Jacob Marchini: As a brief disclaimer that we have to give before we start this transaction, or start this discussion, the Entrust Group does not provide any investment advice or endorse any specific products. Any information presented today is for educational purposes only, and all parties are encouraged to discuss with their
Jacob Marchini: Financial and legal advisors before entering into any type of investment.
Jacob Marchini: Here's a couple of the items that we're just going to go over today, and if you have any further questions during the transaction or during the presentation, please feel free to go ahead and type those into the chat box. We will be just having a Q&A discussion at the end of everything, so you can get more details about the information if you need it.
Jacob Marchini: As a brief introduction for myself, my name is Jacob Marchini. I've been here at the Interest Group for over 9 years, and I am CISP certified, meaning I have a Certified IRA Services Professional designation from the Bankers Association of America.
Jacob Marchini: Some general information about the Intrust Group. For those of you who are joining us today, we are self-directed IRA administrators, meaning we help our clients invest in
Jacob Marchini: private equity, real estate, precious metals, and other types of what we call alternative assets. We're very proud of our knowledgeable staff, many of whom have the same sort of CISP certifications that I do, and we hold monthly webinars like this for the benefit of our clients.
Jacob Marchini: More general information about the Entrust Group, we have over $5 billion of assets under management across 24,000 plus investors. We've been in the industry for over 40 years, since 1980, and we offer a single point of contact for our new clients. So if you have any interest in joining up with us today, as a new client, then you will have a single point of contact as your main
Jacob Marchini: Contact with us to provide personalized service to you for getting things started.
Jacob Marchini: All right, and without further ado, I'm going to turn things over to our presenters today, Mr. Jim Flint and Vern Harris.
Jim Flint: Well, thank you everybody for joining today, and we look forward to hopefully adding some information so you understand further about investing in the senior housing market.
Jim Flint: Brief introduction, I've been in the real estate business for 40 years.
Jim Flint: I formed partnerships on a variety of properties, mobile home parks, self-storage facilities, and more recently, in the last 10 years, 10 or 15 years, we've been doing partnerships on assisted living properties.
Jim Flint: The reason I wanted to have my investors look at and invest in senior housing
Jim Flint: is pretty simple. The demographics favor this segment of the population growing at a faster rate than any other segment of the population.
Jim Flint: So, having real estate that fits those needs for those future clients and residents is what we're interested in.
Jim Flint: Vern, would you like to say a few words?
Vern Harris: Sure. Hi, everyone, I'm Vern Harris.
Vern Harris: with a better way
Vern Harris: Realty and ABW Senior Investments. I've been a business owner for over 35 years, and have been involved in the assisted living space now for over 10 years. I am a certified senior housing
Vern Harris: investment professional, and also a certified business intermediary, and I started an association about 8 years ago called the Denver Association of Assisted Living Residences. We've got probably 1,200 members in our total meetup group.
Vern Harris: And I've been with ABW since, 2018.
Jim Flint: Okay, and we can go on to the next slide, so…
Jim Flint: So, the important part here is you want to buy real estate that's in demand now, and likely to be in demand in the future. And the 80-plus population segment is predicted to grow at a 4.6% annual growth rate.
Jim Flint: Overall, they're at about 87% occupancy on all the assisted living properties across the nation, and there's 46… 43,000,
Jim Flint: People for annual need.
Jim Flint: Go to the next slide.
Jim Flint: So, this is our basic idea about why we're doing what we're doing. We're seeing that the demand is increasing because of the
Jim Flint: Population and the demographics. And, we feel that we're… we can find the property that fills that kind of a need.
Jim Flint: And, in the locations. And then, like any kind of real estate or business, you have to have an adequate operator or manager to operate the property.
Jim Flint: We do that by two different methods. We find the property, match up a operator, and they do a triple net lease on the building, so we're not subject to variations of occupancy, taxes, insurance, upkeep, things like that.
Jim Flint: These are true triple net leases, where the, operator or our tenant, manages and,
Jim Flint: Takes care of all those problems and sends us a rent check, and the only thing we pay out of that would be our management fee for supervising and making sure that they're complying with all the state regulations and the mortgage payment, and then the balance goes to the partners.
Jim Flint: The other way that we're exploring to do this, to get into other markets besides Colorado, where we currently have 42 homes, and
Jim Flint: several hundred beds operating under this kind of operation, but we want to change to
Jim Flint: Also, add having professional managers that have experience in different cities that we're interested in investing in. Obviously, the cities that we want to invest in are areas that the retirees are retiring in.
Jim Flint: that have the most growth of any other city in that 65-plus age bracket. So, we think it's a good idea to invest in real estate where the demand is increasing.
Jim Flint: Vern, do you have some comments?
Vern Harris: Oh, I think you've, you've outlined it pretty well. Again, the opportunity to step into the operations, is a pretty big jump in
Vern Harris: what the, ROIs end up being, so that's something we're exploring pretty hard right now.
Jim Flint: Okay.
Jim Flint: So, in the senior housing segment, there are these four basic categories. Independent living, where you're providing housing for people that are probably still driving.
Jim Flint: And just don't want to live alone, and do not have family members nearby to look after them, and they want to be part of a community of like-minded people.
Jim Flint: And so, they'll, live in a small one-bedroom apartment kind of arrangement, but food and other activities are available a short distance away.
Jim Flint: When they need to have more care, that would be the assisted living, and typically when they need help with 2 or 3 of activities of daily living.
Jim Flint: So, these are the typical kind of,
Jim Flint: retirement home that we think of. Some of these are independent, and they are stand-alone buildings. The independent living may be also standalone or part of a large complex to have continuing care.
Jim Flint: Then, the next level of care that people usually need would be the nursing care, and that means that you're unable to perform most of the activities of daily living.
Jim Flint: And, so that's the nursing care kind of properties, and then the… also memory care for Alzheimer's patients, and that would be for, usually a lockdown facility.
Jim Flint: And again, each of these four facilities can be independent and stand-alone buildings, and sometimes it's continuing care with all four categories in one location.
Jim Flint: Vern, you have anything?
Vern Harris: Well, we're not really doing anything with nursing care.
Vern Harris: In our group.
Vern Harris: Mostly assisted living and memory care is what we deal with. We are exploring independent living, but nursing care is something that we've, we've kind of stayed away from.
Jim Flint: Okay, next slide.
Jim Flint: So, to give you some idea of the value of real estate, there's 24,000, almost 25,000 investment-grade properties out there.
Jim Flint: And these, generally are going to be above, 16 bedrooms. There are certain fair housing rules that apply to 16 and fewer resident properties.
Jim Flint: And actually, someone can start in a group home, or assisted living home, or a memory care home, in any neighborhood in any HOA, without any change in zoning, anywhere in the United States, because it's
Jim Flint: Covered under the federal fair housing.
Jim Flint: So, just as you can't discriminate based on age or race, origin, things like that, the fair housing also covers the fact that a home in a residential neighborhood
Jim Flint: If it's converted over to have adequate ADA bathrooms, fire extinguishing systems, things like that, it can be an assisted living and other types of group homes, which could be for sober living and things like that.
Jim Flint: But, the investment-grade properties are generally larger than that, and when you get above 100-bedroom places, you run into competition with the,
Jim Flint: With the REITs that are trying to buy those. And they can be a good way to invest in the assisted living markets in your market.
Jim Flint: And then there's other alternatives to that. Obviously, smaller operators like us maybe have less overhead.
Jim Flint: But a total of 3.2 million, bedrooms, and the market value of, almost $500 billion, so…
Jim Flint: So, 72% of them are owned by private for-profit entities.
Jim Flint: 9% are owned by the REITs, and 2.8% are owned by publicly traded properties. And about 15% are operated by non-profit entities.
Jim Flint: So, now these, fall under categories of, Medicaid, assisted, or payment, homes, and also, private pay, both of those categories.
Jim Flint: We found that, investing in either of those can be, profitable. Again, it depends on the, operator, so…
Jim Flint: Vern beer. Okay.
Jim Flint: So, this is the real reason we're… we think that assisted living and senior living housing is the wave of the future of where to put your money.
Jim Flint: You can see the growth rate of the people 80 and over. This does assume a certain amount of fatalities in here. And we got this information from a company called NIC.
Jim Flint: They specialize in getting information on the senior housing operators in most of the major cities, and then keep track of it in terms of the
Jim Flint: Occupancy, wages, rents, increases, and things like that.
Jim Flint: So, it's an excellent source of information, so…
Jim Flint: Vern, would you like to say a few things?
Vern Harris: Yeah, we used to say 10,000 people a day turn 65 years old, but that's gone up. It's closer to 15,000 people a day turn 65, and 4,000 people a day turn 85. That's every single day. So, those are pretty exciting numbers from our perspective.
Jim Flint: So, again, this is just a graph to show the increase in
Jim Flint: Population of these segments that we feel that it's a good idea to own real estate that serves this market.
Jim Flint: And, oh.
Jim Flint: So you can see it's, increasing for the next, you know, realistically 30, 40 years, so…
Vern Harris: I… can we go back that slide right? Yeah, this one…
Vern Harris: This slide is exciting to me, because as we look at that 75 to 85 plus population, and how much it grows, you know, we're almost to 2030, and you can see it goes up exponentially, and we'll continue to do that until…
Vern Harris: Well…
Vern Harris: You know, it will do this until the end of the century. So, it's pretty exciting to be in this space right now with those kind of demographics going on.
Vern Harris: Thank you.
Jim Flint: Bern, you want to do this one?
Vern Harris: Yeah, so not only,
Vern Harris: do we see older people, increasing, but the activities of daily life, the need's there, but the family caregivers are shrinking, so that adds to the need for these beds. It's not like you can keep mom at home. You know, a lot of these families are now two-income families, and
Vern Harris: Don't have, the ability to have somebody at home taking care of mom, so they… you add that on top of the factor that the…
Vern Harris: population is increasing, it really brings up the needs, which is kind of outlined there in that orange line there. So, it's just a much bigger need that's coming up with those two factors.
Jim Flint: Okay.
Jim Flint: Now, this was an interesting slide here. During the pandemic, occupancy dropped.
Jim Flint: For a lot of reasons, not economic, but, generally through, people were concerned about taking their
Jim Flint: their parents to, an assisted living property, and in Colorado, they passed certain laws that made it difficult to, have new people move in. So, it was a one-year kind of blip in the thing, but then, since then.
Jim Flint: The absorption's been very good.
Jim Flint: Vern, you have any?
Vern Harris: Oh, just the last 3 years, the, occupancy rate is, coming back to…
Vern Harris: Not only where it was before, but even increasing over what we had historically.
Vern Harris: And another interesting thing on that slide is you can see the inventory is going down. We have another slide in this deck that talks about the inventory, and that's a pretty exciting slide to me to have discussion about.
Jim Flint: So, the occupied units continue to climb to new record highs, both in terms of percentage and absolute amounts.
Jim Flint: And, so…
Jim Flint: It makes sense to be in that part of the market that's serving the increasing demand area, so…
Jim Flint: Next unit, next slide.
Jim Flint: Vern, you want to do this one?
Vern Harris: Yeah, so, this… Sorry.
Vern Harris: So, we've got the growth rate, and again, the inventory number is probably the biggest thing. You can see the inventory and how it was, that's the dark blue columns there.
Vern Harris: And…
Vern Harris: the inventory rate, they kind of stopped building right after COVID, and it costs a lot to build new units these days, so it's really slowed down a lot. But with that said, the, need is increasing. So, we're going to see, not only the increased need, but decreased supply.
Vern Harris: And that's going to have a pretty big effect on the rates moving forward and the value of these properties moving forward, because it is all supply and demand. So, you know, those two combinations put together
Vern Harris: Have made us really bullish in this space.
Jim Flint: Great, good.
Jim Flint: So, this shows the units under construction, and as a percent of the inventory.
Jim Flint: And the important thing here is the construction is going down because the construction costs went up so much.
Jim Flint: And rents basically haven't increased to the point to where it makes it economically feasible.
Jim Flint: We feel it's a wise idea in your real estate investing, in any category, no matter what it is, to try to buy an occupied property below replacement cost. And,
Jim Flint: It is possible, although it does take a lot of searching, to do that in the senior market.
Jim Flint: But by buying the properties below replacement cost and having them occupied, that's a pretty simple idea in the real estate investing, so… and it is still possible here, but I think then we're going to see an increasing demand, which will put pressure on rents to go up.
Jim Flint: To support new hou- new housing units.
Jim Flint: Vern, you want to do this one?
Vern Harris: This goes back to what we were talking about with the construction and the fact that there's less going on, and you can see with that orange line that they're down to almost nil right now in new, new construction.
Vern Harris: So, that's, that's gonna be very challenging moving forward with the needs that are coming up.
Vern Harris: And,
Vern Harris: you know, it just… it kind of reinforces what we're saying here. The demand is ramping up, and the pipeline's drying up, so, you know, we have a little quota at the bottom. It's a textbook pricing power for any existing assets, and that's typically what we target, is something that's already up and running.
Jim Flint: Yeah, with the projection of 560,000 new bedrooms needed by 2030, but only 191,000 are projected, there's going to be a significant shortage
Jim Flint: Which will put pressure on the rents to be increased to the point that they can support new housing units to be built.
Jim Flint: So the.
Vern Harris: Tights me.
Jim Flint: Yeah, go ahead, Vern.
Vern Harris: Okay, so if you look in the middle there, you're gonna see a solid blue bar.
Vern Harris: And that is the most senior housing units that they've ever delivered in the history, in the 21st century, at least. 56,000 units, so that's the most they've ever done.
Vern Harris: And the orange bars represent the need that's upcoming. You can see in 2027, there's 100… almost 150,000 units that are needed. Their current development pace is that light blue bar at 26,000 units. So.
Vern Harris: Even if they built the most that they would have ever done, they still need over 200% of what that number is, and they're…
Vern Harris: Only at 25,000 units. So, they need, in 2027, almost 6 times what they're developing today.
Vern Harris: So that's a huge number.
Vern Harris: And that's why we think that the operators that are currently up and running can push their rents. They're going to see occupancy fill up to, probably over 95% on average. Right now, they're probably in the 87% to 92%.
Vern Harris: And it's going to allow them a great opportunity that they can increase their rents, increase their occupancy, and really make some good profits out of these facilities.
Vern Harris: So, this is why we think… to me, it's the most exciting slide of the deck.
Jim Flint: And, as… Oh, we have on the slide there,
Jim Flint: zoning hurdles. It's not too hard to get the zoning, it's hard to get the final building built. In Colorado, due to certain regulations they've instituted.
Jim Flint: It takes a year after you get the building completely done and have an occupancy permit. The certificate of occupancy, it takes a year to get the license from the state before you can start filling it up.
Jim Flint: So those kind of restrictions make Colorado an attractive place to buy an existing building, because competition is really stymied by the legislative rules that they've come up with, so…
Jim Flint: But we look for other states also, just to be diversified. As I mentioned, we have about 42 homes, and that translates into how many beds, Vern?
Vern Harris: Oh, that we have? Yeah.
Vern Harris: we're… Around 800.
Jim Flint: So, we feel we've… that's a good statement for Colorado, but other states, have good growth also, and those would be good to go to, so…
Jim Flint: Next slide.
Jim Flint: So, this shows the, different…
Jim Flint: categories of demographics and their net worth that they are projecting to be able to afford the assisted living properties. Most of the time, the seniors sell their home, which is paid for, and they have plenty of money to
Jim Flint: Move into, an assisted living for the rest of their life.
Jim Flint: There's really two categories that you'll look at when you,
Jim Flint: investigate investing in assisted living. There are some companies that require a large, deposit, $200,000 or $300,000 in case, in some cases, of one property here in Colorado.
Jim Flint: And it's still in the $7,000 to $8,000 a month range on top of that.
Jim Flint: They do get 90% of that money back after they've passed away or moved out. Within 3 months, they'll pay that to the heirs. But, it's, these are very nice places. They'll have 5 or 6 different restaurants available, but they're very, very large properties.
Jim Flint: We feel that, having some experience with my own dad in a… in a
Jim Flint: medium-sized facility. You get better care, when it's not, you know, 100 units and up.
Jim Flint: The 40 to 80 bed place is much better. We feel, to give better service, for the customer and for the resident, and let's be realistic, we gotta keep the resident happy, otherwise you're not gonna fill the place up, so…
Jim Flint: Next slide, yeah.
Jim Flint: Bern, you can do this one?
Vern Harris: Yeah, another thing that we like about this is how resilient… if you see that solid yellow line that goes through, that is the, rent growth
Vern Harris: For senior housing, compared to the other lines of rent growth.
Vern Harris: And you can see when we had the crash in 2008, how everybody… their rent growth went into the negative. And the senior housing, the only thing they did was not grow as much.
Vern Harris: So, if you take the, like, the big one there, which was hotel, they were giving pretty big discounts.
Vern Harris: Over their… their rates, and same with industrial and apartments. Pretty much everybody went to the negative in growth, which means that, you know, if they were charging $100, and now they're charging
Vern Harris: you know, $95, where the senior housing, if they were charging $100, before, then they went up to $103. So, they didn't really lose any growth, they continue to grow, percentage-wise throughout the years, and
Vern Harris: We believe that trend's going to certainly continue based off of the demographics and the things we've shown you here, so…
Vern Harris: It's probably, in our opinion, the most stable asset class that is available.
Jim Flint: Great.
Jim Flint: Next slide.
Jim Flint: So, these are the cap rates of the, Assisted living properties, so…
Jim Flint: We feel that these are… these are averages, and… when… Oh…
Jim Flint: You look for a property. You can look for some of them with these kind of cap rates, but with interest rates, although hopefully they'll be going down
Jim Flint: Today, maybe? But, in the past, recent past, we were at around 7% for the loans, and it's hard to make any money with a 7% loan, 25-year amortization, if your cap rate's 8.3.
Jim Flint: So, when you look around for the properties, you know, there's some that, emphasize the growth, and having
Jim Flint: bought properties that were on the growth side, you don't get any cash flow for a while, but then the capital gains is substantial at the end. And it doesn't matter whether it's a mobile home park or
Jim Flint: Existed living property or self-storage. The same idea, it's still real estate. So, when you're looking at these properties, you know, try to figure out, are they really emphasizing the growth?
Jim Flint: Value, or are they, is it going to be kind of a steady income property? And then fit that to whatever, fits your investment goals.
Jim Flint: Okay, next slide.
Jim Flint: So, we feel it makes sense to invest in this market because of strong demographic growth.
Jim Flint: Much stronger than any other category.
Jim Flint: You know, we're in Denver, and they're building lots of large apartment buildings, and already they're starting to see the vacancy creep up, and the rents having been stabilized, in some cases going down.
Jim Flint: Whereas with the assisted living, we're raising the rent and, keeping the places full.
Jim Flint: So, think about, you know, what demographic do you want to appeal to, and then what city might be the best thing to invest in.
Jim Flint: With limited new supply, meaning because of construction costs, and
Jim Flint: Still, interest rates, are pretty high, and as compared to a few years ago, so…
Jim Flint: That puts pressure on, creating new properties for… at much higher prices than you can buy an existing property for.
Jim Flint: And,
Jim Flint: 16 consecutive quarters of occupancy improvement. I don't think you can find that statistic on any other type of real estate.
Jim Flint: Any other comments, Vern?
Vern Harris: No, I… no more on that one.
Jim Flint: So, we feel that the senior housing industry is, both positioned for sustained growth and performance, driven by…
Jim Flint: Demographic, improvements and favorable supply and demand dynamics.
Jim Flint: So I hope you found this educational, and if you would like more information from us on any type of senior living, we have this available. You can scan that, and we can get in touch with you to talk about
Jim Flint: Any individual questions that you may have, and
Jim Flint: We look forward to adding to your information so you can make a wise investment with your IRA funds and help that money grow.
Jacob Marchini: Alright, gentlemen, thank you very much for that presentation, for that information. I think it's about time we can start the Q&A section.
Jim Flint: Okay.
Jacob Marchini: It looks like we have a little bit more information about, just opening up an account with us here at the Entrust Group, first off. So, yeah, just as the slide says, if you'd like to get started with opening an account, first thing is to fill out an application to open up the account, put money into it.
Jacob Marchini: And then direct the custodian, which is the interest group, to purchase the investment, all of which is paperwork that we will, of course, be able to assist you with, if you have any questions about that.
Jacob Marchini: So, now that the,
Jacob Marchini: presentation is finished, and we have, you're gonna start the next, the Q&A section, but we will be sending a replay and additional resources, we'll have a follow-up email, and you can register for October's webinar next month.
Jacob Marchini: And here's our social medias.
Jacob Marchini: And our website information for additional information.
Jacob Marchini: Alright, and so without further ado, here's our contact information. Just go ahead, go ahead and read some of the questions here that were asked during the, presentation, and if anybody has any additional questions, please feel free to just type that into the appropriate section, and we'll call them out.
Jacob Marchini: So, this…
Jacob Marchini: Looks like this is for, Andrew. Will this slide deck be available to attendees after today's presentation? Yeah, that, so… looks like that person might have already left, but yes, this is going to be made available to everybody, and the replay of this
Jacob Marchini: presentation will also be on YouTube, and will be available on our website as well.
Jacob Marchini: The next question, though, is what is the geographic distribution of demand across the U.S? So, Vern and Jim, do you guys have any insights on that?
Jim Flint: Well, we like to rely on the information that we get from the NIC organization. We do pay $20,000 a year to get this information, and we've concentrated on 5 states. We've concentrated on, Texas.
Jim Flint: Arizona, Nevada, Colorado, and also Georgia.
Jim Flint: And,
Jim Flint: based on the information that we have from them, those seem to be the best states, and certainly Florida would be good, but we are concerned about the insurance issues down there, having had,
Jim Flint: properties in, Mobile, Alabama, and subject to the hurricane program, for the last 20 years.
Jim Flint: and insurance issues with all of that. We've just decided to stay away from Florida, but I think the other states that I just mentioned are good. Certainly, the Pacific Northwest is a lot of growth up there also.
Jim Flint: And the assisted living properties are doing well in Washington and Oregon, but they have,
Jim Flint: Really restricted, current operations and future, buildings with, regulations that are, very difficult to,
Jim Flint: To operate a business with, so…
Jim Flint: But, you know, you can always check out, through various websites, what states are having the, growth of, different, of the senior,
Jim Flint: demographic group, so…
Jacob Marchini: Thank you very much, Jim. Next question. You spent a lot of time covering the demand. I'd like to know how you guys invest the money. Are you buying, building, and converting?
Jim Flint: Well, we did that when we started 15 years ago,
Jim Flint: we bought single-family homes and converted those to assisted living and rented the properties to operators.
Jim Flint: With the price of homes going up, we did that for about 5 years, 5 or 6 years, and then the home prices went up so much it wasn't economically feasible anymore.
Jim Flint: So, we tend to buy two types of properties, one that needs some fix-up work. We recently purchased one in Scottsdale, Arizona for $6 million.
Jim Flint: And, that has… how many beds, Vern?
Vern Harris: It is, 106 beds and 94 units.
Jim Flint: So, if you figure, you know, that's like $60,000 a bed, and which is a bargain price in any world.
Jim Flint: And, but we've also spent an additional $2 million for some improvements to the property. But even so, $80,000 a bed is still a very good below-market price. Now, on the other hand, we have purchased properties for up to $150,000 a bed.
Jim Flint: But we do feel that, because they're fully occupied, the condition of the property, and the fact that these buildings are… replacement cost of the buildings are in the $180,000 to $220,000,
Jim Flint: We feel it's still a good, real estate investment.
Vern Harris: higher on the replacement cost, Jim.
Vern Harris: 250 to 350 is what the new construction is.
Jim Flint: Yo.
Jacob Marchini: There you have it.
Jacob Marchini: Next question is, how did you operate your properties during COVID?
Jim Flint: Well, all of our properties are leased to the operators, and so our operators, for the most part, were able to,
Jim Flint: comply with the state regulations and federal regulations, and maintain, at least maintain an occupancy. The state did make it difficult to move in new people.
Jim Flint: they require… they basically wouldn't let anybody tour a property. So our… our property managers, I mean, our tenants are operators.
Jim Flint: that had excellent websites with tours on the websites of the properties, did okay. The other operators that had a more basic website that didn't have good pictures of the inside struggled quite a bit.
Jim Flint: And, but a few of our operators did figure out some legitimate ways around some of the rules.
Jim Flint: And we're able to continue on. For the most part, our operators paid the rent to us, even though their occupancy did drop.
Jim Flint: We did have one operator that had 4 properties, and she ran into not only those problems, but some significant health problems, and
Jim Flint: did shortly after all that, pass away. So, that's why we're looking to buy, larger buildings that we can have property managers run.
Jim Flint: So we aren't dependent on one operator.
Jacob Marchini: The next question, in your financial models, how long is the typical hold time, and when do you start distributing?
Jim Flint: Well, up until now, that we've kind of shifted towards the property management,
Jim Flint: idea. All of the properties were leased, and we had distributions, usually 2 or 3 months, starting 2 or 3 months after we buy the property, and then we made distributions every other month after that.
Jim Flint: The operators have an option to buy the property from us after 3 years, and we have them sign a 10-year lease, but they can buy it from us after 3 years.
Jim Flint: Most of our operators do buy the property from us after 3 years because our rent is higher than what their payment is, and they can get an SBA owner-occupied
Jim Flint: Owner-run property loan, and so their terms on their loans can be more favorable than our loans.
Jim Flint: So, it is an incentive for them to improve the property, and improve the, operation of the property, so therefore the property appraises for substantially more.
Jim Flint: And, then they can use that difference between the value and our option price, for their equity portion for the loan.
Jim Flint: So, usually in 3 years, if people do want out, the building's being sold. Some of the funds we have have multiple buildings in it, so, but if somebody wants out, you know, it's been relatively easy to get people back their full
Jim Flint: investment. And because we set these up to be income,
Jim Flint: producing, partnerships, there hasn't been a big increase in value in the properties. So, because the option price is going to be about 10% more than what we
Jim Flint: bought the property for, and so, the overall returns can be pretty good. I know we aren't supposed to get into all that right now, but
Jim Flint: That's our philosophy, but we are looking to buy some buildings that,
Jim Flint: And have a property manager. They get a substantial fee, but then we get all the upside when the building's sold.
Jacob Marchini: Excellent. Another simple question, are funds deposited to your group insured?
Jim Flint: Nope.
Jacob Marchini: They are not.
Jacob Marchini: Well, there we have it. Next question is, what is the return they expect? Can you give any…
Jacob Marchini: sort of… Any sort of information about that?
Jim Flint: Okay. Well, we… when we buy the building and do the triple net lease, we, set it up to be somewhere in that 9-10% cash flow range.
Jim Flint: And,
Jim Flint: So, that's what we shoot for. In the past, we have had some operators run into other problems, especially if they were a Medicaid building, and, they…
Jim Flint: didn't operate the buildings properly, and so, in some cases, we've had cash flow as low as 6% for a period of time, until we replace that operator and get things back on track.
Jim Flint: But we have several operators that are running several buildings under Medicaid, and they're able to pay the rent that we…
Jim Flint: anticipated, that's on the lease, and they're able to give, the partners a 10% return, so…
Jacob Marchini: Here's a logistical question. What are the dollar amounts you're looking for, investors to put towards your projects? Is there a minimum.
Jim Flint: Yeah, usually it's $25,000, and on most of them, we do have a couple right now that… it's a larger property, so we're requiring a minimum of $50,000.
Jacob Marchini: Minimum of 50.
Jim Flint: Yeah, so between 25 to 50, so…
Jacob Marchini: So we have a question… next question is, assisted living locations might have inadequate nurse or other caregiver staff. Is this a concern for your locations?
Jim Flint: Yes, it certainly is. Obviously, you have to have the staff to be able to work it right. And, in the cities that we're in, they're big enough cities that there are adequate population to draw from to get the staffing that is needed.
Jim Flint: So, there are… we look at lots of properties that are in towns of,
Jim Flint: Less than, say, 25, 30,000 people, and we don't pursue those at all, because we know it's just…
Jim Flint: too small of an economic base to draw the staff from, and then a small… too small of a group to draw from for the residents. So, we stick with towns that are at least 100,000, but I think right now, most of ours are in the 500,000 and up range.
Jacob Marchini: Next question, what is the average bed size for your homes?
Jim Flint: Well, we have quite a few left over from our early years that are in the 16-bed range.
Jim Flint: But in the last, let's say, what, 4 years, Vern? We've been in the 30…
Jim Flint: 60 of the Scottsdale ones, 100 beds, one in Las Vegas we're working on now as,
Jim Flint: license for 80 beds, is it, Bern?
Vern Harris: Yeah. For 60 or 4 units, licensed for 80.
Jim Flint: 80, and
Jim Flint: So, but like I said during the presentation, that we like the 40 to 80 bed range.
Jim Flint: I think it serves the residents better, because the staff gets to know the people, and the buildings aren't so big that people get lost walking around them and things like that, so…
Jacob Marchini: We have somebody ask, what are some criteria you consider in setting up operations?
Jim Flint: Well, the first thing is,
Jim Flint: what's the building like? Is it, adequate room size? Does it have adequate
Jim Flint: meeting rooms, kitchen facilities, dining rooms, and the overall condition and age of the building. It's an older building, then we're going to be looking at probably replacing air conditioning, and
Jim Flint: major HVAC kind of components.
Jim Flint: So, we take that in consideration when we make the offer to purchase the building. If it's a newer building, this one in Las Vegas is only 7 years old, so we aren't looking for any major repairs right around the corner, certainly by the time it's 10 years old, but we set money aside for that.
Jim Flint: The other criterias would be, you know, the size of the population of the, that the property's located in, and where it's located. We like to try to find a building that is,
Jim Flint: Close to the upper income areas and upper home value areas, thinking that the adult children probably live there.
Jim Flint: And they'd like to have, easy, access to their, parents.
Jacob Marchini: The question is, the future investment per location or into a fund, has been asked.
Jim Flint: We do it both ways. Sometimes we'll have a fund for one building, and sometimes we do retain the option to add other properties to the fund.
Jim Flint: Our oldest fund, probably has
Jim Flint: 15 buildings, or something? Vern, you think? REO's about 15, or…
Vern Harris: Yeah, somewhere in that range. You know, we've sold some, we've acquired some.
Jim Flint: Yeah, so our operators buy these after 3 years, and they want another building. So we use the money from the sale of the… of that building to that operator to buy another building for that same operator.
Jim Flint: He's got a track record with us, the banks are happy with him, and sometimes we change areas, but generally we stayed in the same area that they were currently in.
Jim Flint: But,
Jim Flint: You know, so that's kind of our formula. Being a small operator like this, you know, we have annual meetings, and although we do appreciate our partners very much, we do take them to a Rockies game.
Jim Flint: So, you know, it's hard to say you appreciate somebody having them go to a Rockies game lately, but…
Jim Flint: That's our idea. And then we do have annual meetings.
Jim Flint: And, so, but I've, I've got investors, Dr. Larry's been with me since, 85.
Jim Flint: That is 1985, I would like to emphasize that, so. And, so,
Jim Flint: You know, we've had investors with us for a long time, and they're happy with our returns, and…
Jim Flint: So, but if the building's more for the, an upside, thing, we probably would make it a standalone building. And then, you know, when that building sells.
Jim Flint: We'll give the people the option to take their money, or we can roll it over into another building, so…
Jacob Marchini: We have another question. What is the profitability of investments in your business? I think that was answered in a previous question. You shoot for around 10%, is the projected, yes?
Jim Flint: Well, yeah, the… the… our… our fees are,
Jim Flint: The, we usually get a, 3% to 5% real estate commission.
Jim Flint: And, then there's other fees, obviously loan fees, appraisal, all that kind of stuff. And the price that the operator can buy the property from us for after 36 months.
Jim Flint: It's usually 10% higher than our original price. And of course, we paid the loan down a little bit.
Jim Flint: So that way, the overall return we shoot for is a 12 to 14 internal rate of return. If they take longer, which some of them do, the price goes up every year to help cover all those costs and give us a little bit better return.
Jacob Marchini: Somebody asks, how do you find operators, and are there an abundance of people that want to be operators?
Jim Flint: Let me answer the last one first. Yes, there are an abundance, and most of them are not qualified.
Jim Flint: So, it is hard to find them. Usually, we find a building that's, running well, and we'll contact that executive director.
Jim Flint: And we will say, do you know if that owner wants to buy another building? And they may or may not, but then we bring up the idea at that point, have you ever thought of having your own building?
Jim Flint: And when we explained the program that without too much money out of their pocket, and in some cases, no money.
Jim Flint: We turn the building over to them, as long as they've got some working capital.
Jim Flint: we turn the building over to them, and within a few years, they can become a millionaire. Our best example is Mitch and Jennifer started with us 9 years ago. They had 2 buildings. Today, they have 24 buildings, 550 beds, and 450 employees. All the buildings
Jim Flint: That they've acquired and, operate today were through our program.
Jim Flint: So, we try to help…
Jim Flint: people that otherwise could not ever own a building on their own, to own a building, and we also want to make sure that the residents are taken care of. So we feel it's a win-win kind of thing to
Jim Flint: Help operators that are qualified and putting up with the state, the adult children, the staffing issues, the, you know, ordering the food.
Jim Flint: And taking on all of that responsibility and giving them a chance to literally become a millionaire. The property we bought in,
Jim Flint: Scottsdale, about a year ago for Mitch and Jennifer, we bought for $6 million. We spent $2 million on it, so their option price is, like, $8.5 or $9 million. But it appraised for $13 million when it was fully, stabilized, and some of these repairs were done.
Jim Flint: So, they stand to make, you know, 3 or 4 million dollars off of that one building due to our program, and we're thrilled. They make their rent payments on time.
Jim Flint: And they… they deserve the… the reward for that hard work.
Jim Flint: So, and let me just add, if we can't find an operator and we have a good building, that's when we find, we pursue a professional manager that has experience in that neighborhood and, and that type of property.
Jacob Marchini: And we have somebody else asking, what do you expect for average annual profit margin per home?
Jim Flint: Well, I… I think we can still…
Jim Flint: Given that 9-10% cash flow, maybe there's going to be a little increase, so if we start at 9, we get up to 10 by the third year.
Jim Flint: And then the overall return should be in that 12% range.
Vern Harris: That's on our triple net lease program.
Jim Flint: Yeah.
Jim Flint: Yeah, with the professional managers, I mean, if we would have bought that building in Scottsdale on our own, we would have had no cash flow for the first year, but…
Jim Flint: Now that it's, starting to get stabilized and, and the rents have been adjusted to market,
Jim Flint: You know, that difference between what we've got into it of the $8 million, $8.5 million, and the ultimate sale price would go to the partner, so…
Jacob Marchini: And somebody asked, what amount of investment are you requesting, what is the return, and what is the collateral? I believe in a previous question, you mentioned that you were looking for a minimum investment of $25,000 to $50,000, correct?
Jim Flint: Correct.
Jacob Marchini: Alright, and then what is the return? We're, again, we're talking about somewhere between 9% and 10%, and the overall return, probably about 12%, I believe you said, correct?
Jim Flint: Correct, and then if we do the property manager, we probably would have more on the upside, but less initially, so…
Jacob Marchini: Okay, and then what is the collateral? Do you have any answer to that question?
Jim Flint: Well, they, they are in a partnership that is entitled to the property. So, they aren't buying stock in a company, they have direct ownership of the partnership that owns the property. So…
Jacob Marchini: There you have it.
Jacob Marchini: Are the units typically new build or remodeling of existing homes?
Jim Flint: Well, 15 years ago, we did the remodeling, but now, and converting homes. Now, it's more of paint, new flooring, new lighting, maybe out… something on the outside, but,
Jim Flint: the property in Scottsdale was unusual that we spent $2 million on, on a $6 million property. Most of the time, we'll spend $200,000 or $300,000 on a $4 to $6 million building.
Jim Flint: property in Las Vegas is $13 million, and I don't know where we'd spend a dollar. It's in excellent condition, so…
Jacob Marchini: Then somebody asked, do you have a prospectus or investment thesis, and how do we get one?
Jim Flint: Well, if you, contact us, we'll send it to you.
Jim Flint: And we do have an offering memorandum, currently.
Jacob Marchini: Right? And then, you know, our… the contact information for both Vern and Jim is there on the front slide, so that's how you can contact them by email or by phone to get that.
Jacob Marchini: Alright, here's an interesting one. Are there any tax advantages to this type of real estate investment other than those already provided by the IRA construct, as compared to other types of investments, such as oil and gas, intangible cost.
Jacob Marchini: tangible drilling cost write-downs. Now, that is a question that should be directed to your CPA or tax advisor. That's not something we can really discuss here, unfortunately.
Jacob Marchini: But yeah, the main tax advantage of investing through an IRA is the, you know, depending on the type of IRA you have, whether traditional as tax-deferred investment value, or Roth as post-tax investment value, you know, tax-free on the income you receive.
Jacob Marchini: On the income from the investment, as long as you
Jacob Marchini: satisfy the 5-year rule and other minimum requirements for Roth IRAs, but for the other sort of intangibles, like, you know, the, sort of depreciation of the investment that sometimes happens in oil and gas investments, that is a question for you to take to a CPA or tax advisor for strategy questions like that.
Jacob Marchini: Next question is probably going to be for you, Jim. Is there a separate LLC for each building? Would the investment be building-specific? And I think we covered that a little bit previously, yes?
Jim Flint: Yes, it depends. Some of them are individual buildings, and some of them are a fund. So,
Jim Flint: We do both.
Jacob Marchini: Next question. How many properties have you bought and sold?
Jim Flint: Well, we have 42 or 3 now, and… We've probably had…
Jim Flint: Bern, do you have a better idea on that?
Vern Harris: I'd say 80 to 100 total between.
Jim Flint: Yeah, now we do brokerage work, so sometimes we have a client that wants to buy a building on their own.
Jim Flint: And so, we help them do that, and then we help them, get a manager, and
Jim Flint: Sometimes we manage the manager, and sometimes the people want to do it themselves.
Jim Flint: So,
Jim Flint: You know, so… because people might want to trade a rental house in or something, and then that doesn't work on an IRA, so they'll just buy a building on their own, so…
Jim Flint: Yeah, I would say in over 15 years, it's probably been close to 100, that we have.
Jim Flint: Bought, or… or helped a client buy, and then sold.
Jim Flint: I don't know how many,
Jim Flint: 40 or 30 of those, or something? Because some of them went to the clients.
Jacob Marchini: Next question. How is the overall investment split between the three categories, independent, AL, MC, etc?
Jim Flint: The potential return would be the same. We do have one property that's, has independent living and assisted living and memory care on it, doesn't have a nursing home.
Jim Flint: But, so we do have some independent living. The returns are pretty much the same. I don't think… if we did categories, I don't think one would be more outstanding than the other.
Jim Flint: you know,
Jim Flint: you've got a building to maintain in either case, so… and… but less staffing on independent living, so that's a potential plus there. But, of course, you have much higher rents on assisted living than you do on independent living, so…
Jacob Marchini: And then the last question that we have on the list here, do you ever start with a strategically located infill land parcel and do a ground-up construction project?
Jim Flint: No.
Jim Flint: It takes too long to get the zoning, too long to get the building, and when we can buy the building at, you know, 50% of replacement cost, and it's generally full.
Jim Flint: Why build something? I mean, there's no economic reason. I couldn't make a good economic case to investors
Jim Flint: To have them give me the money, to do that.
Jim Flint: Plus, I have no hair left to go through a building program, so…
Jacob Marchini: All right, we have a little… oh, we have another question. We have an appreciation of… I appreciate your time today. So, likewise, Jim and Vern, we appreciate you guys coming on. Looks like our audience is also appreciative. One other question, though. Do you convert hotels?
Jim Flint: Now, probably a possibility that that might work, if you could find one cheap enough in a… in the right neighborhood.
Jim Flint: But it is, you know, the… you'd have to have all the bathrooms be independent, be ADA approved, and now some of the states require elevators to be big enough for a gurney laying flat.
Jim Flint: And some of the elevators for hotels wouldn't be… or motels wouldn't be big enough, and trying to redo an elevator would be a nightmare, so…
Jim Flint: I used to have to add one on the end of the building or something. I think that would just be…
Jim Flint: Just be a lot, you know, just, again, let's just buy a building that's mostly occupied at a good price.
Jacob Marchini: Alright, and that was the last question currently. Oh, there we go. Alex Mdaty coming in. If you ever consider converting hotels, I know a great opportunity in Southern California. Well, there we go, we have a little bit of information there.
Jim Flint: Yeah, well, have them send it to us. We hate to say no without looking at something, but maybe it's a possibility, so…
Jacob Marchini: Okay, anybody else?
Jacob Marchini: Going once.
Jacob Marchini: Going twice…
Jacob Marchini: And Alex says he'd be more than glad to send you information. But if there is any… there's no more questions, I believe we've reached the end of our Q&A session.
Jim Flint: Okay, you know, I'd just like to say, and I should have done that in the beginning, that I've used you guys for my IRA, and I've had other IRA companies, and you guys are much better to work with. We refer quite a bit of business to you guys, too, from people that are dissatisfied with the other IRA companies, so…
Jacob Marchini: And we appreciate that, Jim. So Jim and Vern, we thank you again for… and Alex, looking here, you need their information. Vern and Jim's information, as well as mine, if you ever want to get in touch with me and ask questions, is available on the screen here. You can email, or give us a call, whatever is more convenient for you.
Jacob Marchini: But without further ado, if there's no further questions, Vern and Jim, thank you very much again for giving this information for us today.
Jacob Marchini: And everybody, thank you for attending.
Jim Flint: Thank you.
Vern Harris: Appreciate it.