How I Started a Sober Living Home With No Money!

What if I told you you could launch your first sober living home in the next 60 days without buying property, without massive hard startup costs and create something that pays you every single month and helps people along the way? That's exactly what I did this year when I expanded into a new market for US, Los Angeles, using a simple master lease. In this video, I'm going to show you exactly how I did it. How I negotiated free rent and a ramp up period to get started with essentially zero upfront hard costs and how you can do the same. In fact, many of my students and sober living riches are already using this strategy and have been for well over years in order to start with very little money out of pocket. I'm Andrew Lam and I run 15 sober living homes in California. I started off in 2021 buying five properties. But as the model proved itself and demand grew, when we were asked to expand into different areas of the state, it didn't make sense to go and buy a property in an area where we weren't already receiving revenue. Essentially was being looked at as a new venture for us. We wanted to lead with revenue first. We wanted to make sure we weren't spending money we didn't have. And that's where renting made the most sense. And so like the epiphany for me was ownership isn't the only way to scale. Year we expanded into a new market and we didn't buy the property we leased, instead negotiated favorable terms and turned it into a fully operating sober living home. So if you've been sitting on the sidelines thinking I don't have enough money or I don't have the property yet so I can't get started, this video is for you. By the end of this video, you'll know exactly how to find the property, what to say to landlords, how to negotiate a favorable lease, and how to fill your home fast, even if you're starting from zero. So let's start with the basics. What is rental arbitrage? Rental arbitrage simply means that you're leasing a property long term and then using that property to do some something that generates more income than your fixed costs. And so you could literally like lease a property and then use it for Airbnb. See that all the time across the country. The problem is Airbnb is kind of a dying trend because it was oversaturated. There's a lot of regulation these days and a lot of people are actually getting their licenses or permits pulled or just changing regulations mean that you're not going to be able to fill up that home or use it long term anymore. Like there's a lot of people who are having to like being forced to change their strategy. Since it can work for co living, that means it can also work for sober living. And the biggest difference between what we do with sober living homes and Airbnb is that instead of chasing nightly guests, you're providing long term housing with a consistent, mission driven client base. And demand doesn't go up and down with seasonality. Demand is honestly always there. The goal isn't to flip rooms for quick profit. It's to generate sustainable housing that serves the community while generating steady, consistent cash flow. So why does this model work so well? Because the demand for quality sober living far exceeds supply in almost every state, in almost every market. And most landlords care about one thing. Rent paid on time. Property. Property being well cared for and stable tenants, our homes check all of those boxes. And we even add professional oversight and accountability that most tenants cannot provide on their own. Here's the process that we use. Number one, we're going to find the right property. We look for residential homes, usually four to six bedrooms. That's kind of the sweet spot. Safe neighborhoods. So think B, B minus maybe C plus neighborhoods and accessible locations near hospitals, near shopping, near public transportation, whether that's, you know, if you're in a major city that could be near light rail or buses. If you're in more of a rural area, that could just mean near a bus stop that might be even like a rural or kind of countywide bus type of situation. If the city doesn't have their own in an area that doesn't have public transportation, that usually doesn't matter. We found even in rural areas that have fewer of those systems. For example, we have a student who's like 30 miles south of Austin, Texas, zero public transportation. You cannot get into the big city on your own. They still have a very huge need and demand for sober living homes. And it did not matter that there wasn't. Public transportation because of lack of resources became the resource for the entire town. And in areas where they've figured out public transportation forever or figured out how to get around forever because of lack of public transportation, it has not been a big issue whatsoever. Two is we approach the landlords directly. So you're not looking for a typical situation where 50 tenants are applying. You're looking for a landlord or property owner who values reliability and long term occupancy with as few hassles and headaches as possible. Because I mean Just think about it, if you're a landlord these days and the average cash flow is 100 to $200 a month, then if you have one single maintenance call, if you have to call like roto root for a plumbing issue just once, your entire profit, like amount of cash flow for the year is essentially almost cut in half or wiped out entirely. And so they're really looking for just as few headaches as possible and no one calling them for minor maintenance issues. So when we expanded this year, we found a developer so brand new build that was sitting vacant and they were having a hard time leasing it out to larger operators because there's just a lot going on in la. If you've seen in the news, the Lassa, one of the subsidized housing providers that received government funds is going through like investigations from the leadership, essentially like self dealing and hiring their own family for construction purposes and like just doing things that should not be done, mismanaging the budget. And so there's a lot of these larger properties that essentially would have been used for subsidized housing or single room occupancy that are just sitting vacant because the government's got to get their act together first and they can't do anything while all these investigations are going on. And so we were able to talk with that developer directly, set up a zoom call. Thankfully we got a warm introduction, but in many cases you can just call directly and look for these for rent by owner types of situations. They don't go through property management, they typically do direct leases. And so we were able to have this conversation and say, hey, we are looking to move into the area. This is what we can do this like moving forward. Here's the big vision and if you can work with us at the beginning, it's going to be a win win over the long term for both of us. So we showed them like how our model works, right? Full transparency into what we do. But the way we approached it was hey, we can actually partner with the community. We work with local organizations to fill up the home, we oversee it and manage it well. We'll take care of any minor things and it's going to be, you know, we would like a longer term lease. We want to be a long term tenant and we'll take care of everything. But first, because we're just starting off, we negotiated a ramp up period and that's the key. So for the first about three months we didn't pay rent except for when people moved in. So we essentially paid as we filled up the home. That's what we negotiated. I have students that negotiate four to six weeks of free rent and no security deposit in a two to three year lease term when they go out and do this directly with the landlord of a single family home. This is a four unit building, high density, built as a single room occupancy or an SRO, which means we have 29 bedrooms that we can fill up. So this would be a very large master lease if we were to pay the full rate for the entire space. Almost like student housing or like again like srl, like subsidized housing through the city. But instead we're paying as we go, getting the referrals in, moving them in, doing the work and then letting them know, hey, here's who moved in, here's the bedrooms that we occupy and here's the amount due for the previous month based on our occupancy. As we ramp up, there's a lot of people who get in their head thinking it's going to be this complicated thing, it's going to be a first month deposit, last month deposit, and you're going to have to furnish and do all this stuff. Our landlord, because of the size, furnished the property for us. We gave them a list, they handed everything over, like ordered everything, installed it, assembled it, and we got to move into a beautiful furnished location with literally zero money out of pocket for rent. So this simple negotiation tactic made this almost completely risk free for us. And it's not just because I have a track record, although I do, and that's how we can prove that we can fill up a property this big. But it's because we know what we're talking about, we understand our model, we're confident because we have the referral partnerships already, because we always start there, right? We always start with building those referral partnerships. I've talked about that in other videos. But more than anything, we're giving them exactly what they want. They don't want a property that's vacant, right? At risk of people squatting in there. We can move in immediately and start overseeing the property, being accountable to who's there, who shouldn't be there, who should be there, all that stuff. And it gets to serve the community. And these particular developers have a very mission driven mindset and they want to use their properties even though they're like, they have probably 50 of these across LA, from the Valley down to like Long beach, and they can easily afford the payments, like they're continuing to build more. But the big thing is they want to help and serve the community more than anything else. So they look for operators like us. So you can find a mission driven landlord who you can deal with directly, talk about the model and how we're going to be able to give back to the community, find a way to win together, especially during that first ramp up period where you're just trying to fill up the place as soon as possible. And what's cool is they'll likely be very flexible with you because their goal is the mission, not just to make as much money as possible. At the end of the day you're both going to win, you're both going to make a good amount because this model just generates a lot of revenue, but only once you're past a certain amount of occupancy. Right. Like the first step is getting to break even. And as long as you're on the same page, you can have clear communication. We meet literally weekly via Zoom to talk through any issues we're having with the property. Because again, a new build, there's some little things here and there, but also how we're doing as an organization. And as long as we're aligned, everything continues to move forward just fine. So when you're talking to landlords, you want to emphasize guaranteed rent every month, professional oversight, right. Through house managers rules, cleanliness, right. Our people are doing chores, they're making sure it stays clean, no short term chaos or parties. And a mission driven purpose that helps the community. Landlords absolutely love that. And if you approach it professionally with a clear agreement, house rules and confidence, they'll give you better terms than a typical tenant. Now my recommendation is to just use the standard lease for your state that's usually drafted by the state association of Realtors. You can just google it and find a copy most likely. But in this case, because I was dealing with a developer who had an attorney, they developed the lease. I did run it by my own attorney just to make sure there were carve outs and things that make sense for me, like the ability to exit should anything change with our funding source or should regulations change throughout the state that wouldn't allow for a model anymore. We can exit with like a 30 or 60 day notice. And so it's also very clear how we can end the relationship risk free should anything happen that's outside of our control. There's also some stuff just related to acts of God and things like that. If there's fires, if there's the National Guard is called in, if there's a state of emergency, we can actually back out of that agreement. And not only future rent, you just never know these days what's going to happen. So we want to make sure that, you know, things like this are included in the lease. All right, next, you actually need to fill the home without advertising on Zillow. So let's talk about how to fill your first sober living home and how to do it quickly so that during that ramp up period, you fill up as fast as possible while your cost is the lowest. Because this is what makes the model truly work. And this is the case with everything. Like, even if you buy, we want you to build these relationships so that you fill up within 90 days of starting the home. Right. Of committing any dollar to that location, I want you to fill up within 90 days. So unlike Airbnb or standard rentals, you don't rely on public listings. We. You've never done that. Instead, you partner directly with local treatment programs, detox programs, hospitals and social workers from hospitals who manage the discharge of people, probation and reentry programs, and then community referral partners. These sources are constantly looking for housing options for their clients. And they want stable, structured housing options because they want the best outcomes for the people that they refer. So once you've proven reliability or at least consistency and built trust and rapport, we have a market research process for doing this type of outreach, building those relationships within just one or two weeks, they'll keep sending you residents. When I opened my first home, I spent $0 on marketing. I just built relationships with everyone inside of our continuum of care, which is all the nonprofits and all the local county organizations that were involved with rapid rehousing are getting people from homelessness to housed as fast as possible, right? Rebuilt those relationships. They heard my story. They heard my heart behind this. My background as a real estate agent and investor and somebody who could create a lot of housing quickly and, and that allowed us to build trust because they understood, like, I was already successful. I own a brokerage, right? I was flipping homes, blah, blah, blah. But at the end of the day, I just wanted to serve people. I wanted to help more people. And so they were like, okay, well we could actually use housing here, we can use housing there. And so as you're doing your outreach, also ask what location makes the most sense to put a home so that you can actually find the right location and lease a space that's exactly in the neighborhood where, you know, through all the data, through all the input from all these different marketing, all the different outreach that you're doing, you're Actually able to give them exactly what the market is looking for with the people. Like give the people what they want. That's the bestest way to make sure that you actually fill up. So instead of trying to be a marketer, I instead wanted to think like a partner. If I could give them exactly what they needed and help them out and help them win. Of course, as a result, they would fill up the home and I would win too. It's got to be a win win. So build a small list. I mean, you can start with 10 or 15 organizations. That's all I had at first. Today we look for 50 or 60, 60 organizations in an area so that we can share that with our students when they join our Sober Living Riches program to get started within 90 days. But look for people who are already serving the population you want to house. And if they're providing the case management, if they're a licensed organization, you can start your sober living home and not have to provide any kind of license, treatment, any kind of case management. You're just providing safe, stable, supportive housing. And then lastly, you want to set up systems so that you can scale. Because I don't want this to be your only home. I want this to be your first of many and I don't want it to take up all of your time. Right. Like once you have this established, you can systemize it in a way that gets you out of daily operations. There's still oversight, there's still people on the ground, there's still, you know, cameras in the common area so you can see and hear what's going on. But at the end of the day, this shouldn't be another full time job. This should free you of needing to be on site all the time so that it runs well with or without you. Because heaven forbid, anything happens to you, you get sick, you end up in the hospital. Hospital. Something happens to a family member, you have to go and take care of them. Like you shouldn't have to babysit this home. So the way we run it is so that it provides you freedom to be able to do what you need to do and hopefully cash flow to be able to do what you need to do in the future and provide some freedom for you all while serving people and serving the community. So once your first home is filled, the next step is to make it run without you. So here's the truth. If you have to be on site every day, you don't own a business, you own a job. And so that's why we built Systems from day one, you know, in this large enough building, four units with a main house that's huge. 12 bedrooms, 12 bathrooms, three stories like a duplex in the back. Two units in the back plus an ADU. Right. So four total units utilizing California state law of SB9 and all these different things that allow for a high density development like this. We wanted to make sure that with that many beds and that many units, we had a house manager on site. So we actually have two living on site. So you want a house manager on site for, you know, day and night automated payments. And so whether that's electronic, like transfers from local organizations or private pay or something from reentry centers, automated payment, collection of rent or the fees, if you call them bed fees that are coming to you. Digital intake processes in tracking. We use software for this. We love Sobriety Hub for this reason. There should be a link in the description of this video for Sobriety Hub with a discount if that's something that you're looking into, and then weekly accountability check ins. So these systems turn a single home into a repeatable model. And once you've proven the model in one location, you can repeat it it anywhere, even in new counties or states without having to buy another property. So that's how we expanded this year. Instead of putting $200,000 down on a property, we put in a small deposit on a lease, got multiple months free or just paid as we went, had it furnished at zero cost to us, and launched with positive cash flow within 30 days. And this is where most people get stuck. They still think like landlords, not business owners. When you're running sober living homes, the real product isn't the property, it's the system, the structure, the rules, the community you're building inside of your home, and the partnerships that you form with other local agencies. Once you realize that it changes everything, you stop thinking about real estate as an obstacle and start seeing it as a tool. In fact, one of my students just sold a minority stake in his company. They started three homes. Very quickly they showed this group of investors the model, these like mentors basically they started talking to some mentors who did some higher level things like treatment programs, things like that, that in the past. And they sold off a 30% stake for three quarters of a million dollars so that they can go out and scale even bigger and start some treatment programs and start doing more to serve the community and expand from South Carolina into Michigan. And so there's real value when you build these systems instead of just focusing on how do I want run this one house and you know, stay inside of every box and all that stuff. In order to get investment like that, you have to run it like a business, have true like clear financials because people are going to do due diligence and you're going to need like clear pro forma. So really need to know your numbers and run it well like a well oiled machine. But if it's possible for them 100%, it's possible for you too. And rental arbitrage gives you leverage to grow faster, impact more people and create recurring income without debt, without mortgages and without waiting years to scale. So if you've been thinking about starting a sober living home and didn't know where to start or thought you needed to buy a property first, I hope this opened your eyes to what's possible. You can start right now with the skills and resources sources you have today. If you want help mapping it out, from negotiating the lease to setting up your systems and filling up the home, my team can walk you through it step by step. It's why we created our community called Sober Living Riches. The real riches are the lives you get to impact and the cherry on top is the fact that it's consistent, very high cash flow as well. Click the link below to schedule a free call and we'll help you get your first sober living home launched the right way. Because the truth is, Sober Living is one of the only businesses in real estate where you can make a real impact on people's lives and build financial freedom at the same time.