The Best Real Estate Investment For Today’s Physicians – Part 2

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Transcription PNC Podcast Episodes 413

The Best Real Estate Investment for Today's Physicians

Part 2 with Dr. Alex Schloe

John: So when you do the whole bundle where you're owning the real estate and running or having someone run it for you, is that a single business entity or is that broken into two separate entities?

Dr. Alex Schloe: No, I'm not an attorney.

John: No legal advice here.

Dr. Alex Schloe: Yeah, exactly. How it's typically structured, it would be to have a holding company. And then underneath the holding company, you would have the operating business and the real estate.

John: They're together, but they're apart really.

Dr. Alex Schloe: The business is separate, the home's separate, but it's all held by a holding LLC. It's typically how that's done. And then that holding LLC can hold more homes and businesses as you continue to grow and expand.

John: Okay. Now this is going to be a little bit more in the weeds question, but it's one that really pops up every time I hear about this. And for me, I think it would be great for me to be able to own the real estate, maybe buy something, improve it, whatever, make it ready. That seems to be more risky though, in terms of finding the operator side. How do you overcome that issue?

Dr. Alex Schloe: Yeah, the lease to operator model to refer to. Yeah, it can be risky because the linchpin is going to be the operator. The biggest difficulty with residential assisted living is staffing. And the same is going to be the same for that operator. And so, if you're doing the lease to operator model, some things that we look at when we're leasing to an operator, and we've learned this through trial and error. We've had some operators who have not worked out well. And the big things that you're looking at first is their heart. Are they in the assisted living business for the right reason? Because this is incredibly difficult. I hope I'm not making it sound easy. It is very difficult. It's hard work.

And so, you want to make sure that the operator understands that, that they have experience, and that they're in it for the right reasons, and they're not trying to just make money. Because this is not a get rich quick scheme. So, do they have that right heart in regards to it? Do they have experience? What does their financials look like? Do they have reserves to cover if something were to happen, or if it were to take longer for the home to be fully occupied? Do they have those reserves to continue to pay your lease fee? That's really important. We do a background check. We do a credit report. We do multiple interviews to make sure that that this person is genuine and who we want to partner with, and go from there.

Another question that gets asked commonly, especially amongst physicians, is what's the liability risk as a doctor? I'm not providing any medical care in any of these homes. And some of them don't even know that I am a doctor, so the risk is minimal. We talked about the structure in terms of LLCs.

That helps mitigate risk. The other thing is, if you're doing a lease to operator, typically, as the landlord, you're just responsible for the home. You're responsible for mortgage taxes, insurance, and then the operator is responsible for the day-to-day care, the licensing, and then they're responsible for maintenance, too, typically.

And so, that is a good way, too, because it makes it more passive, because you're not having to deal with the day-to-day maintenance, and you're not involved in the operations. They have to get a pretty extensive liability policy, an insurance policy, just to cover for the care that they're providing, and then we make sure we're also on that liability policy. God forbid something were to happen.

Now, again, we're not involved in it at all from the operations side, so the risk is quite minimal, but it is something to address. Again, not an attorney, but that's just how we've structured our deals.

John: You have a lot of resources for physicians, but what I want to focus on, I want to jump ahead a little bit, because I know a lot of my physician listeners are going to say, okay, what if I just want to invest in that entity on the real estate side? Is that what you do with OpenRange Capital, or can you tell us about that, and is that open to physicians to come and check it out now still?

Dr. Alex Schloe: Yeah, absolutely, absolutely. Yeah, OpenRange Capital, that's our company where we own our assisted living portfolio and looking to expand that. Yeah, we're always looking for more investors, and you can, on the RALRoom.com, there's an investor tab. You can click that, fill it up. That'll add you to our investor list, or you can just reach out to me as well, and I can help get you connected, but we do have investment opportunities that are available. We're currently doing a new development project in Tomball, Texas, with a couple members from The RAL Room, and partnered with Brett Chatkiewicz, who does the memory care mansion model as well.

He's one of the general partners, and we're doing a ground-up development on 32 memory care beds in Tomball, Texas. That'll be two about 10,000 square foot mansions. It's going to be really boutique, really nice, and then we're also just got under contract on 10 acres of land in Winchester, Virginia.

We're going to essentially do the same thing out there. Depending on when this episode comes out, that might be a better opportunity to invest in because the Texas deal may be closed by then, and then we have some other deals in the pipeline as well. If you're looking to more passively invest, a lot of different ways to find me, but the ralroom.com/invest is where you can fill out and get on our investor list.

John: I'm sure that there are real estate aficionados in this audience, but there are many physicians who are too busy to even know about real estate and what options there are. I'm going to just ask a couple of questions. These are the things that come up for me. What are we talking about in terms of when you're looking at making that kind of an investment with a program like yours, what's the timeframe? These things aren't ready to open the next day, so there has to be some consideration of that. That might be one of the concerns that comes up in that process.

Dr. Alex Schloe: Yeah, hold time is definitely something that comes up. It depends what that deal looks like. We've done some investments where we've raised capital, and we've just been more of a private lending scenario of like, hey, we'll give you a 12% on your money.

That's just annualized return cash flow going right to your bank account. We use that more so for a lease to operator model. If we're purchasing a home that we're putting an operator in, we'll raise some capital to help with the down payment.

We'll contribute as well, and then we'll provide that simple return, which is just mailbox money as passive as it gets. Then the next step up would be if purchasing a portfolio or a property to renovate into assisted living, that would be a little bit faster than a new development. That can be structured differently. Typically, the hold time there may be four years or so in order

Dr. Alex Schloe: In order to get that property renovated, get it optimized in terms of operations, and then since that's going to be valued as a commercial real estate property, you want to increase net operating income as much as possible because that's what it's going to be valued off of, cap rates and so forth, trying to keep this as simple as possible, and then reposition that, either refinance, sell, etc. That's typically going to be about a four-year hold time. And then the new development deals we're doing, that has a little bit longer hold time because we have to get the permitting, we have to do the build, and then we have to lease out the rooms. That's about a six-year hold time that we're looking at for Everwood Reserve. That's the Texas deal. Winchester, we're working on a few things to make that faster, so more to come there.

But that's a six-year timeline. The cool thing about that deal that Aaron has decided to do is at six years, it's going to be that refinance. So we're going to return capital and then some. And so you'll have your return of capital at six years and then some, and then you're going to stay in the deal for another four years and just get a cash flow distribution. So at that point, your return on investment is infinite, which is really cool as well. And not a lot of deals do that.

And so, that's a unique strategy as well. Typically, ballpark you can expect, unless you're doing more of a private lending scenario, anywhere from a four to six-year hold time, but typically with like a 2.5X to 3X equity multiple, so you're almost tripling your money in that timeframe.

John: Nice. Okay. That'll get us interested, I think. Let's now go through all the ways that you and maybe your partners are helping physicians to learn about this. And just going to explain what those are and where to find them, starting with Everwood, I guess. Or the podcast first, either way.

Dr. Alex Schloe: Yeah, absolutely. So I do host two podcasts. One I co-host. The one I do myself is called Physicians and Properties. I really started that because I had a lot of physicians come ask me these questions. How do I get started investing in real estate? What is passive income? Like, just help me out.

And so I started the podcast. That's been amazing. And really, the goal behind the podcast is to show physicians how investing in real estate and entrepreneurship can give you the freedom to practice medicine and live life how you want to. So that's Physicians and Properties.

We have a Facebook community, a few other things there. And then Charlie and I host the RAL Room Assisted Living Podcast, where we interview experts, we do the RAL Room Roundups, those sorts of things as well. And that's been amazing.

And we started the Mastermind, the RAL Room Assisted Living Mastermind, which we're grateful that Jon is a part of. And we're looking forward to working with you there and getting you your first or your next residential assisted living home. And we love that aspect, that education side of things.

We really love the Mastermind, the community, the accountability. We're bringing experts in from SBA lenders, operators who have tons of homes design and marketing experts, architecture, everything that you need soup to nuts is in the RAL Room. And we love the community aspect, most of all.

And what we're really excited for is we're doing our first event in November. We rented out this huge Airbnb property actually in Scottsdale. It's got a pickleball court, a pool, hot tub, tons of bedrooms.

And then we're going to the Residential Assisted Living National Conference. And so it'll be really fun to get some RAL Room members together face to face and live that up. So that's what we're working on right now. And then we have some more in-person events coming down the pipeline. So a lot of different ways. The RALroom.com is probably the best website to just find all that stuff.

John: Yeah, it's a membership. But memberships come in a zillion different ways and have different resources. Now, some of the things that I remember just having joined recently, you have tools in there and we're talking like financial tools or spreadsheets that have been built that are pretty straightforward and plugging the numbers in and making estimates. I haven't gone through them, but I've looked at them. So can you explain that a little bit?

Dr. Alex Schloe: Yeah, absolutely. The mastermind, kind of how that's structured is we have a bunch of modules who are, who are, that are built in the school community. And so that's all the kind of classroom work, if you will, that'll get you up to speed on, hey, what is residential assisted living? How can I operate this? We have a REL launch framework, which essentially a business plan that you can work through as you're going through. It'll help you figure out what's the state licensing requirements, what's your local municipality licensing and zoning requirements, helps you build out your business plan as you go along.

And then we have a funding module to help you figure out, hey, how can I raise capital or how can I get access to capital or SBA funding, some of the other commercial funding that exists for these homes. We have an operation side of things from operations module as well. And then we're working on a scaling module that's hopefully going to wrap things up in Q3 of 2025.

So, how can you go from one to two to three to four assisted living homes? That's just the modules that are in there. And that's probably close to a hundred hours of modules. We have expert guests that come in every Monday and every other Saturday and all those are recorded. So there's like another 70 plus hours of recordings there. And those are continuing to grow every week. And those are experts who are coming in along all different avenues of assisted living, as I mentioned before.

And then we have community accountability pods where folks who want to, they can be placed in a pod with six to seven or so folks. And that's where that community is built. That's where that accountability is built. We've really seen folks do some huge things through their pod. And so that's a quick glance of the round room.

And then I almost forgot to mention the tools that you asked for. There's a lot of other tools in there, including a calculator that my partner, Charlie built, who's an engineer. And this thing would have taken me a decade to build. I can barely like log onto Zoom. He built this amazing calculator that you can just plug in all these numbers and information and due diligence things. And it'll spin out incredible summaries and even like a pro forma and all kinds of different things that you can look at to see, is this home a good investment opportunity or look through it to see, what do I need to be thinking about as I'm analyzing one of these deals?

So we love it. We're continuing to add value all the time. We just want to add as much value as possible. And ultimately, we want to open a hundred homes through the round room mastermind in the next three years. So we're heading in that direction. We just want to take care of more and more seniors and take care of them well.

John: That's awesome. All right. Let's see. What am I forgetting? I do know that with the pods, to me, that's where the mastermind comes in. The technical definition of mastermind is getting together with a group. You hold each other accountable, all that kind of thing. But yet you have everything else. People can attend the weekly meetings and ask questions, or we can just look at it from what I know. And then what about the YouTube? Are all your podcast episodes on YouTube for both podcasts?

Dr. Alex Schloe: Yes, they are on YouTube. So if you just search physicians and properties, you can find that on YouTube. And then if you just search the RAL room, you can find that on YouTube as well. We're hoping as we start doing this new development in Winchester to put a lot more content out as we're going through and share our journey of going from just dirt to building these incredible assisted living homes. So you can follow along on there as well.

John: Okay. That's a lot to remember. I'm writing. And we'll have all those links in the show notes, obviously. Well, I can throw you a question from left field here. Are there any states we should avoid doing RALs in?

Dr. Alex Schloe: Oh, man. Yeah, that's a good question. It's needed everywhere. I would say every state has a need. I don't think there's one that you should avoid. We have heard from folks that New York, New Jersey, the Northeast can be a little bit more difficult. I think part of that is still a lack of understanding on residential assisted living is. For example, we were under contract on a home in Greenville, South Carolina. And we did our best to explain everything that we could about residential assisted living.

And we were going to partner with an operator on this. And long story short, we meet with the architect of South Carolina. And she's like, this is going to be classified as a multifamily property in a six bedroom. She's like, this is going to be classified as a six unit multifamily property. You need to replace all the drywall with fire resistant drywall and some other things, which is obviously cost prohibitive and would never work. And so, we're like, shoot.

And we kept trying to repeal it and appeal it. And the seller, we ended up running out of due diligence and they weren't budging. And so we ended up falling out of contract on that deal. And now South Carolina has changed their mind and understands what it is. But I say that to say, it's needed in every state. But a lot of times that understanding is the difficult part.

I think a lot of times we talk about California as a whole being difficult for real estate investors. California actually really understands this market. They call them RCFEs, residential care homes, essentially. And they understand this. There's a lot of residential assisted living homes in California, but you can only have six residents as of right now. Hopefully that's changed by the time this podcast is aired because there's some legislation to change that. But you can only have six residents. So it makes it a little bit more difficult to cash flow from that perspective.

John: Now, I've heard of some on your podcast that will try and do two or three homes simultaneously or maybe build them all on the same street or in the same cul-de-sac, whatever. And that makes sense. But be easier if they just change the rules.

Dr. Alex Schloe: Yeah, it's headed that way. I think it is going to happen. And they're talking about increasing the number of residents in California actually to 16, which is the same as Texas, which would be fantastic. And so hopefully that gets passed and heads that direction. But yeah, you mentioned a great point, though. Economy is a scale. We commonly tell folks to think about, okay, how can you open two to three in close proximity to each other, especially if you own the real estate and own the operations, because then you're able to have one manager who you're paying to oversee all two or three of those homes. And depending on your state depends on how many homes they can oversee. But if you have that manager that you're paying, then that removes you from the business. They can oversee two to three homes.

And then you also have your caregivers. And if you have multiple homes, you can keep them full time through those through those homes. And so there's economies of scale there, not to mention transportation and food and just cost savings in general as a whole with those economies of scale.

John: Oh, there's a lot to learn. Yeah, I don't think you can learn it all on a podcast or in a book. So, again, I'm going to push the mastermind. So far, what I've learned, it's been good. I'm not being paid to do that. So I'm just trying to find something.

Okay, so I'll put it this way to you. We're pretty much to the end. I think we're going to run out of time here. We've got the website to go to mostly and the and that's the RALRoom.com. Check things out. And we got the two podcasts.

What other advice do you have for physicians? Most of my audience are early to mid-career physicians who know that something is wrong with what they're doing in terms of the stress, the time commitment and what they're getting back for it, whether it's financially, emotionally, what have you. What other advice do you have for physicians who really need to do something different to improve their lives, to get more control and independence and maybe diversify their incomes?

Dr. Alex Schloe: Yeah, I think just take action, take action and focus on relationships. Those are the those are the two biggest things that I've realized throughout my journey. And it's scary. If you have no investment experience and in med school, you didn't learn it, which I sure didn't. If you have no experience, it can be scary to think about, man, I worked really hard for this money and now I'm potentially investing it. I would say first, before you get to that point, you need to invest in yourself and invest in education. And there's a lot of great resources outside of me that exist, like the White Coat Investor and Letty and Kenji and this podcast. There's a ton of great resources now for physicians that exist that I wish I had when I was in med school. And so that can be really beneficial.

And then next, just build those relationships. And then the next step would be figure out what investment asset class you may want. A lot of times folks will hear that object syndrome of real estate investing. And I think of that like you're going to a ice cream shop and there's a bunch of different flavors of ice cream and each one of those different flavors is a different investment class. You can sample one, see what you like. If you don't like it, then go to another. Once you find the one that you like, go all in. And that's what I've done with assisted living. So that's multiple tips there that hopefully are helpful for folks.

But the big thing is just be willing to take action because I can guarantee you that the freedom that you're going to get on the other side is incredibly worth it. And again, that may just look like seeing a couple less patients per day that can help prevent burnout, that can help you get more time back with your family. Those are the things that matter most.

John: Awesome. Thanks for those words of wisdom. And we'll get everything in the show notes. And I want to thank you for being here today. We've learned a lot today. So this has been really eye opening.

Dr. Alex Schloe: Thanks, John. I really appreciate it. Yeah, it was drinking from the fire hose for some folks. I'd encourage you to check out the website. We have a lot of great resources there in the podcast as well. Make it a little bit more simple and digestible for folks.

John: Yeah. All right. With that, I'll say goodbye.

Dr. Alex Schloe: Thanks, John.

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