Gene has been on the show in the past. Today he’s back for a Situation Saturday and tell us how he is able find great locations, and deal with zoning so you can change a single family home into an assisted living house. The benefit here is obvious, make a lot more money, but in order to do so you may have to jump through some hoops first, but Gene can help! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Gene Guarino Real Estate Background:
- Over 30 years experience investing in real estate
- President of Residential Assisted Living Academy
- Focused on just one thing: Investing in the mega-trend of senior assisted housing
- Based in Tempe, AZ
- Listen to his previous Best Ever Advice here: JF678: Earn TWICE the Fair Market Rent from an Assisted Living SFR
- Say hi to him at http://residentialassistedlivingacademy.com/
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff.
I hope you're having a best ever weekend. Because it is Saturday, we're doing Situation Saturday, where if you come across a situation like the one we're going to be discussing, then you'll know how to approach it. If you already know how to approach it, then perhaps you'll pick up some tips that will help you enhance your approach.
With us today to talk about residential assisted living, Gene Guarino. How are you doing, Gene?
Gene Guarino: Doing great, Joe. Good to hear you.
Joe Fairless: Well, nice to have you back on the show. Gene was actually on this show's episode #678, titled "Earn twice the fair market rent from an assisted living single-family rental." So we won't get into his best ever advice; if you wanna hear that, go listen to #678. But we're going to be talking about a specific situation as it relates to zoning and location - and doing "it" meaning residential assisted living - in your area.
Gene, first, will you give a refresher for the Best Ever listeners, just a little bit about your background and your focus, that way we have some context?
Gene Guarino: My background - I started when I was 18 years old, which is a long time ago, with my first piece of real estate. I was a musician in a recording studio, music school, renting a property, and that was as a teenager. So when I was 18, it was either shut down the business, or buy your own place. We bought our own place, no money down, and that's where I started, years ago. I did my first commercial at 25, and I've been doing real estate ever since.
Right now I do one thing, and that's called residential assisted living. We take single-family homes in great locations and convert them into the assisted living for seniors.
Joe Fairless: Okay. Single-family homes, great locations, and convert them into living situations for seniors - why do you do that?
Gene Guarino: Well, there's lots of reasons. One, it is very lucrative, let's not deny it... I mean, when you can make 10k/month from a single-family home, it's a beautiful thing. But it's also helping other people; there's a lot of people that age that need help, and they can't live alone. They don't need a nursing home, they need something in between, so we provide a solution and we profit handsomely from it.
Joe Fairless: Making 10k from a single-family house - and that's profit, not income?
Gene Guarino: That's all net, yeah. That's kind of the average home. Some of our students are doing that times two, and from a single-family home, that's a really cool income to get.
Joe Fairless: Yup. I make $250 from my homes every month, so that would be pretty significant. So again, Best Ever listeners, you can listen to the other episode if you want to hear more about the specifics of the business model... Today, we're gonna be talking about one laser-focused aspect of the business model, and that is location and zoning, and doing it in your area.
For example, I have three homes that I own in Texas. How do I convert my $250/month profit to 10k?
Gene Guarino: Well, do you wanna get right into the zoning part of it? Or show me how to do it and I'll be happy to do either one.
Joe Fairless: Well, talk about how I could do that with one of them, and then we'll focus more time on the zoning.
Gene Guarino: Good, so I'm gonna give you the short version, but like you said, listen to the show #678 so you've got it. In that home itself - it depends on the area and the home, so there's a lot of detail that goes with it; I can teach you all about it. But that home itself, if you're renting it to somebody and netting that $250/month, which is pretty good, Joe... A lot of other people aren't making that much; good for you. But if that single-family home could be rented to somebody else that is not a family with two kids and a dog, but it's somebody who's operating a residential assisted living home (in Texas they call it something different), where they're gonna be operating that group home for the elderly like I do, they're the ones who are going to be doing the business, but you may be able to lease that same home to them for, let's say, twice the market rent you're getting now.
So if you're renting it for $2,000 and making $250, if you rented it to them for $4,000, you're making $2,250. So the obvious question is "Why would they do that?" and the answer is because they're gonna be making 10k or 15k net per month even after paying you twice the rent. That's one way to do it on that side.
On the other side, if you wanna own the real estate and own the business, now you operate that business, and that business simply put in a 30-second overview - the average person is paying $3,750/month; in Texas, as you mentioned, you can have up to 16 people in a single-family home... They call that a small facility in Texas; everything's bigger in Texas. It depends on the size of the home and so on, but let's just say you had 10 people - $37,500/month is the gross income. Your expenses for operating the business, renting the home or owning the home, insurance, taxes, food, everything... You're still gonna net about $10,000/month from that one single-family home operating that residential assisted living.
Joe Fairless: So one of the questions is how do we make sure that our house is able to have that type of zoning? How do we approach this conversation?
Gene Guarino: Got it. So let's go right into this, because it's one of the questions I get all the time, Joe - "Can I do it in this home, in this area?" and so on. Number one, every state [unintelligible 00:06:40.12] has certain rules of what you can and can't do. Texas - we'll just go there because that's what you mentioned - they have rules that say in the state of Texas you can have up to 16 people (unrelated at all; some of you are wondering about that) seniors in a small facility, in a single-family residence... Not multifamily, not a commercial location, just a house in Texas.
Now, the rules and regulations they require is you need to have a certain amount of space per person, but frankly, you could have 16 people in a 2,000-2,200 square foot house. Don't do that. That's not what I'm suggesting, everybody who's listening. I'm gonna give you a rule of thumb that we use - 300 square feet per person in the home. Very comfortable. So maybe that's a 5,000 square foot house.
Now, I'm gonna pause before I go into zoning. That's a different house than most people have for a rental property. They stay away from that big house because they can't cash-flow it. In this case we can, by leasing it to an operator and doubling the rent, cash-flow it and make more money. But if you operate the business, if the average person is paying (in your area) probably 4k-5k - let's just go to 4k/month... That 4k/month - very lucrative, but... Zoning - can I do it in my neighborhood? That's the point I wanna make with the start of this conversation - it's all about local.
The state allows something, but what is it locally allowed? I'm gonna get specific - let's assume you're in Dallas, and let's say you're in the city limits of Dallas. In the city limits of Dallas, they allow you to have 8 people in a single-family home for this purpose. Now, frankly, I could fight and now win, based on the Fair Housing Act; that's discriminatory, you can't limit the number of people, type of people, race, age, creed, color - you can't do that. But let's just go with the rules. I always say "Pick your location, find out the rules for the game, and go. Decide if you wanna play, and go for it."
So in the city of Dallas they say 8. If you're only allowed to have 8 people in the city of Dallas in that home, we don't need as big of a home, we don't need as big of a staff. Well, what do we have to do for the zoning?
Every place is a little bit different, but it's still single-family, so you're probably gonna have to apply, which means fill in paperwork, and it may be going from a zoning of R3 to R4; still single-family residential, but it allows you to have this group home. Now, in some locations your listeners are in, it's literally just filling a piece of paper, $50, you get it. Stamped, approved. Other states may require that you make an application, you let your neighbors know what you're doing, but they're still gonna approve it.
Other locations will require you to get input from neighbors and say "We like it or don't like it." So we need to know what the rules of the game are, and then we need to know what those rules are, and then just follow the process right through it.
Joe Fairless: What's an example of a location that made it so difficult to do this process, that you said "Let's not do it here"?
Gene Guarino: One of my students in Alabama picked a beautiful house, beautiful location... And by the way, when I say location, it's not "It's a big forest, it's on the mountains, it's on the ocean..." It's all about the demographics. That's what our location is chosen on. The people that live nearby, because they are the residents for the house - that is what we're choosing it on. So beautiful house, beautiful location - everything was perfect.
When he went to fill in the paperwork - it's Alabama, keep in mind... He filled in the paperwork, and there was an uproar in the community. Now, the uproar in the community is the good old boy network of every community; not everyone, but networks... When somebody's saying "Well, I don't want something like this in my backyard." So filling in the paperwork is one piece, now dealing with the humans involved is another.
Now, to be blunt, he would have won the battle if he just fought it, but it would have taken a lot of time, effort and money to do it. We just decided "Hey, let's just pick another location where the rules are the same, but the attitude of people around you is different."
I wanted to bring that up, Joe, because we can get through it, but that was one where that neighborhood, specifically - too difficult, let's just move on to something else.
Joe Fairless: It's the neighborhood, it's the state or it's the city? Which one in that case?
Gene Guarino: That was the neighborhood.
Joe Fairless: Neighborhood. So then the city - what city was it?
Gene Guarino: Boy, I can't even tell you what city... It's Alabama someplace...
Joe Fairless: That's alright. So have you or someone you know tried to get that approved in the city, but in a different neighborhood?
Gene Guarino: Yeah, exactly. That's exactly it, because here's the thing... And let me come back to my neck of the woods, because I can tell you some exact examples. I'm in Arizona. In Phoenix, Arizona there's a rule that says actually in some cases you can't have more than four unrelated adults, but for residential assisted living, you can have up to ten. So the rule is in Arizona - Phoenix, specifically - you can have up to 10 unrelated adults if it's senior assisted living. They have paperwork, you fill in the paperwork.
Now, they also say you can't be within a quarter mile of another 10-bed facility. So another home that's being used for this can't be within 1,320 feet (a quarter of a mile). How did they choose that? Totally arbitrary. PFA - pulled from air.
So it was January of 2016, the city itself realized - I talked to the city council myself and they realize this is totally unenforceable; we've got a rule on the books that we're saying you can't do something, but it's totally wrong, you can. It's against the Fair Housing Act, federal ruling.
In January of 2016 they even put a moratorium on their own regulation, saying "We can't enforce this, so we're not gonna." So they allowed people to do it in a house next to another house, or within a quarter of a mile. So in certain locations they have rules on the books, but if there's an unreasonableness to it, you can battle it and you'll win. The question is "Do you wanna take the time and effort?"
In Phoenix we have a student who has a home, and when that rule was relaxed, he bought literally the lot next door. So it should be a quarter mile away, but he bought the lot next door and got the application in to put the next home right next door... Which is awesome for a lot of reasons for the business, but when you think about that, the state had nothing to say, they approved it, and so now he's got that second location right next door to his other location. And now a year and a half later they took the moratorium off and said "We're gonna enforce our rule that's totally unenforceable", but he got in under the wire; that was a good thing to do... It was paperwork that had to be filled out. He did not need to ask for permission from neighbors, and so on.
Joe Fairless: We'll use one of my homes as an example - it's in Duncanville, Texas, South of Dallas. It's a 4-bedroom, 2-bath, around 2,000 square feet. In that case we'll say six? Will you do six people, just using your rule of thumb?
Gene Guarino: Well, if you've got four bedrooms, you could do two people in each bedroom, so you could have eight people. And more than likely, just like the city of Dallas, most places - if it's not a city-by-city basis - eight is kind of the number... So you probably could have eight people in there.
Joe Fairless: Even though you need 2,400 square foot with your rule -- I was going with your rule of thumb, 300 square feet per person; that's why I came up with six.
Gene Guarino: I gotcha. That makes it for a very comfortable home. The state minimum would be half that.
Joe Fairless: Okay. So 6 to 8 people. I see the opportunity, so I decide "Okay, I want to do this." So then I need to know the state, the city... So the state of Texas, the city of Duncanville, and then the neighborhood, which - I couldn't name the neighborhood that it's in... And I would then go to where to apply for it to be the group home?
Gene Guarino: Good. So you gave me three steps, and I'm gonna suggest that state first - we need to know what the rules are, and that's a key point, I'll come back to it. Two, it's the local zoning; let's say they say we can do eight people... And then I'm gonna say forget about the neighborhood. You just go forward. You know what the rules are for the state, you know what the rules are for the city. You go right to zoning and say "Here's the house. Can I do it in this location?" They say "Yes, you can. Here's what you do. Here's the paperwork, here's the process, here's what you do" and then do it. Don't hesitate, don't sit around, don't wait, take action, go.
By the time you're up and running, the neighbors won't even know what's happening. The neighbors have no clout, they have no say, but if you give them voice, they'll just make noise and so on. So don't worry about the neighborhood. It's "What are the rules of the state?", go right to the local, what are the rules there, and then go.
Joe Fairless: And what's the question I ask the local city contacts? What city office do I go to to ask those questions?
Gene Guarino: The city office would be the zoning... So the zoning and building department are usually all in one, or they're separate and nearby. So I would go to zoning, and zoning is gonna tell you what you can and can't do and what the rules of the game are.
A key point, Joe, and for everybody else who's listening, is it's important that you know what the words are. Words are important. So you mentioned Texas a number of times; in Texas there are certain rules. There's small facilities, there's large facilities. There's type A, type B, type D... You need to know that in your case it's going to be a type B, small facility, and that's how you would say it in Texas. A little different. In Arizona it's called an assisted living home.
And this is why it's important, Joe. If you were to go to the zoning board and say "I wanna open up an assisted living facility in Duncan, right here in the middle of the neighborhood", they're gonna say "You can't." That's like saying "I wanna open a gas station in the middle of the neighborhood. But if you say it with the right words, "I wanna open up a small assisted living facility, type B." "That you can do, here's the paperwork for it."
Joe Fairless: Okay. Yeah, that's really helpful. That makes sense. You've gotta use the terminology. Even though it's semantics, it's not to them.
Gene Guarino: [unintelligible 00:16:41.03] follow every rule; you've gotta know exactly what it is, so you can say it to them properly... Or take the other route, Joe - go in there saying "Look, I don't know what this is called. Can you tell me? I don't know how this is done, will you tell me?" Even if you know, if you go in there playing dumb and let them be helpful, they'll give you the right information. But I always like to know the answer to the question before I ask it if I can.
Joe Fairless: Anything that we haven't discussed as it relates to zoning that you think we should discuss during this conversation?
Gene Guarino: Two points. One is that the Fair Housing Act, for most of us that are in real estate investing and rental properties and so on - that's kind of like a thorn in our side. Fair Housing Act... We have to let this tenant in... This is actually a good thing for us in senior assisted living, because the Fair Housing Act does not allow others to discriminate against us. So know what the Fair Housing Act is and how it applies.
The second thing is that if you get pushback from anybody on anything, there's always exceptions to rules. I always look at things like not "You can't", but "How can we make this work?" That question itself is very valuable; always asking yourself "How can I make it work?" From a legal term, if I'm gonna go to a zoning board and ask for an exception, it's called a "reasonable accommodation."
Reasonable accommodation. The city of whatever - they say they're limited to eight. Well, I'm looking for reasonable accommodation for this one house in this one case to have ten. "Well, what is your reason for it?" "Here's why... In this community, they need this; we have a big house, we need to do more, we wanna pay the caregivers more in order to do that. We need more residents." But that concept, from a legal standpoint, or reasonable accommodation, is the key.
So whether you represent yourself or have somebody else, that's the argument. Understanding what the fair housing act says you can and cannot do... Because no city wants to open themselves up to $200,000 worth of legal fighting, knowing in the end they'll lose. So if you can show them in advance why you will lose this argument - city council, or whoever it may be... "All I'm asking for is reasonable accommodation." They don't have to change the rules for everybody else, just for me.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Gene Guarino: Two things: RALAcademy.com is our website, and we have a free training if they'd like it at RAL101.com.
Joe Fairless: I loved how you went deep into one of the areas that we were planning on, and that is zoning, and knowing the zoning laws, as well as the types of questions to ask. One, state, then also city, and how to approach that with the individuals at the zoning and building department. Ideally, you know what those laws are, but if you don't and you wanna just get going as quick as possible, then just go in and say "I'm not sure what it's called, but here's what I'm doing. What paperwork do I need to fill out?" and having them help you along the way... That's another approach.
Thanks again for being on the show, Gene. I hope you have a best ever weekend, and we'll talk to you soon.
Gene Guarino: Thank you.