Brandon Schwab on how senior living facilities are powerful win-win investments

Brandon Schwab is based in Chicago where he specializes in boutique assisted living. Brandon who is, founder, and CEO of Shepherd Premier Senior Living and Boutique Senior Living Fund had experienced first-hand the deficient care of his grandfather at a large, industrial-type senior living facility, he vowed to make improvements in the industry by starting his own senior living company that provides better, quality care to the elderly. It seems that parts of the US are significantly under-served with this class of product. To learn more or to connect with Brandon tune in to today’s podcast and you can set up a time to speak with him directly. Brandon talks about his unique business model of syndicating small senior living assets. Episode Link: https://boutiqueseniorlivingfund.com/ wwww.shepherdpremierseriorliving.com www.brandonschwab.com   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Brandon Schwab, who is going to be talking to us about how he's turning the senior living facility industry upside down. So let's get into it…   Brandon Schwab, what's going on, man? Thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Brandon: Hey, man, this year is awesome, man. Thank you for having me.   Michael: Oh, of course and I think we're gonna have a lot of fun today, talking about senior living, which is I don't think we've ever covered this topic on the show before. So I'm super excited.   Brandon: Never…?   Michael: I don't think ever I don't think ever and shame. I know, I know, I know. Shame on us, that’s our bad but give us the quick and dirty. We're gonna get into senior living in just a minute. Give us we can do it, who you are, where do you come from and what is it that you're doing in real estate today?   Brandon: Down and dirty… I've been in Crystal Lake Illinois. For 35 years, I am 40. I've got two kids I got in real estate in 2010. But back before that, I actually opened up our own company at the age of about 15 years old. I did that for 14 years, until I figured out quickly that I didn't actually own anything. I thought I owned something the whole time. But I found out at the end, I didn't actually own any assets. So therefore, I  didn't actually have anything to own to actually have up for sale. So I got into this industry in 2010. After I got crushed after 2008 happened. I at the age of 15. I was cleaning cars in RVs for 14 years and I thought I was crushing it doing there. I was taking home 200 220,000 per year but I was probably working 7080 hours per week. So like wholesaling back in 2010. Because I was like dude, I got paid like $200 for each car and probably about 500 for each RV. So like wholesaling in our first deal was like $1,000 I was like, do you know that would take me like 40 hours just to like, even come close to that and I said I have to get into that business. So that's it, man, it's awesome. Fast forward to today I am changing the industry for how the elderly are taking care of totally upside down.   Michael: That's wait. So you're putting elders on their head? I don't think is that is that good for them?   Brandon: We obtained we are changing the whole and we're changing the whole industry of how everyone thinks of it because typically, if you think of the older industry, right? You think of 100 to 200 type with a ton of elderly in there, right? Tons of them, right and they typically have a pretty terrible odor and the odor isn't very good. It's the odor because people don't get any help and then there's also the atmosphere of everyone asking for help because the average caregiver has to care for 20 to 30 people. I don't know on you, but we are in the top country in this whole entire and if that's how we care for the elderly, I feel like we didn't do things properly and they have to be totally turned upside down because how they're currently doing it isn't able to operate. I had a thing happen in our family back in 2004 where there was a person in our family who was 85 who ended up in a place for 200 beds and we pulled the pull cord to have people come in there to help them and it took them 10 minutes 15 minutes by 20 minutes like I'm getting like pretty irritated by 25 minutes like I just lose my shit and I go out to get a them to help them and I can't say I handled it all that well because I kind of exploded but like that's how I was first exposed and it turns out that's actually common to how the industry is able to operate and I said that's terrible. I hate this industry, hate it, hate it hate it.   They bought 10 years after that I was down in Florida and I got exposed to a five a home that had five people in it and I was like what is this? You know at the time I had 23 homes in our total I began build In our portfolio in 2012, and by the end of 12, I had 23 homes and I had, I thought I kind of had everything figured out. Well, at the end of 14, I'm in this house down in Florida and I'm doing each one of these like arms kind of crossed, because I'm just looking at the place and I go, What is this? I haven't ever seen a home before that is it was probably a 2800 foot house. There was houses on each side, probably 10 or 12 feet from the house and I was just like, What is this because typically as I would go down to Florida, Kelly's dad would play his piano in the old folks home 328 times per year for 35 bucks and I hated going because it was typically in these huge in the elderly in the odor was just terrible and I was just like, if we can get out of that, is there anything that I can do that I don't have to actually, and I would offer to like cook to clean all of that just so I didn't have to go? Thank God, I didn't I didn't have any option because I was ill put this house and I was like, What is this? This is cool. It's it didn't have any odor. It had this awesome atmosphere and I was just like, how have I been in?   How have I been investing in assets and I don't have any clue what this is and I asked the girl in charge, and I said, hey, how much do these people pay to be here and I threw out a figure of like 1500 or $2,000 in this girl did this hurt? Like her eyes came down here and like this girl's answer was like, and just kind of kept on walking and I was like, Kelly, what the hell was that answer? She didn't even answer me. So I ended up calling her and the girl goes, Brandon, I am sorry, I thought that you were only kidding because they begin at $5,200 a month, what times five people I'm like, that's $26,000 and every home that I had all 23 Our highest was like $2,200 per month and our average was like 18 and I said holy crap that one house with five people in it was outperforming every house that I had two times each month. And I was like, I'm in the I have to get into that business and by the time I was able to come home, I found a house in a town of 832 people and it was the house was 4880 feet on three acres. So like we bought it for 250 and put $550,000 into it right over the top. I got this house full by February of 17 and we were gross and 55,000 of income within a cost of the expenses of like 30 to 32,000 a month. So this house was jam on month, one month, one house, we were changing the industry to and offered this cool option that people have never heard of.   Michael: So you're netting like 20 grand a month on this place.   Brandon: Per house, yes and I have homes that are 1015 and 20 each home. So that's the that's the entry level for us, is 10, so…   Michael: I mean, okay, I've like speeches, I have so many questions. So I've got to imagine caring for the elderly. This is a very medically intensive, medically heavy industry and so talk to us a little bit about how do you how do you get into this industry because I think there's so many barriers to medical and then care and I could go on but tell us how you how you got started.   Brandon: So when I got going, I had everything in the to open up the house, right, I was able to open it. I even got the first two or three people in there, right and when I quickly got past like two or three people, I quickly figured out that I didn't really have the experience to operate them, right. So I was doing what I was trying to do to get the house full was I was calling on churches, in particularly wanting to talk to the head of each church. Now, I found out quickly that churches are hard to call on because they don't ever answer and they don't tend to call you back but I finally got one and I called in I was talking to the church pastor and honestly, I think he felt terrible for me because he's like, Brandon, you aren't so good at this like this is this isn't going to be your thing, right? So like he goes Brandon, hi god, their closest friend was in health care for 38 years. She just retired in in. She was getting kind of anxious to like go in to do things. So they introduced me and she was in health care industry for 38 years I ended up taking You're out to eat every Tuesday for about six months and I finally got her on our team, I got her to invest, but I had her in charge of operations and that was back in 2015. So I basically was able to open up homes, but I quickly figured out that I needed a team of experts to actually operate them. So after I had her in, it was in 2015, I kind of had her handle the ops and I focus on opening up homes.   Michael: That is wild. So at the beginning, before you brought her up, where I mean, were you there at the home, cooking, cleaning, doing all that kind of stuff yourself?   Brandon: No, I only had to go there when people didn't come in. So there was a handful of times where a person called in, and I had to go in there. That wasn't very fun and I quickly figured out I need to have things in place that that isn't going to ever happen over because I found out quickly that I am not very good when it comes to cleaning and taking care of people I quickly said, you know, I had to get out early. So I found people, I did have to cover a handful of shifts and I did call in for help because there were some things I just couldn't do.   Michael: I can imagine, I can imagine. So when you're looking at properties, I mean, this first property, what about it kind of jumped out at you and said, Hey, this, this is a good candidate or a good prospect to purchase, you know, for this type of business.   Brandon: So when I was down in Florida, I saw a five bed house in the five bed house was great. But the five bed house wasn't. It was geared for like an owner operator, a person that was in a health care field and I quickly figured out that that wasn't going to be us that I couldn't do that personally. So I decided to exercise. So I was looking for a first floor house, it was like 5000 feet, first floor 5000 feet. That's hard to find. So when I came back home, I thought that they'd be everywhere because down in Florida, there's 1800 of these homes. California has 2800 out there close to you, I think Arizona has 3000, Texas has 15,000 back by us. There's 55 by five, so I said…   Michael: And when you say when you say these homes, you mean like single family homes in neighborhoods that are being used for senior care facilities.   Brandon: So I am talking about homes that are caring for the elderly under 10 people. It is under 15 people per home.   Michael: Okay, All right. So you had 55 in your market…?   Brandon: 55 not in and there's 18 in all of Florida, and there was only 55 here, right and I said, that's bingo. Perfect I'm in, so that's how I first jumped in but a thing a thing that happened is when I first got in, there wasn't a ton of other people out there doing this. So I had to kind of go teach people this concept. So the healthcare part was definitely challenging but the houses that I was trying to find where four to 5000 feet, first floor only our first house, it was on three acres. It was a financial planner that I purchased that bought our debt built in office on to his house. So I had to open things up, I ended up putting 550,000 into the first house. So I had four private bedrooms, and I had three bedrooms for two people each. So for privates, and then I had three for two. So I had a total of 10. Did I go over, did I go overboard? Absolutely but I feel like if you're going to do anything, you have to do it how it ought to and I put three ADA A's on the inside for people to go to the psych bathroom, I only had to have only one and I had 380 access points to get into the house and out of the house and we just did everything over the top. So that's how I first got in and then beyond that house, it was harder to find that type of house over. So fast forward to today I've got five homes up and operating. I got two homes opening up in quarter three this year. And then in 2000 are in I also have 7.2 acres of land that I bought before COVID that I was going to put our own homes on.   Michael: This is incredible. So what is the financing look like for these homes? I mean, can you go to a bank and say hey, I want the purchase. I want to purchase it at 20 and I want you to give me a line of credit for the construction for the rehab. I mean who's financing this type of stuff…   Brandon: I had a chance, dude when I went in there to talk to these guys, they thought I had like, they couldn't get it. These guys are used to like, easy, typical type deals, when I told them that, that I was going to 10 people each paying 5000 to 5500. Each month, their heads literally exploded. They're like, Hey, man, why don't you come back after you do your first house? Then I'll talk to you and I was able to do that and they're like, hey, why don't you come back when you have two houses and then at that, at that part, I am like, you know, I don't think I'm going to actually go ask him for anything anymore. But like, that's how it happens. So a thing that I do for financing is I actually brought in private capital, from investors on a per L for each home and that's, that is how we did, I had to offer some pretty high IRR hours. But when you're first getting things going, that is your only option and a thing that I found that I was really good at is when I was buying properties, I was buying like oddball type properties, not the typical like three to 2200.   So I was buying houses that were on properties that the typical family at the time weren't trying to buy, right. So I was buying houses that were on the app on the MLS for 200 days, 400 days, 500 days and what I would do is I would give them an offer for them to carry back financing at the full asking price. Or I would give them an offer for cash but the cash offer was like so like 50% and a lot of times I was just using that cash offer to help prop up the other offer but I've had a handful of times where when I was putting in those two offers, they would take the other one. So I bought one house off the MLS one time that was on for 2.4 million. I bought that for 750 cash and other time I bought one in Connecticut that was on the MLS for 2.1 million. I bought that one for 700,000.   Michael: Okay, you are not kidding, those cash offers 30, that's incredible a budget you're solving for someone's like, that's…   Brandon: Yeah, those are offers that as I was able to have them in I thought no ways anyone can ever take this off or like they are going to be like, click just kiss but they took him because our other offer was 1.8 million owner carry back financing and they just didn't take but that was probably only 30% of our upfront portfolio. The other ones, I've had them take the owner offer carrying back financing. So that so that is how we did hazing.   Michael: And then you bring in investor capital to do the rehab, whatever upgrades you need. Yep, amazing.   Brandon: Yes, sir.   Michael: So like, when you're looking at properties, there's got to be at Imagine zoning limitations or requirements or local licensures that you need to get what, like, what should people be on the lookout for or how should someone be thinking about those?   Brandon: Well, anyone that's thinking of getting into this themselves and having people operate it themselves, I would tell you don't do it. It is something that I casually got into it thinking that I could just figure it out and it's been one of the most challenging things I've done, where it's taken me eight years, open up five houses and it's challenging. But as I would look for houses, I would look for houses in an area where the household income, the average was over 80,000 and then one of the things that I would do is I would go to the population and I would look for a population of in each town over 65 years of age, I would look for like 10 to 12% plus, anything that was up over hire, that was awesome. I did buy the 7.2 acres of land, all of our first five homes, they're in towns where it's like, you know, 10 to 20 or 10 to 18% over the age right. And then the town that I bought this dirt in for 7.2 acres, we paid 220,000 per acre but it is located directly next to a Dell property.   That's that is 5500 homes that are all 55 plus. So our percentage of over 65 in this town of 26,000 people is 32% Wow. Let's go. All of us purchase that. Before COVID. We were finishing that we got through entitlements, we were going to build six homes, 20 beds each and in office, it was gonna cost us $15.5 million. We had the all of that done, we even had a closing in place for a family office down in Florida, actually to give us a 10 $10.86 million at 12% and they were going to close March 13 2020. We were going to begin pushing dirt April 1, 2020. If you think back to the time, a little COVID pandemic entered into this plan, and the family office were two guys that were probably in their 70s or 80s themselves that earned a bulk of their family office capital from offices and they were in the class a office industry, right and they were trying to take cash out of that inputted into any other asset class and they ended up pulling out two days before closing. Yeah, because they were having tenants that GSA weren't paying. So it wasn't ideal, the overall timing of it, but our things have changed where we aren't building today because cost the build is just too high, where we are holding off until that cost comes back down and we are doing other things today that that fit what is going on.   Michael: Okay, you should have told those guys look, you'll get a free room and board. Just give me the money. I'll build you a spot.   Brandon: I was trying. It just wasn't great timing. I was like, what COVID? Come on. That's fine. It was just too early for us to have any clue. So yeah, unfortunately, they passed but I'm gearing things today now to try to build those connections up with those guys, because a ton of those guys have capital galore. So much dry powder that's just sitting, where if they can find an asset class that is out there that can help the elderly that can help give them awesome IRR that's going to top inflation and also help have a tangible asset. That's what they are looking for today. I think the days where people earn in 200% 300% Kryptos those days are kind of over for some time now, where people are looking for tangible assets today and I have this, so…   Michael: That is amazing and so these houses, I would imagine they serve three meals a day, and they've got all the medical care and there's like it's like a proper business like you would expect to see if you went to a traditional elder care facility, you would have all those same amenities and sounds like and then more, right…   Brandon: So a thing that's different for us for a for every home that has 10 Total people in it, I have a caregiver to every five to eight, five to eight total people compared to the other. The other competition has a caregiver every 1520 to 30 people. That's the thing that causes the old the overall odor. So in a home for 10 total people, I've got two caregivers in there from 7am till 10pm and then I've got a RN that comes in in the am and in the evening just to have eyes on everybody and then I have… that comes each week or as he has to write. So I offer everything in a home that is very cozy that other places have in 100 to 200 type building. Now, with that being said, it's actually harder for us to be as efficient as everyone else. As I only have 458 homes, I actually need like 1020 3040 80 homes to actually have things be efficient. So I'll tell you 10 Plus, under 10, it's hard to be efficient and that's a thing that keeps other people from being able to get into this overall industry or if they do get in there.   They're the owner operator that owns a home or to homes but they're in it every day going 80 hours per week probably profiting 250 to 400,000 per year, but they're busy and I said you know I can't do that I'm going to operate a company that I can expand, to have time to go do other things. You know, I've our oldest is 14 years old and I openness that I could have time to coach him, right and I have been able to coach him playing baseball just since he was eight years old and that's only possible because everything here so time free is…   Michael: That's amazing, Brandon. I think my last question for you. I mean, I have a million more, let's be honest but we gotta keep this within time. How do you insure the thing, is it like us traditional long term rental? Is it insured like a medical office? I mean, what does that look like?   Brandon: Yeah, so the insurance is going to, you're going to have insurance on the overall asset but then you also have to have extra, the extra insurance for operating it for E and O for if anything is able to happen, if anyone's able to get hurt all of that. That's typically about $800 Each house each month but a thing for us, though, is because I haven't had any issues. Over the past eight years, we haven't had any, any type claims, whereas you're in a home with only 10 people, if you offer on if you offer awesome care, they don't tend to have any issues and that's what's awesome on this because typically at the other places for 100 to 200. They have a they've got a caregiver to every 20 to 30 people because the owners are trying to get it to earn extra money. The only avenue to do that is either to push up your income or to cut your expenses. That's the only thing to change the actual NOI. So what they typically do is they cut the care giver item, which is going to an increase the NOI. However, when people are able to have issues and they are able to pass, then you have their families, a attorneys after you and they're pissed, telling everyone how terrible you are. I always feel that it is better to do things how they ought to be done upfront, even if it's harder, because everything that I'm able to do is harder. Like this isn't easy by any means I would tell you, it takes you getting to like home tend to like really cover the overhead. The overhead I found to truly operate this properly, is over 500,000 per year and in order to pay for that you need enough houses paying towards that, to don't have each house covered in too much expenses that they just can't cover, so…   Michael: That makes total sense. Big numbers…   Brandon: Big numbers.   Michael: Yeah, awesome Brandon, this was so much fun, man. If people want to learn more about you reach out with additional questions. What's the best way for them to do that?   Brandon: They can they can call me or text me. So on my phone, you can call me at 815-790-2330 or else you can call our office of 847-380-8624, yes, 847-380-8624.   Michael: Amazing and do you have a website that people can check out as well?   Brandon: I do for our fund but our fund isn't for everyone or funds only for a for investors that are a core they are qualified purchasers. So it's a tear a BB it's a 506 C they can check that out their shepherd, our operating company, I can get you the page to put in there. So it is well just for anyone to put eyeballs on our actual homes or our fund is https://boutiqueseniorlivingfund.com/   Michael: Awesome.   Brandon: That is that as well, man. Thanks for taking time to talk with us today, man. This has been awesome!   Michael: It has been a pleasure, I am sure we'll be in touch soon and take care.   Okay, everyone, that was our show a big thank you to Brandon for coming on super, super interesting topic that like I showed at the beginning of the show. I don't think we've ever had someone on the show talking about this topic, so really interesting. Definitely go check out Brandon's fund, and it's an interesting asset class. See where it goes from here. As always, thanks so much for watching or listening, and we look forward to seeing the next one. Happy investing…