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I am looking into converting 28,000 sf elementary school into a non-profit adult daycare as starters while renovating another part into a non-profit assisted living home.
The owner purchased it from the city in 2013 for $250,000 and probably put around $100,000 into renovating part of it for his business.
Here’s the deal:
Listing Price since Nov 2018: $575,000
Renovation for adult daycare: $25,000
Renovation for one building: $100,000 to get 12 rooms and baths open
Renovation for rest of property: $300,000 to replace roof, AC, electrical, reface…
My *owner-finance offer:
*I would prefer owner-financing to allow time to process a non-profit low interest USDA Community Facilities Loan and grant which could take 12 months to process. I may be able to collateralize my $600,000 investment property in about 8 weeks for an SBA loan but it may be longer.
My offer: $475,000; 5% down; 30 year amortization; 5% interest; 24 month balloon; 60 day due diligence period; no prepayment penalty; deferred payments for ramping up period of 6 months; interest only payments thereafter until 24-month balloon payoff period.
1] Do these terms seem appropriate for a commercial transaction?
2] Should I offer another owner finance option?
The biggest issue for other buyers with this property is that it is a lot square footage in a small little town of 1,600 people. It is located in front of a church. It is basically a concrete and steel shell in need of a new roof, electrical, AC, windows, and enough revenue to sustain it. My non-profit assisted living model, grant money, tax-deductible donations, volunteers etc. will stimulate the hearts and pocket books of this little town to help our aging seniors especially those with Alzheimer’s like my mom.
Jim, even though commercial deals are not a specialty of our CFD community, I’m going to ask a question not addressed by your case description. In any commercial loan, a competent experienced lender must ask 1) who the intended operator is, and 2) what their experience is with the specific (or very closely related) project.
Only then can that lender assess the risks and adjust the interest rate as well as other protections in the deal to protect that lender’s position should the deal “go south.”
Assisted living facilities (ALF) have their own set of gotchas. I have a longtime buddy in his early 80s in his 3rd ALF over the last 12 months. ALL have had the same problems: 1) under-staffing, 2) high percentage of immigrant help with accents very, or impossibly, difficult to understand, 3) poor or undependable attention to special diet mandates, 4) inability or unwillingness to respond quickly to “help button” requests, and 5) staff stealing of resident valuables.
My buddy has given up on trying to find a better performing ALF, even though his doctor recently diagnosed his leg and foot swelling / pain as partly due to malnutrition.
Another friend of mine often visits elderly friends of hers in a local nursing home in my town. Staff stealing of resident valuables is a never-ending problem there. People with friends or relatives there have learned not to give valuable presents — because such presents WILL be stolen. I have an elderly first cousin with Alzheimer’s who has just been moved into a nearby town’s ALF, so these issues are all too familiar to me.
Every state and US territory has an agency with a mission to investigate and remedy elder abuse, although it’s questionable how successful they are.
So in your case, who is the intended day-to-day manager/operator? And is their experience sufficient to assure a competent lender that his/her interests are protected, and that such problems as I’ve described above will be sufficiently addressed?
Wishing you the best possible outcomes,
I am truly in shock on how much abuse your buddy has experienced in ALF. I’m so sorry to hear that.
Thank you for your great observations and questions. Answers to your questions:
1) who the intended operator is, and 2) what their experience is with the specific (or very closely related) project.
I’ll have a professional and successful executive director with 18 years experience in residential assisted living facilities who will be overseeing the project and I’ll be living on-sight as her assistant.
Since I’ve been my 83 year old’s mom part-time caregiver for six years and full-time caregiver because of Alzheimer’s for the last three years, I’m highly sensitive and experienced in proper caregiving. The owner [me] will live on-site 24/7 overseeing all that will be going on. As per my very experienced director, the problems regarding incompetent and unscrupulous caregivers are typically a reflection of underpaid staff.
Jim, you might also want to explore a different approach to the Alzheimer’s issue. For well over a century, the dominant allopathic prescription medicine community has been conducting an on-going war against the naturopathic / holistic medical community. The combination of using federal regulation as a ball bat against their centuries old methods, legally oppressing their practitioners, and propagandizing the public against their methods has done much to drive that community from the public’s consciousness. This is despite their claimed successes in even reversing Alzheimer’s cases.
If you run a search on DuckDuckGo.com (Google is getting a bad reputation for censorship these days) with the phrase “naturopathic medical association”, you’ll see several related organizations mentioned, despite the allopathic community’s efforts to demonize them.
Back to my buddy’s sad ALF experiences. His combination of that malnutrition diagnosis and his $5,500/month bill should not be happening. I had a personal encounter with such incompetence last summer with a very unplanned hospital stay, after which they off-loaded me into what was described as the oldest and most experienced rehab facility in the county. What I learned was that facility was hopelessly unknowledgeable about kidney damage friendly diet rules, a third of their staff were immigrants with nearly impossible accents to understand, and with resident room doors manufactured without any way to lock them from inside or outside, the staff was free to ransack through my clothes. Somebody literally pried apart the buckle for my web belt, and stole the pin that makes the buckle work, and returned the remains to me totally useless. So I’m more than a little sensitive about such misconduct, which appears to sadly be widespread.
Your plan seems most inspiring — to assemble the pieces of the ALF puzzle to create a shining example for the industry to follow. The combination of a highly experienced manager plus a highly motivated owner living on-site sounds unstoppable. I wish you the greatest of success in your venture.
Are you sure it can be zoned as an assisted living?
And finally, with the costs of fixing it up are as high as you state, would it be better to build from scratch?
A lot of the big names in assisted living ( like Brookdale) always build the facility instead of trying to redo an existing structure. They sure seem to know what they are doing.
With old schools, you also need to be concerned about asbestos, lead paint, etc. Of course, that can all be tested during the due diligence period.
Is the seller a private individual or a municipality? This info will help me create a owner finance offer.
“Are you sure it can be zoned as an assisted living? ” Yes. I confirmed it with the city manager.
“And finally, with the costs of fixing it up are as high as you state, would it be better to build from scratch?” That is a good point which I have considered. To build a 28,000 sf building would cost double or triple the asking price especially since it is made out of steel and concrete. The long hallways and floor plan are somewhat limiting and give an institutional feel but there are ways to make it more like home.
The seller is an individual who bought it from the city for $250,000. He used it to run his business and now has sold it.
Because I’m a non-profit, I can also offer some hefty tax-deductions for the seller if he needs them from the sale of his business.
I’ve found that it is always easier to get your offer accepted if you make two offers. If you only make one offer, the seller will either say yes or not. But it you make two offers, they are more likely to pick one instead of turning both offers down.
Offer #1: $300,000 cash, close iwithin 30 days after due diligence.
Offer #2: $475,000 with 5% down. do NOT mention interest. If you put a 2 year (3 year would be better) balloon on the note, make sure you include a clause to pay some $$ for a 1 year extension (at least once) – just in case you cannot get the refi done in two years. You don’t ever want to back yourself in to a corner that you cannot get out of. Include an extension clause. You could even include a substitution of collateral clause if you refi comes through early OR if you can cash the seller out early, negotiate a discount.
You could even make a 3rd offer for full price, no down, no payments, no interest — cash out in 5 years.
With 3 offers, the seller is certain to pick one.
Anyone else have some ideas??
Thanks Jackie. I’ll have cash within six months so I can’t offer that but I could do offer 2 & 3. I like the extension idea for $. Thank you!
I’m 100% in agreement with using science-based naturopathic/holistic protocols to prevent, stop, and reverse Alzheimer’s and cognitive decline. I’m leaning towards the Bredesen protocol. We will be producing our own organic foods and raising our own fish in a greenhouse [Aquaponics], raising chickens along with using as many health therapies as possible i.e. music, light, far-infra-red saunas, intergenerational [seniors with children], etc. I believe our genes [APOe4–the Alzheimer’s gene] load the gun but our life styles pull the trigger.
Your experience in the skilled nursing home is very sad. I still can’t believe it.
To avoid the governmental control over our home, therapies, and their mandates to poison the residents with toxic pharmaceuticals while forbidding science-based protocols that heal the body, I’m planning on pioneering [as far as I know] the first ALF that is truly private. I will not be under the jurisdiction and control of local, state, and federal law. Many functional doctors operate under a private entity called Private Membership Association which is based on the 1st and 14th amendment of the constitution. This is what I’ll be using.
When it’s a great deal, the money will show up. Do you know any private lenders in your area who would lend you $300,000 for 6 months?
I’d still make the $300,000 offer because it makes your other much more attractive. That’s the purpose of making multiple offers.
I’ve sent the message out to several local clubs and no one is interested. If I offer $300,000 and he takes it then what? I like multiple offers but only those I can legitimately do.
Just a quick update. The agent is no longer communicating with me so I’m assuming it is no go. I’ll no longer pursue this dream. Although giving up on my non-profit holistic assisted living memory care is disheartening, I realize this project and the banking process has too much complexity and liability for me. At my age, I’d rather live my life out debt-free and focus on my highest values which is my 83-year old mom [who has dementia] right now…which is why I pursued the project. This realization has been a great relief to me and has given me time to regroup, reflect, and simplify.
After listening to Jack’s seminars on Options, I’m considering getting back into either participating in or helping to facilitate seller-finance, contract for deed, lease-options, options, etc.
I’m currently a real estate agent only for myself and family but would rather be inactive completely due to all the red tape, regulations, and government over site.
Any recommendations on doing the above transactions as a non-agent vs an agent?
I think you are making a smart decision!
AT any age, we really need to think through how long a project is going to tie us down and what the risks and liabilities are. There are so many ways to make money with real estate which reduce risks and liabilities. And there are many ways to get in and out of a project fast so you can take time off when you want to.
Options have SO MANY uses. It is the ideal technique to use to reduce risks, reduce liability, get in and out quickly — all while making a substantial profit.
I’ve never been, or wanted to be, a licensed real estate agent. I can tell you that Option transactions are easy when you are not licensed. If you are, you ill need to disclose that you are and your broker may want a piece of the action. Like many things in life, you have to decide if the license still serves a purpose or if it would be better to just let it go.
A deep soulful AMEN to that! Thanks for the confirmation.
I absolutely love the options idea and how Jack could even do options with houses that were listed. I’d rather not be an agent or deal with my broker for all my transactions. I’d also want to know the legal docs and process that Jack used. Is there a way to find out the details? Thank you!
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