let's do the math. Each home, how many people can you have? There is a massive shortage of beds right now nationwide. It is projected that there's going to be a shortage of 500,000 beds minimum nationwide. This is a recession proof business. During, during COVID people preferred our boutique style homes versus the big facilities.
- [46:16]
A
Right.
- [46:17]
B
So we were slammed. We were so busy here. Here's a big thing too. Nobody's going to shut us down like they're shutting down Airbnb. We are getting a lot of students that they're shutting down. The Airbnbs are losing money. Why? Think about it. Who would shut me down? Who would lobby against me? Big pharma, not tapping into their pockets, insurance or helping insurances. Why? Because they much rather, whether it's Medicaid, whether it's private, pay the resident, pay me 6,10,000 versus them paying up to 50,000 for them to be in a skilled nursing facility.
- [46:56]
A
Huge.
- [46:57]
B
So they're not going to come after me. There is nobody that really is going to come after us because we're helping the, the senior community.
- [47:04]
A
Right.
- [47:05]
B
We're not tapping into anybody's pocket. That's what, that's why Uber started having problems. That's why Airbnb started having problems. Because they poked the hornets.
- [47:13]
A
Yes. Amanda, break down the tax benefits.
- [47:15]
C
Okay, so right now you're running a business out of your real estate. So you get all of the tax benefits of running a business. All of those expenses. We talked about the employer expenses. Um, our dog. Our dog.
- [47:30]
B
Yeah.
- [47:31]
C
He's a trained therapy dog. He's a tax write off too, because he's an employee of the business.
- [47:35]
A
That's huge.
- [47:35]
C
My kids talk about my kids. My kids are on payroll.
- [47:38]
A
I've seen photos of your dog. He's like the support dog.
- [47:41]
C
He's a therapy dog.
- [47:42]
A
A therapy dog. That's so cool.
- [47:43]
C
Not a service dog, a therapy dog. That's the loophole.
- [47:46]
A
And what does your dog do?
- [47:47]
C
Our dog is like an emotional support. He just walks around, wags his tail and he's so happy and the residents get to pet him. And that is it. That is all he does.
- [47:55]
A
That is so cool.
- [47:56]
C
That's his sole job and he's a tax write off because of that.
- [47:57]
A
I love that. I love that. That's huge. Now, if you get a cost seg study and you're a high income earning W2 employee, you can use the tax benefits from a care facility to not only offset the income it spits off, but also offset your taxes that you might pay at your W2O job.
- [48:14]
C
Absolutely. Especially if you have an S corp, because all of that income flows through you and then you get to use your personal expenses to offset that business.
- [48:22]
B
And this is why it's important to have the right tax people look at your portfolio, look at your. At your businesses, because they can set it up the right way. Yeah.
- [48:32]
A
Who, who, who is the Amanda, who is the perfect person to get into this industry and buy a care facility?
- [48:37]
C
Somebody who is truly passionate about caring for people, not just an investor. You're caring for somebody's life. So you have to have a true interest in the livelihood and the care of the seniors in your care facility. We see a lot of nurses. Nurses are great at running their own because they already know patient care. We see a lot of couples getting into this industry too. And then just somebody who, who knows how to hustle and knows how to figure things out when times get tough. I think that's any business owner though, right? How to pivot.
- [49:10]
A
So good. So good. And the folks listen to this right now. If you're listening this, you're resonating with the story. You're like, hey, you know what? I want to get into the industry. Amanda and Boris are dropping a free ebook for you guys. If you mentioned the podcast, where can they get that ebook?
- [49:22]
B
The ebook is on palomino senior livingacademy.com.
- [49:25]
A
okay.
- [49:26]
B
Or you can send us a message through our Instagrams.
- [49:28]
A
Okay.
- [49:29]
B
I'm Boris V. Palomino.
- [49:31]
A
Okay.
- [49:31]
C
Amanda Palomino.
- [49:33]
A
Okay. And you guys are doing a in person kind of workshop where people can come out and tour all the facilities with you guys and really get behind the scenes for in a day with the Palominos. How can they get in touch with you for that?
- [49:44]
C
That's right. You can just find us on our website, Palomino Senior Living.com and reach us there.
- [49:51]
A
That's so cool, guys. I appreciate you guys coming on the show, dropping so much game, so much value on this. You know, I think this vehicle that's going to be the next big thing. We got 40 million retiring baby boomers. They are Boris and Amanda Palamino. I'm Rich Summers, listeners. Thanks for tuning in. We'll see you at the next one. Peace.