Back in 2006, I settled into my career as an emergency room physician. It was then when I started working in multiple hospital groups in several cities in Arizona and Texas to maximize my earning potential.
The strategy worked. I was able to make enough money to service my medical school debt as well as dabble in commercial real estate, buying some duplexes in Central Texas then single-family homes and larger multifamily properties in Arizona. The investments continued as I doggedly pursued the idea of financial security. My goal was to create enough passive income so that one day, he could step away from the profession and enjoy the fruits of my labor. But such goals were easier said than accomplished, I learned. The commercial real estate market was no sure thing. Finally, I was forced to reevaluate my investment strategy.
Fortunately, I connected with an entrepreneur, who was creating a business to tap into something that I already knew a little about: group homes. As doctors, we’ve heard the stories about the wait times for those who suffer from a disability, whether it is age or some physical condition to get a bed in an assisted living facility or nursing home. Given the aging baby boomer population, the problem of supply and demand appears as if it is going to get worse before it gets better. This is where group homes come in.
Because of the economics and recent legal developments, more and more entrepreneurs are exploring this opportunity and leaving the door open for doctors as investors. The economics center on the supply and demand equation and the figures that a licensed, properly retrofitted group home can reap $7,000, or more, per bed in revenue.
The legal developments mentioned above involve the Fair Housing Act and the Americans with Disabilities Act, both of which, in tandem with recent case law, have made it possible for entrepreneurs to create group homes in America without legal challenges from the existing community or homeowners’ associations. The key for the opportunistic physician is to identify an entrepreneur with a turnkey operation that includes a builder who specializes in retrofitting traditional homes and an operation team to oversee the facility on a day-to-day basis.
The entrepreneur I am working with is just one. There will be others. The way I have learned to consider the group home opportunity is by highlighting them in three baskets.
1. First, there are the “bread and butter” group homes.
These typically involve a more modest investment, and consequently a more modest return. Typically, these are in direct competition with nursing homes and assisted living facilities. So you are highlighting the fact that you don’t have a waiting list and you are typically less expensive than the institutional setting. These types of investments may be more appropriate for the conservative investor.
2. Second, there are behavioral group homes.
These are frequently more lucrative. Because of that, the cost to get in is a little higher. However, I do not believe the cost is commensurate with the return since they can command up to $20,000 a month. In other words, if you can find one of these deals, take it.
3. The third and final group is brand new and emerging.
I personally have participated in a deal with the aforementioned entrepreneur — where he has acquired a mansion and put his team to work, converting it into a luxury version of the group home. Such facilities, which usually come with a chef, can attract between $10,000 and $20,000 a month for each bed. And with 8 to 12 beds in a mansion setting, the rewards can be stunning.
The purpose of my column is to help familiarize you with this opportunity. That way, when the opportunity is presented, and you can bet it will, you’ll have an idea of the dynamics at play.
Cliff Janke is an emergency physician.
Image credit: Shutterstock.com
