166: Should You Invest in Assisted Living Facilities?

Let me tell you about another one of my failures. A few years ago, I was listening to a well known podcast and I heard about this concept of turning single family houses into elderly care facilities.  The idea sounded pretty compelling so I decided to go to the “course” in Phoenix. In fact, I went out there with another entrepreneur buddy of mine. In short, we both got sold on the concept (and I mean sold). The next thing you know, we were dropping five figures on a coaching/mentorship program.  Have you ever bought something like this? I bet you have if you think about it. Good marketers know that people respond to fear and greed and this one had elements of both.  Now I am not saying that this program that I signed up for was worthless. I did learn a lot and I believe that had things gone another way, I could have had a successful small business on my hands. However, a lot of things got in the way. First of all, I bought a house that was clearly zoned for such conversion, but it was clear that the neighbors were not going to have it. But wait..if you are zoned properly, shouldn’t you be able to do whatever you want to do? Not really—that’s where the theoretical and the real world of local real estate politics collide. In short, the neighbors were making me jump through all sorts of hoops that they knew would be time consuming and expensive. The proposed traffic feasibility study alone would have cost me tens of thousand of dollars. In the end, I asked my business attorney if the neighbors could really stop me and he said, “no, but they can make you wish you had never started”.  Now understand that while all this was going on, I was making a lot of money doing things that were not nearly as hard. Had I known what kind of effort would go into this, I would have never started. So, I decided to just sell the house. A couple of weeks after listing the house, my broker called me up and let me know that he had taken a potential buyer to the property and that a pipe had burst. There was water everywhere and he could already smell the mold. Fortunately, I had insurance and it covered me for just about everything. We got permits and the contractor started to work. But things were going unusually slowly. A year later, the contractor had made very little progress other than to tear the thing apart. It started getting ridiculous. There was all sort of excuses for delays that made absolutely no sense. Eventually, the contractor confessed that he had taken the money and bought a couple of other houses to flip. The problem was, he couldn’t sell the houses that he rehabbed! Can you believe that? He then agreed to return the money to avoid litigation…until he spoke with an attorney. Then he denied ever saying he used up the funds to buy other houses. The next thing you know we were off to the legal races. If you want to know how this thing ended ask me next time you see me. But suffice it to say, this did not end up the way I wanted it to. When all was said and done, I was down over $250K with nothing to show for it. Now, I don’t blame my coach/mentor for this. The service provided was reasonable and had circumstances been different, I might have had a profitable little business. But there was a valuable lesson there. No matter how you cut it, what I was embarking on was an extremely high risk endeavor. I was doing something that really had not been done before in the Chicago suburbs. It involved significant investment into real estate and there were an enormous number of moving parts—many of which were out of my control.