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Don't go chase deals until you have the capital in the bank because I literally could cry because we lost out on a generational asset for our family.
Welcome to the best ever CRE show, the world's longest running daily commercial real estate podcast.
If you want real stories behind the good, the bad, and the worst ever deals, plus insights into what really goes on in the commercial real estate investing, you're in the right place.
Our hosts interview commercial real estate experts every day to uncover secrets and strategies you can use to become a better, more informed investor.This is the Best Ever CRE Show.
Hello, Best Ever listeners.Welcome to the Best Ever CRE Show.I'm Amanda Cruz, joined alongside Ash Patel.Ash, what's up?
Hey, Amanda, and hello, Best Ever listeners.
Today, Ash and I are joined with Brandon Schwab.Brandon is joining us from Chicago.He's the CEO of Shepherd Premier Senior Living, where they specialize in assisted senior living and memory care in a cozy home setting.
Brandon's portfolio consists of 141 beds across nine homes in Illinois and Wisconsin.Brandon, thank you for joining us today.How are you doing?
Absolutely, and I'm excited to have you here and looking forward to the conversation today.Before we jump in, can you give the best of our listeners a bit about your background and what you do now?
Sure.I am 42 years old.I have owned a company since I was 15.So I've been employed personally for 27 years.Love it.Father passed when I was two and a half years old.He was in the army.His dad was the closest thing that I had to a father.
So it opened up my eyes to an industry that I never, ever, ever thought I would ever end up getting into. So it's funny how things get you to one point of your life, but it takes everything else to get you to that point.
And we got involved in just senior living in 2014.Never ever thought I would ever get into this industry, but it was because I saw
what it was like for your own family member and the type of care that you get in the typical places and really how terrible it was.And frankly, when I went through that personally, I didn't necessarily handle it really well.
And I was convinced after that day that I would never go into those homes ever again.And fate would have its own plan.So over the last 27 years, I've done everything from washing cars out of high school. I did cars and also RVs.
I did that business for 14 years.I began investing in real estate in 2010, so after the 2008 crash.And I learned a lot and I realized that most of the folks that did very good in life, they did it
with assets and I didn't have any of those at the time.And I realized that I needed to hang out with other people that had what I wanted to have.And at the time I was not doing that.
So I began working with other investors and I began learning how I could add to what they were doing.And in turn, I was able to hear what they were doing and I was able to learn.So I began doing wholesaling in 2010.
I wholesaled real estate from 10 to 2012.And then I realized I had active income, but what I didn't have guys was I didn't have any income that would keep coming in if I wasn't chasing down deals.
So from 12 to 2014, I began building up a portfolio of homes and I had 23 homes, tenants in all of them.We built up our pig to 5,400 each month, passive income goal.
It was $5,400 at the time and really I thought I was doing really well and a couple years later I was traveling down in Florida and my in-law, our father-in-law, was playing the piano at the old folks home 328 times per year.
And when I went to these shows I realized that feeling that I pushed down deep five years prior would come back up.And I realized I was extremely uncomfortable being in those buildings, partly because of the odor, the atmosphere.
Have you guys ever gone to any of those buildings before with a hundred, 200 people with the odor of pee and like a general atmosphere of like, it's the end of your life kind of a thing.I hated it.
I was extremely uncomfortable because it took me back five years prior when my grandpa needed help and we pulled the pull cord button back behind his head and we just waited.
Five minutes went by, 10 minutes went by, by 15 minutes his face began turning colors.By 20 minutes his face was like this and I didn't know what to do.I thought he didn't have oxygen so I went down the hall and
This is maybe the one time in my life where I lost it.I went down to go get help and I was like, what are you doing?Go do your job.And I wasn't very kind to these couple of caregivers, but I didn't know what else to do.
And when I drove home that day, I felt like absolute garbage because I was like, well, I helped him today.What's going to happen tomorrow?What's going to happen in two days? And that gut feeling was like, I just hurt him.
In his final days of his life, he probably didn't get food one day.And I felt like straight garbage.Five years later, that feeling would come back up when I would go to these buildings.
And Kelly's dad would play the piano over and over and he would tell the identical jokes.And what I realized is when I'm in those buildings, that feeling would come back up.And I realized that I don't like those buildings.They're disgusting.
I don't care for any of those.And what I realized is when you don't have good care, they would average one caregiver at every 20 to 30 people would translate to terrible care.
And it would also translate to an odor of pee and was terrible or a general atmosphere where there's a hallway and folks would be on the outside of their room lined up. And they treat them like cattle and nothing about that connected with me at all.
I hated all of it.And there was one time I begged her, can I please not go?So I'll cook.I will clean.I'll do whatever you need me to do that.I don't have to go to the show.
She's like, Brandon, you have to go or else it's the only time you'll have to see them.And we were in winter park, Florida, and we pulled up to a single family home in a cul-de-sac.
Now I drive an F-450, so we usually get there early because parking is terrible at the other facilities.We will call that the F-word, right?Where I have to take them to the front door and I have to park way out there.
This time we pulled up to a cul-de-sac of a house and I was like, text your dad, where are we at?And I remember going in that building that day.It did not have the odor and it did not have the atmosphere.
And when I walked in, the caregiver was playing cards with them at the front table. And I said, where are we at?I was investing for four years full time and I felt so stupid that I didn't know what I was looking at.
And that was how I got introduced to what I do today.We took what we saw there and came back home and I thought they'd be everywhere and found out that where I'm at, there wasn't barely any.
So I bought our first house in 2014 in a giant town of 832 people.And we built it up and we put 10 people in there and Within a year and a half, we were grossing $55,000 per month with expenses of $32,000.And I didn't really know what I was doing.
I took action and I figured it out and we were grossing $23,000 per month, really not knowing a whole lot.We just figured it out.
So fast forward to today, that's the concept that we did is we did 10 homes at a minimum because I'm not a healthcare guy. I had to have healthcare people and you have to pay healthcare people well.So I needed 10 people in a home, not just five.
So that's kind of how we got to where we're at today.
So Brandon, the number of units that you have now, are they similar?They're in homes that were converted or are they larger facilities?
We only do homes and particularly cozy homes.So we only do 10 to 20 people per home.
Our current portfolio of nine homes was either large one floor homes of five to 10,000 feet each, or we bought a existing business that they built purpose built homes for this purpose.
And we put our company into it using what we've done over 10 years.
Going forward, would you continue to buy existing homes that were purpose-built or would you continue to convert?
That's a good question.And I would say it would depend on what's going on financially in the country and what was the best fit.Right now, today, buying existing cash flowing properties is the best way to go about doing it.
Or when I got going, I was buying empty houses and I was converting.The value add is way higher to buy and convert.But the downfall of that is you essentially will write checks for one and a half to two years.
And if you're not financially capable of doing that, it's a bloodbath.So there's pros and cons of all.My answer would be depending on our current financial cash position and where we're at in the country would depend on that.
The third opportunity is to buy dirt and build, which is a other attractive option as well, but you need the capital to go do that.That's the best route.It takes the longest, but you also need the most cash upfront.
Brandon, these 10 to 20 bed homes, I guess, for lack of a better word, are they 10 to 20 bedrooms?Or how many bedrooms do you actually have in these homes?
Our average is 15 beds per home.And let's be transparent, when I buy a existing house, there's no home out there that has a quantity of private bedrooms.So when I buy a existing, I'm converting different pieces of the house.
We'll convert it to car garage.I've converted indoor pool areas into four rooms.I've done things like that.So not everybody has their own private room.
Our aim is to have everyone have their own private room, but some examples, we have to have double rooms. And what we do is when we do that, the double rooms pay about $1,500 less than a private room.
And some people love that because times 12, that's $18,000 per year.They would almost prefer that.So we have some folks that have different priorities for having their own room and privacy where others would prefer to have.
The $1,500, because a lot of times what happens is people sell their own personal home. and they have two, three, four hundred thousand dollars of cash from that, but they don't know how long their family member is going to live.
One year, two years, ten years.So they have to make financial choices based on the unknown.
And when you're looking for these properties, Brandon, what are you looking for?
I'm looking for a distressed seller that's 65 to 70 years old, typically an RN, and they have a recent health condition.Sometimes they're overweight.
Sometimes they have type two, sometimes they're just burnt out and they want to hang out with their family.But what we do is because I've been in this business for 10 years, we have a niche that they look at me as an equal.
They look at me as a person that they can take what they've done for 10, 20, 30 years, and they can pass it on.It's a way different proposition than somebody that's not in the industry that has no experience.I've, been there, done that.
I've done what they've done, and I got beat up through COVID.COVID was brutal for us.They can appreciate the fact that I am only 42 years old, because most of them are 65.I'm 70.
And they're at a point where they're the typical business owner that works 70, 80 hours a week, and they didn't take care of their own health.
That's the best case because I'm buying a great business that operates really well, that cash flows from day one, but I'm buying it from a owner that is distressed.They have health conditions that force it.
And because of the health conditions, their kids don't want to take over what they do.So they have no one to buy it.And we come in and we use our experience and we have a proven way to buy these things.
where I've got a deal flow of thousands of these homes, of people that love us because we've been there, done that.That's a key part of what we do.
Brandon, when you talk about you want to make a cozy environment for them, what constitutes that cozy?
Let me ask you guys something.Would you rather put your family member in a 200 bed facility or a 20 bed home with a fireplace?
That's a good point.Maybe another way to illustrate that question is can you talk about the differences between buying something that was purpose built for assisted living versus trying to convert a home?
So if you walked into two of them, one that was a conversion, one that was purpose built, what are some of the stark differences between the two?
A house that was converted is going to have a funkier layout.You'll see two car garages being converted into rooms.You'll see indoor pools being converted into rooms where a purpose built house is going to have a little bit better layout.
Usually bedrooms around the outside and more of a common area in the middle compared to the other big box competitor facilities. you'll have multiple floors, two, three floors with hundreds of buildings.
And the biggest thing that keeps us apart is the thought process of the operator.Those facilities have a one caregiver at every 20 to 30 people, where we have homes of one caregiver at every five to eight.
And when you have that true heart passion towards giving great care first, and you focus on earning dollars afterwards, that's how those two choices are different.
So Brandon, it sounds like right now your main focus is on buying the business that happens to come with real estate.
Are you also doing conversions where you're just taking a home and making it residential assisted living or strictly buying the businesses?
Good question.I am doing both.For the first 10 years of the business, I predominantly bought large homes and I converted a five to 10,000 foot house.
I have properties that I have in our portfolio that we were waiting for permits on that we just finished getting permits.
So I have one of those properties, but predominantly 90% of what I'm doing is I'm buying existing businesses from owners that need to sell.And we have a internal formula of how we do that.That really makes a lot of sense. So the answer is both.
The house conversions is more of a cash flow drain because you write checks for one and a half to two years but has a much higher value add.
But buying existing is what seems to be the most prevalent in the market today, particularly considering lack of financing is making very little competitors out there.Sellers are more open to work with us.
It's a great time to be doing what we're doing.We are thrilled.
Brandon, it almost sounds like the car wash model or the laundry mat model that a lot of people are kind of moving towards to sort of be in real estate, but also get the higher returns.Can you walk us through these purchases?
Are you buying the business at a certain multiple and then the real estate for a set price?How does it work?
Good question.Yes, we are basically buying, rehabbing, renting up, and then we do take out financing.A lot of people do that with homes.That's a pretty common thesis.We do that with these properties.
So we are doing the identical concept of that here. I'll tell you, every seller varies on what they're looking for.We do have some proprietary ways of buying that is good for them, good for us.We do two offers.
One offer is going to have owner financing.The other offer is all cash with clothes.And I don't really care which one they pick. we set it up where it's good for both parties.
Traditionally, we typically buy at a 14% cap rate or higher and refi with HUD at an 8% cap.So that's our general investing thesis is buy at a 14, take out at an eight.
We're not doing what another asset class does that where they buy at a three to 4% cap rate and then interest rate goes up to six to eight.They kind of get their heads beat in.
Our asset class is a little more conservative that we're buying at a 14% cap rate or higher.And then we do take out financing at an eight.But the caveat to that is I ask questions and I find out what they're looking for.
So the answer is really, I tailor what they're looking for to what they need.And I do that.
Can you give us an example of an alert approach where you maybe came up with a creative offering structure that really was a win-win?
Yeah.So our second property is a two floor house with a elevator.The owner ran it as an independent living.We bought it from a couple that was an RN and a particular caseworker.They wanted 800,000.It wasn't worth 800,000.So I offered 450.
And I said, $450,000, I'll give you 25 grand down. Then I said, I'll give you the $425,000 balance.I agreed to pay them 2,500 per month for the next three years.On the 30 and the next payment, we would pay them off.
But we bought it and the attorney that closed the deal said that there's no interest in this offer, so you must charge interest. He charged me 1.5% interest on $425,000.That was like $958.
And every dollar I paid over that paid down the dollars owed even faster.I put $450,000 into it, and I had about 300 grand of holding costs.So I got about $1.2 million all in.This property just recently, it pays at $4.1 million.
So it was a win-win for them because he owner carried for the first three years.Then we got takeout financing in 2011 where I got a 4% bank loan and we paid him off.
So that's an example of an owner carry type deal where I heard what they were looking for and then I gave a creative option that said, I'll pay you 2,500 per month for 36 months. And at the end of that, a balance of X is due.
What's beautiful on that is there is zero interest in there.His attorney just figured out that you had to charge interest, but one and a half percent interest is hard to beat.
Brandon, you said the business ended up being worth $4 million once you refinance.Let me be the outsider here and ask the really dumb question.
What if you lose your license for this to be residential assisted living, and then the home is only worth the raw real estate?What happens?
You would have to look at what's going on in the country.And I just read an article that said that our country is 775,000 short of where we need to be by 2030.There's a critical need for quality care.
So you would have to do something incredible to lose your license. And when you truly care, that doesn't happen.So if you lost it, you would have to do an appraisal on just the asset.It would still probably appraise at $1.5 to $2 million.
Why it appraised at $4.1 million is they use an income approach using an 8% cap rate. And we've got 15 people in there.It's grossing over $80,000 per month, and it's profiting 15% to 30%.And they use an 8% cap rate.
So it's worth $4.1 million because of the income-based approach.Now, when you're doing these types of assets, you must use the highest and best possible use to determine what it's worth.
Comping it with other houses, there's no other houses that are just 7,300 feet.There isn't any of that.This house is probably a church and a hospital.There's not any comps to truly compare it to.
So it's a asset that use the income based approach to determine what it's worth.
Brandon, do you operate in municipalities that need CONs or certificate of needs?
I do not.The need is unreal.We have a trillion dollar problem, but I do not know.
Yeah.And for the best ever listeners, there's certain municipalities where you cannot open an assisted living facility without submitting an application for a certificate of need.
And there's a whole study that gets done, probably some politics sprinkled in there, but you're operating in areas where you can just open.Is there any licensure required?
Yes, every part of the country has their own process for that.You have to go through a tough process to get these homes open, and it's not easy.They are tough on you.
I probably operate in one of the more difficult places in the country, because I'll tell you, in Florida, there's 1,800 of these things.California, there's 2,800.Texas, there's 50,000.Phoenix, Arizona, there's 3,000.Where I'm at, there's 55.
There's a reason why there's only 55, because it's very difficult to open.They are extremely tough on you.And it's not for everybody.If you want an easy play, you should not get into this business.This is a operating business caring for seniors.
Brandon, when you say tough, are they tough on the operator or tough on the home itself?ADA compliance, minimizing injuries, that kind of stuff.
I'm 42 years old and I feel like I'm 50 because COVID literally kicked our butt.So I have hair that's very tight up here because it's all changed colors right here.
And it's tough on the person operating it because when you have call-offs or things like that, there are so many challenges that are thrown at you that it's a extremely tough business.
Well, what I meant was you said it's very difficult to get your license. Are they evaluating the operator or just the home itself?
They're evaluating both.They are looking at who you are, what your team is, what's your financial ability, what's your background. and they're super heavy on paperwork.
So what I've noticed is they care less on the care and they care more about following their code, which is heavy, heavy paperwork.
So you have to find somebody that's great at the care part and happy heart, but also super detailed to keep up with the crazy paperwork.
Brandon, once you opened your first facility, what were some of the keys that help you scale to get to where you are today?
We definitely don't call them facilities.I think 100 to 200 beds, those are facilities.We actually call that the F word in our office.We like to call them homes.So our homes are only 10 to 20 people per home.
So what we realized is key things to scale is efficiencies are critical.One home with 10 beds is not efficient at all.
So you have to make sure you've got a model of care that gives great care, yet you need controls that you don't go too much for care or too much for food.
When we first got going, we were throwing out thousands of dollars of food because I thought they wanted the type of food that I ate.And now clearly I'm 32 at the time.I wanted to overfeed them.They don't eat that quantity of food.
So I was throwing thousands of dollars out the window.So I learned a lot about that. I had a lot of preconceived thoughts and judgments that everyone wanted their own room.And I realized quickly that everyone doesn't always want their own room.
Sometimes people want to have the cheapest cost possible and they would rather have two people per room.And I was way off on that.So there was a lot of valuable things that I learned and how to fill homes was extremely challenging.
I thought you go, the typical form of advertising doesn't work in this business.You have to create partnerships with people. that know people that need this.And you have to take them out to lunch.They have to know who you are.
And you create partnerships with, here's the five people that I've learned. We partner up with experts in healthcare, so that's nurses or doctors.We also partner up with discharge planners at hospitals and rehab places.
Church pastors are our third person.Financial planners, it's our fourth.And a tip that I really don't tell a lot of people, the fifth and probably the most powerful person we partner up with is people that cut hair.
Brayden, how do you get a hold of the Graces?So you have these five different types of people, which seem like a gold mine of potential residents.How do you get a hold of them?How do you stay in touch with them?
Reach out to them and we hold events just for them.And we invite them to opportunities for us to feed them.It's really hard to pass up an opportunity for free food and drinks.And we just have them where they come in and they check out.
And once they get to feel and touch what we do, what we find is they will talk on us anyways.They are like, this is really cool.They'll tell everybody, but we create a partnership with them where we pass things back and forth to help each other.
So that partnership is critical.I've wasted. No short of 250 grand on advertising that didn't work.And the partnerships is a long game, but it's how you build connections that are fishing poles to fill all your homes.
Takes a while, but it's the only way.
Brandon, when you say partnerships, are they getting a monetary incentive to pass you leads or how does that work?
Most of them you can't.So anyone in health care, you cannot pay anyone anything.But what you do is you are going to help each other.You are going to help each other.When people call us, we can't take care of everybody.
So we pass people back and forth.That's the only way that you were able to do that.Now, people cutting hair, that's a little different.They will get a financial upside because they can take that.Anyone in health care, you cannot pay at all.
Legally, you can't do it.
not to go down a rabbit hole, but I'm really curious about the food.Do I get to pick what I eat?Do I have a choice of a few things?How do you satisfy everybody?
Good question.So when you have a home with 15 people in it on average, what's beautiful is we eat at one table.They all eat at one table.Family style.I do not hate anything more than a bunch of tables of four people.Why?
Because it gets clicky as you could ever picture.These four people only talk to these four people and it gets terrible.
So what we do is we get together once per month and we go over the food order of what we're going to order for the upcoming month and that dictates what we have for food every day.So everyone gets input and we collectively build food based on that.
Brandon, what's the biggest lesson you learned by a spectacular failure?
Well, how much time do we have to put on it?Because I've got plenty of them.
Pick the hardest, most difficult lesson you've learned.
There's plenty.I failed a lot, a lot, a lot.Some of them I've done multiple times.Our very first house, I had three people out of 10.And I was nervously, frantically trying to fill the beds.
Because at three people, you're just covering your costs, but you aren't making any money. I went and I took 50,000 of personal cash and I went and did advertising.
I took out 12 front page ads in the paper, cost $1,000 each, and I spent $38,000 on Facebook pay-per-click.I smoked 50 grand in 30 days.Poof, gone.And over the next 45 days, I filled the house.
So instinctively, I was like, Brandon, good job, awesome job, you filled the house. And arrogantly, I thought that.It was really stupid.
At the end of the day, I did an audit of all the people that moved into the house, and I realized that not one of them came from that advertising.And the third person that I moved in, her daughter cut hair.
So while I thought I was really, really cool, and I filled it all with pay-per-click, I basically wasted 50 grand in 30 days and got zero return on the money.But how I filled the house was two things.
The daughter cutting hair told every person that that girl cut hair for every day.Just talking all day long. And then I had a 12 passenger bus that I parked out front of the house.
And I literally parked it out front of the house because I didn't have anywhere else to put it.And I was out over there cutting grass one day and I saw a person pull over next to the house, take out their phone and go and drive off.
And I was like, what the hell are they doing?And what I realized is they're taking a photo of the bus.So I had this bus that I paid five grand for, and I filled all the open beds with those two people. That's one of the lessons.
I've got hundreds of others, one with a acquisition, but we probably don't have time for that.That cost me $85,000.That one sucked.
Make it quick.Tell us about your $85,000 loss.Okay.
Under contract to buy a portfolio north of me that had seven homes, 77 beds, under contract to buy at 12.5 million. It was the SBA 2021, 90% financing at a 2.5% rate.Incredible deal.We put it through the SBA.I had six months to close.
At the end of that, they said, you got 30 days to close.They said, I need 30 more days because the SBA was in between cash from the federal government.Called the seller.They said, Brandon, you got 30 days to close.Click.He hung up on me.
And what I realized is because I did not have a capital fund prior to doing that. I lost out on a building that was worth $22 million, 12 months later.And when we got done with it, I got our attorney bill for $125,000, of which I didn't have.
And I settled with it for 85 grand, it was 10 grand per month.And what I realized from that is every time I would write that check, my hand would shake.
And what I realized is don't go chase deals until you have the capital in the bank, because I literally could cry because we lost out on a generational asset for our family.And I left about $10 million of equity on the table and tons of cashflow.
And I felt so stupid because.Had I have had our own fund, I could have closed on it for 30 days and then paid back our fund. and had a 2.5% financing on 77 homes generating $1.2 million per month of cash flow.That was a painful kick to the face.
Well, Brandon, thank you for sharing your successes and also the places where people can learn from the failures that you've had and that you've learned.So appreciate that.And tell us, where can the Best Ever listeners get ahold of you?
LinkedIn's probably the top place to find me.I'm on there most often.You could call our office, 847-512-3990, or you can go to my first name, lastname.com, and book a time to talk with me.
It's probably the highest value that I could give to anybody is time to answer their questions and help them.I want to give as much value as I can on here to all of your audience, and I don't know of anything else that I can give beyond that.
Brandon, thank you for joining us today.Best ever listeners, thank you for joining in.If you enjoyed this episode, make sure to give us a five-star review and share it with somebody who could find it useful.
Of course, follow, subscribe, and have a best ever day.
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