JF2546: An In-Depth Guide to Assisted Living Investments with Wade Micoley #SkillsetSunday

On today’s Skillset Sunday, we’re talking with Wade Micoley all about assisted living and medical care facilities. Wade owns several nursing homes and has plenty of experience in each step of the process. He tells us about scalability, the specifics on staffing and the daily management of the facility, and the criteria you need to meet to get approval. 

Wade Micoley Real Estate Background: 

  • 30+ years of experience as a broker and top agent
  • Owns several nursing homes, a residential construction company, and helped start a very large regional bank
  • Based in Green Bay, WI
  • Say hi to him at: www.realtyhive.com

 

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners, welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I am with today’s guest, Wade Micoley. Wade is joining us from Green Bay, Wisconsin. He was a previous guest on an episode where we just touched on nursing homes and assisted living facilities. You can find that episode by googling Joe Fairless and Wade Micoley.

Wade, thank you for joining us, and how are you today?

Wade Micoley: I’m doing great, thank you.

Ash Patel: Good. Best Ever listeners, today is Sunday, so we’re going to do a Skill Set Sunday, where we talk about a particular skill that our guest has. Wade has over 30 years of experience, and owns several nursing homes, a residential construction company, and a large regional bank. He’s got years of real estate investing experience and has over 37 units over eight properties.

Before we get started, Wade, tell us a little bit more about your background and what you’re focused on now.

Wade Micoley: Background is after being in real estate a very long time – and this was maybe 15 years ago – we got into the banking aspect of what you discussed, and that is still an ongoing publicly-traded company, [unintelligible [00:02:04].06] But we got into assisted living and memory care facilities, and I know you wanted to do a deeper dive into that today. So I want to give you as much information as I can for your listeners to help them make decisions of if that’s right for them, what’s the difference maybe between that and apartment buildings, why is one better or worse as far as I’m concerned, how we look at the investments… I’d love to share with you what we have.

Ash Patel: I’m going to give you my layman’s approach to what I know about these facilities. I had some years of healthcare experience in IT, and I’ve got several friends who are nurses. And I’ve always heard, “Why don’t we start an assisted living facility? This is what they charge per night or per week”, and it makes it seem like a gold mine. And I know nursing homes with skilled nursing is a much different scenario. But the assisted living, where you have basic unskilled or not nurses involved in patient care, and then you have a medical oversight person… That’s how little I know about it, other than there’s a lot of money to be made. So can you fill in the blanks?

Wade Micoley: There’s probably two ways to go with it. There is the landlord aspect of it, where you find a really good operator that you connect with, and you lease that back to the operator. That’s a very common model that’s out there. I would say under that scenario, because it’s such a specialized building and it’s such a specialized service in that building, that if you’ve got your location right and you’ve got your provider right, the returns are above normal, from let’s just say an apartment building as a comparison.

The downside of that aspect is, is that it becomes about the operator; is it a good operator? Is it not a good operator? Because that can certainly affect — if that operator, for some reason, does not make it and is unsuccessful, and we’ve seen some of that just from a COVID aspect, which was a really interesting thing to watch how that was handled…

Some maybe not so good operators didn’t jump on that as quickly as they should have, and that really hurt them, not only on occupancy, but also from a status in the community at the site. So that landlord is now probably affected by that, because the operator has to run a good organization, they have to make money to pay the rent.

What we chose to do, which is a little different animal, is we chose to actually run them. We chose to find the right people to run — not only we run the real estate, but we also run the operations. So that becomes a lot more involved; you have to get into the regulatory part of it and all of that. But as you’re saying – yes, the rewards are much, much higher.

We also construct our own buildings. So because we can construct our own buildings, we can construct the buildings, run the operation, and do much better than if we just leased the buildings back. What I would say, more than anything for your listeners is if there’s going to be the landlord aspect of it – because the operation side is a lot more involved. But if you’re going to just be the landlord side of it, really understanding that operator is going to be of the utmost importance; what regulatory things are happening? What things are happening to them that are going to affect their business, which then of course could affect your rent payment?

Break: [05:50] to [07:51]

Ash Patel: From a scalability perspective, I’ve seen facilities as small as a normal single-family house, where they add some additional bedrooms, have some amenities in the common area, multiple loungers… What do you think about that model for somebody starting out?

Wade Micoley: It’s not bad. I know some people that do that, let’s say what we call a 6-8 bed facility, which could be a house or just the right building that they adapted to it. And the person I’m thinking about – it’s a husband and wife team; the wife has some skill level of nursing and runs that facility. So it can be very profitable, it can be extremely profitable, depending on the city you’re in also. The quickest way to figure that out is to do what I always call a rent analysis. It’s same thing as what you do on a commercial building or you do that on a apartment building, is you get into the market and you find out what are the facilities offering for amenities and what’s the base rent.

In a lot of cases, there are people that are running operations that are strictly relying on what we call county funding or state funding. And that is where the government is subsidizing that tenant’s rent. Of course, you have that, and then on the other side you have private pay. And the private pay is obviously a lot higher pay than the county or state funding. But even at the county or state funding, you’re talking double normal rents of an apartment building.

Ash Patel: In a private pay situation, are you required to have a medical director or some kind of skilled nurse on site or visiting?

Wade Micoley: We do. We have a full-time RN that works for our facilities. Depending on the level of services you offer, you get into medications and dispensing those medications to the tenants, and that’s where you need that RN-type level, nurse-type level person involved in your facility. And also if you get it into this, it’s all about people. There’s very successful facilities, then there’s facilities that are not very successful, and they can be in the exact same town. Well, what’s the difference? The buildings aren’t that much different, the location isn’t that much different, it’s really about the people that are involved in there with the tenants on a day-to-day basis. So number one, that’s very important.

But with that comes, what amenities are you going to offer? So because we have a large scale, we have a full-time activities director that keeps people busy, keeps their minds alert, keeps them engaged. You then have, of course, the RN person or a nurse person who is really helping make sure that if you are going to put your mother in a facility — that’s the best way to look at this… If you are going to put your mother or grandmother in a facility, what would you like to see? And that’s how we always go at it. So that’s why we have an activities director. That’s why we have a full-time RN that’s on staff, because the care of those loved ones are the important factor. And of course, from a rental standpoint, you want people to stay with you as long as they possibly can. So it’s really important the health of your community renting from you.

Ash Patel: With memory care, what are the challenges? And what does the facility have to have to enable people to stay there, that have memory or cognitive issues?

Wade Micoley: That’s certainly a higher level of care, and of course, with that there’s higher rents, and it becomes a really specialized offering. There are facilities that do an intermix; I think it’s a horrible decision to do that. I think if you’re going to get into the memory care side of things, you have to be dedicated to memory care, because it’s so specialized. There are very few that are designated memory care facilities out there, so there’s also a very high demand for that. If you were going to do that, you would either need a provider that is really good at it, or if you’re going to get into it, someone on your staff that’s a very knowledgeable person about Alzheimer’s and dementia.

So as far as the rooms, it’s actually simpler than assisted living, because you can’t have kitchens, you can’t have even warming facilities. It’s basically a really nice bathroom and a bedroom. And they spend most of their time out in the community, so then a community area — like, in our facilities, we have atriums with birds in them, and we have fish tanks and stuff to keep people busy. And there’s things on the walls that they will be attracted to the touch and feel of certain things. So our job is to keep them active and really involved, because that helps the Alzheimer’s and dementia. So it’s pretty specialized, but it is pretty darn rewarding, not only from a monetary standpoint, but also from a standpoint of you’re really helping these people live a better life at the end of their life.

Ash Patel: I would imagine your staffing needs are increased in a memory care facility?

Wade Micoley: Absolutely. Yes.

Ash Patel: Okay. And I’ve seen a lot of people proposing turning hotels into memory care facilities.

Wade Micoley: Yes.

Ash Patel: And based on what you said, it’s ideal, just a simple bedroom, bathroom, common areas?

Wade Micoley: Yes, that is actually a very good idea. Even in the county funding aspect of it — because it’s just like any investment, you have to start at the top and kind of work backwards, to figure out is this something you’re going to spend your time on? And the county funding is almost where you want to start, because anything that happens above that is a bonus. If you had an 18-bed facility and 16 were on county funding and two are private pay, well, you did your numbers that 18 county funding, that’s really good. So it increases the revenue. So always understanding what the county pays.

And quite honestly, there is such a need that if you go to the placement people — so there are people that work with the hospitals, and there placement directors. And those placement directors will recommend what facility a patient goes into. Sometimes it’s about availability, sometimes it’s about their special needs, and they know that that particular facility can handle those needs… Then those people can give you an insight. Or if you go to the local Alzheimer’s Association, they will give you an insight as to how bad the need is.

Our most recent facility that we put up was our largest dedicated memory care. We did the research, we did the numbers, but what put us over the top to go forward is a) first of all, we have a lot of experience. But what really put it over the top for us was having that meeting with the Alzheimer’s Association and having that meeting with the placement people for the county funding. Because what they explained to us was how long of a waiting list they had; that puts it over the top, because they need help placing those people.

Break: [15:09] to [18:12]

Ash Patel: Do certificate of needs come into play? Or is that only with nursing homes? Or is that only in certain states?

Wade Micoley: Yes, it could be in certain states, we do not have that here. What we do is we assess the potential tenant and we have an assessment process that we go through. There are unfortunately some people we just can’t take because of our level of care, and they do need to be in a nursing home. So it’s kind of like you have this harmony within this building and you can’t have a lot of disruption with that harmony. Because with memory care, it is a very specific but also it could be disrupted really easy. And there are people that are very, very aggressive, and you have to be able to assess it upfront, to say does that fit in what we’re doing here?

Ash Patel: Yes, so what I’m getting is this, is by no means a profit machine. It’s something that you have to be passionate about to get into.

Wade Micoley: Yes, somebody asked me once why I got into it. And my mother-in-law had Alzheimer’s; this was before we were in it… And my wife had pretty much cared for her a lot through the end of her life, and there was really not a good choice where she was living. Then my grandmother became ill and we went out and looked at the choices and didn’t like the choices that were there. That, and a high school friend, and that all kind of came together at one time and that’s how we got into it.

So it’s like anything. Honestly, if you’re going to own a bunch of apartment buildings, you’d better be passionate about it. This is the same thing, it’s just different vein. I owned hundreds of apartments at one time, sold them all, did not like the profit margins on it. This, with the right team, is a far, far, far better investment.

Ash Patel: And in terms of — let’s see… You see some churches or schools that you could potentially convert to an assisted care facility. Are there certain criteria that you have to meet to get approval?

Wade Micoley: You have to have an architect or an engineer that’s going to design the building, that has to go through state-level approvals, just like a new apartment building would. But there’s a little different rules; obviously sprinklers and fire care. But there’s things with doors… Everything has to be handicapped, obviously; number one. But then there’s things with hinged doors that have to close a certain way. None of it’s overwhelming, it’s just—obviously, because of the care of the people, it’s a notch above what you do for an apartment building.

Ash Patel: Interesting. And would you recommend people that are starting out into investing in real estate look at getting into this side of the business?

Wade Micoley: I think it was easy for us because we had done so many other things. So I’m a little hesitant to say, “Don’t do it unless you’re experienced”, it’s just we had experience, so it made it pretty easy for us. I do know some people that have built some 18-20 unit facilities and they’re doing extremely well. Now they have the right people with them, they have the right person to operate it, and that to me, is so important. Because as I said before, you could have a great location, a great facility, but if you have a bad operator, your investment is going to be tough. But if you have the right people, it’s way better than any type of rentals that I’ve ever seen.

Ash Patel: And is zoning typically a challenge for smaller facilities like this?

Wade Micoley: Surprisingly, it’s not. And the reason why it’s not is – if any one of your listeners has ever gone in to try and get an apartment rezoned or get a piece of land rezoned for an apartment, everyone doesn’t want it in their backyard. So it’s usually a difficult process, unless it’s pre-zoned for that. This is way more welcoming; you are helping the community in a multitude of ways. Maybe it’s because of the building, maybe it’s because of the land that needs to be converted, but you’re also helping the community because in some of these areas, there is nowhere near enough supply to service all the needs of the community. [Crosstalk]

Ash Patel: Yes—

Wade Micoley: —usually, pretty darn easy.

Ash Patel: From a political standpoint, you don’t want to be that city council member that opposes—

Wade Micoley: Yes.

Ash Patel: —a place where grandma can go to get help.

Wade Micoley: Our last one that we did, we had a little bit of a battle, but it wasn’t to do with the building or the facility; it had to do with somebody on the board that actually owned one. So they were a little slow to jump on. But when it came down to the vote, people from the community were speaking on our behalf that they wanted it, and it’s pretty hard to say, “No.”

Ash Patel: Yes, not like an opioid clinic.

Wade Micoley: Yes, right.

Ash Patel: Yes. Awesome. Wade, I can’t thank you enough; you’ve cleared up a lot of my misconceptions about this type of asset. And I think you’ve given our Best Ever listeners a lot to think about. So again, thank you so much for sharing a lot of these insights that very few people have. We can’t thank you enough.

Wade Micoley: Yes, thank you. I appreciate it. Always good to see you.

Ash Patel: Yes. Best Ever listeners, thanks for joining us, have a best ever day.

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