Learn How to Double Down on Franchise Investment Opportunities with Chuck Bongiovanni

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, thelandgeek.com and on this week's Art of Passive Income podcast, our guest is Chuck Bongiovanni, the co founder and CEO of majesticresidences.com he is a certified franchise executive, the founder of Care Patrol Franchise Systems, the largest franchise senior placement company in the Nation with over 150 offices. His social work background makes him a natural pioneer of the senior placement and referral industry for the past 27 years and has placed an agent career. He and his company place over 100,000 seniors in assisted living and residential homes across the country. Chuck, welcome.

Thanks Mark. Great to being here.

So, Chuck, give us an overview of what is Majestic Residences.

Sure. We are a residential assisted living home franchise. So what that is is I want you to think of a big assisted living community. You know, ones you drive by when you go to work every day, you know, and shrink that down so it can fit in an actual residential neighborhood. A residential home. So we're licensed for six to 16 residents. So six or 16 seniors would live in this home and again in a residential neighborhood. And that really depends on the number of residents the state allows. Some states allow only 6, some states allow 16. So it's really an assisted living facility right next door to you.

Okay, so the assisted living facility. Facility right next door to you. And I remember this is a few years ago.

Wow.

Maybe it's three, four years ago now. The late Gene Guardo being on this podcast and we're talking about assisted living and the business and he made a really great comment to me, said you're either going to own the facility or you're going to be in the facility because either way, if we're lucky, we're going to end up there eventually.

Yeah. So you're going to deal with it somehow. Right.

Either yourself, dealing with some house.

Yeah.

Yourself, your parents. My, my parents are 80. Luckily they're, they're doing well. But I can tell you I can see the future where their friends are getting ready to go into assisted living.

Yeah. And. Yeah.

Yeah.

And sometimes, you know, these big grand places that you think of, you know, they may not be, I mean they're great for some people, but they may not be great for most seniors. You know, our homes tend to take care of those who need a little bit more help though. It's kind of like a mix kind of up in between a big assisted living independent place where they go play shuffleboard and stuff and a Nursing home. So when they need a little bit more care, that's when they come to a majestic residence home.

Okay, so walk me through what that care would look like. Let's, let's take somebody who might be 85 years old. They might have a hard time walking. Maybe they're having a more difficult time remembering to take their medicine.

Yep.

Is that the person or you just.

Said my average, my average resident in our homes.

Okay.

Just like that. Someone who can't live at home anymore by themselves or you know, these days having a caregiver come into your home, you know, that's, that's cost you anywhere from 30 to 35, $40 an hour. So it gets real cost prohibitive to have someone in your home taking care of your mom, you know, 12 hours a day or 24 hours a day is almost impossible these days. So it's a real cost effective option because our homes, we, we charge anywhere between 4 and $8,500 per month, you know, per resident.

Okay. So the economics seem to make a lot of sense. Let's say I buy a, a rental home. Well, I could convert that, those rooms now I've got a, an assisted facility. Assisted living facility. But from my point of view, and I remember talking about this a gene, I could either be an operator, which seemed to be a lot of work. There's nothing seemed passive about that. Or I could convert it and then sell it to a company that would be an operator and at least.

Or lease.

Or lease it.

Yeah, you said one of our franchisees.

Or at least one of the franchisees. But from a completely passive standpoint as an investment. Walk me through the franchise model and who is the person that would be a good fit for investing in this franchise? Sure.

So let's take it from purchasing a home and lease it to one of our operators. Let's, let's take it from that frame.

Sure.

So someone would purchase a one, a single level home probably with like five bedrooms in it with an attached garage. Usually a five bedroom home is going to have, you know, a three or four car garage maybe. So we can convert that garage to two to four more bedrooms. Right. So now. Yeah. And your master bedroom is always a semi private room because it's huge. So with a five bed home, ranch style, we just got 10 bedrooms or 10, 10 residents out of it, out of nine bedrooms. So what are, what the investor would do is purchase the home, renovate it, you know, get it to shape where they can add those extra bedrooms. They usually take one bathroom that isn't a master bedroom or one bathroom. I'm sorry, one bathroom. They basically will keep the commode in it will take away any cabinets and make a single single standing pedestal sink and then take the bathtub out and then tile it. So it's one big shower room, you know, one big spa, shall we say?

Right.

And that's where all the residents would take their showers. So what we've been looking at is our investors will purchase a home, put the money into it, and their return is usually between 0.85 and 1% of the total cost of the home, plus renovations. So if you buy a home for, let's say 600,000 and you're going to put 100,000 into it, maybe less, but 100,000 into it. So your total cost is 700,000. Our recommended lease is, you know, 7,000amonth tops. And maybe a little bit less if you do the 0.85% and the franchisee is paying, you know, all your taxes, basically a triple net lease. So that's the model for just an investor. They don't get any part of the monies that's coming in, of course, because the operator does. But if they want to be an operator and investor, we have an option where basically they would do the same thing, purchase a house, then they would hire a licensed manager to run the home itself. And that licensed manager is the one who's going to be doing the day to day operations. So they're going to hire your caregivers that work in the home, run the business. Our expectations for our franchisees in that level, they would have to know the families, have to know the residents. You know, it's not totally passive, but maybe it's maybe four or five hours a week. If they do that, they do it that way. I mean, if they have a really good manager, that's really the key in this. So if they, if they do it that way, they could actually have a, you know, separate company for real estate, separate company for the business, they can pay themselves a lease cost or, you know, a rent cost and, but also make the profit off the home itself.

I see. Okay. So if you walk me through a typical case study.

Sure. Okay.

And let's just use. Because we're both in Phoenix, let's use the Phoenix market, which is going to be a pricier market.

Yeah. Okay. So let's say you purchase a home for 800,000. Let's go all in. Let's say a million. All in. Right.

Okay.

Okay. All in. Let's say you're In Scottsdale, because we have four homes in Scottsdale. So say you're in Scottsdale and you are charging between 6,000 and 7,000 per month per resident. You're, you're bringing in 60 to $70,000 per month. Your, your biggest cost is labor.

Okay.

So we usually estimate our labor cost between 45 and 50%. Okay. 10 residents, you're going to need anywhere between two or three caregivers during the day, two caregivers in the evening hours, then one caregiver overnight. So you're basically running five, six, seven, eight caregivers per day. So that's usually 45, 50%. Your food cost is not much at all. On a 10 bed home, you're looking about 1800, maybe 2000 tops per month. We have a 6% gross franchise fee and then your mortgage. And so usually in a 10 bed home, if it's run right, 10 bed home, you know, you're looking at your potential break even at bed, I'm going to say seven and a half to bed eight. So your profitability you're looking all at, at bed eight and a half, shall we say bed nine and bed ten. And if you're charging 6,000amonth, there's some potential really good profitability in there. You know, you'll have to be pretty well capitalized to get to that point. Right. And we're really good with marketing, so filling the homes hasn't been too much of an issue for us. But you know, we want our franchisees to understand that until they get to break even, they're not a break even. You know what I mean?

Right, right.

Yeah.

And so when you're looking at a franchisee, what is their typical background where you're going to say, okay, this is a good franchisee.

Yeah, they don't really need any kind of medical experience because we don't do any kind of medical things in the home. Right. They have to know business. You know, I like the real estate experience because real what I found my real estate experience. Franchisees understand that I'm going to build one home and then you know what, then I'm going to build two, I'm going to build three. Because the economies of scale, once you have three homes, you could have just one manager, you know, the manager a little bit more. But you're not paying three different managers. Right. So, you know, some knowledge of real estate is a plus. Business experience is a plus. Also, you know, the worst thing you want to do is start a business and not know a thing about, oh, I have to Pay taxes on my employees, you know, but we help with all that. We have systems that take care of all the operations. You know, someone who's well capitalized. We want to make sure that they, they can get to that break even point. And then after they're at the break even point, start thinking about owning a second home.

Sure.

And definitely someone who, someone who cares. You know, these, these are people who's putting their, you know, their, their lives in our hands. You know, we want to make sure that they understand how to work with staff to make sure that, you know, every shift is covered. But more importantly, be able to relate to the families and understand, you know, what mom and dad is going through and the tough decision it makes to, to have mom go move out of her house to move into a home like ours.

Yeah, absolutely. And I would think that mom and dad are going to be more excited about moving into a smaller home that feels more homey.

Yes.

Than a large facility that is just. I mean, I've been to some of these facilities. My grandma was, was in one. And it's not a very pretty picture if you, if you've ever been there. It's the. I, My grandma did not enjoy it.

Yeah. Because at all times they, they tend to, like when you go to a big place, you know, they may have 200 people there, but you, you might only see 10 because, you know, they're all in their rooms. Right, right. So what's, what's great about a small home is, first of all, I believe it's a lot safer because, you know, it's a smaller area to cover and the caregivers know exactly what's going on in the home. Right. And there's activities and those kinds of things too. But yeah, it's more of a home environment. It's a little less of a transition from going from your home to another home as compared to going to your home to this big facility where the dining room is, you know, 2,000ft away from you and you got to walk all the way there all the time. And, you know, it's a different, it's different clientele, you know.

Yeah.

A lot more social. May like the bigger place better than someone who really needs to care.

Yeah, no, absolutely. Now, I remember asking Gene this question. I'm going to ask you the same question for the nervous Nellie's out there.

Huh.

And you know, Mom's in the facility, she trips, she breaks her hip, and now the family's upset. Where were you? Where was your care? And we're going to Sue.

Yeah, yeah, this is.

Now I remember how Gene answered this question, but I would, I'd love to hear your thoughts on this take.

Well, you know, you know, you can't, you can't guarantee someone isn't going to, going to fall because seniors fall sometimes. Sure, right. But I could guarantee you that if mom falls in her home, she's on the floor for hours, you know, and. Which could be getting, you know, exacerbating the medical condition where in one of our homes, if an emergency happens like that, you know, we're immediately calling the ambulance and getting there, checked over, both at the home and in the hospital, you know, but as far as liability goes in the home, rarely do you see a home get sued for things unless it's gross negligence. You know, you leave the, you leave the front door open and you have a wandering person with Alzheimer's. Right. You know, it really comes down to documentation. If you're documenting correctly, your liability is completely, you know, almost nil, shall we say. Right. We have software in the home that reminds the caregivers what they need to chart on and what they need to document. So. Yeah, I can understand that. The other question people always have is about, what about HOAs, right. I could tell you that an HOA has never stopped a residential care home from opening due to a real little law. And I'm being sarcastic here, Mark, called the Federal Fair Housing Act. Right. So they can't stop you. The only thing they can do is they can make sure you keep your garage door on. So basically, you build a false wall behind the garage door when you build the bedrooms.

Okay, got it. And so if I want to really get it into this business and I want to do it in a big way, I've got to think about not one home. I really should be thinking about economies of scale homes.

Yeah.

And getting an operator. I can start using the franchise model with Majestic Residences. They're going to help with the processes, the systems, the people. What, what else are you going to help me with so I can really build this?

Yeah.

A profitable investment. And then is it something where it's a cash flow play or is it a cash flow appreciation play where my whole time is maybe the economic cycle, for example, so right now maybe I'm getting a better deal. And then as we get we see interest rates go down, we're going to see a larger appreciation on the homes.

Absolutely. I mean, it's, it's 100. What you just said. You know, the only time someone leases a home from someone is when they don't have the money to purchase the home. But if you purchase the home and you have the business, that's where you appreciate the most.

Okay?

Both. Right. And I agree interest rates are high right now. But you know what, that actually slows down competition. Right, right. Because people aren't getting into. Many people aren't getting in the business because they're fearful. Right, right. Which is, which is, you know, that's the best time to get in the business. I mean, Gene and I started this company in the middle of COVID Right, Jude?

Yeah.

Judah. 2020. You know, that's just how we were all, man.

Well, yeah, that was very smart. That was very smart. So let's, let's get meta about you, Chuck.

Okay.

Obviously we're all aging, we're all getting older, we're all going to lose everyone and everything. Given what you know about this industry, do you have a long term plan and what is your advice to someone who's listening to this, maybe in their 40s, their 50s, their 60s, even their 70s, about their long term care and in the way that they should be thinking about it and the trends happening in this industry?

Sure. Personally, my long term care plan is basically turn my home into a care home, to be honest with you.

Okay.

Turn my care, my home into a care home and have, you know, maybe four or five other residents with me and you know, for social reasons, of course, and then basically have them pay for my caregivers. That's the way I look at it. Right. Someone in their 30s, 40s, 50s, I would say purchase long term care insurance right now.

Okay.

Because that'll help pay for your own, you know, long term care needs someone older, in your 60s and 70s, you know, do everything you can to improve your health. You know, prolong the, the time that you can be in your own home and be independent. Although in our homes we try to make people as independent as possible. Right. But that really is it. You know, watch, you know, watch your health. Invest in yourself. Right, right. That's the best way to look at it.

Okay, fantastic. And then when you say long term care insurance, I remember there was a day when it was very affordable.

Yes.

Today it does not seem to be the case. Is there a provider that you would recommend?

You know, the only providers that are left are the bigger companies, you know, New York life and those kinds of things. But you need to look at it in perspective. Right. Right now, you know, let's say the state of North Carolina, your average care is, you know, 8,000amonth. Right. Right. 100 grand a year. And, you know, if you're in the home for five years, that's half a million dollars. You know, so it's, it's relative what you pay for the insurance compared to what you're going to pay for care, Right?

Absolutely. And so when we're evaluating this franchise from other franchises, and we're looking at it from investment standpoint, a yield standpoint, perhaps even a time standpoint, why should an investor seriously consider putting the time capital into Majestic Residences versus, say, oh, I don't know, let's pick on a Dogtopia.

Okay, great question, great question. I think it's one of the only franchise systems around where you have investment being made on real estate and on the business. You know, you own a Dogtopia, you basically are selling the business. You own a Burger King, and you're selling the business, but this is. You're selling the business and real estate at the same time. Right. And you can even say, at some point in time, you know what, I want to keep the real estate and just sell the business. And that could be very profitable also.

Excellent. Excellent. I love that answer. So if we're going to get into this, we're going to have to have financing, and for the first home, because it is a. It is being converted into a business. Will the bank demand that you put 30% down or. 30% down or. No, but less down?

Yeah. Our franchise, we're SBA approved. And believe it or not, as, I mean, people hear all the time, especially in the real estate world, SBA won't invest in your business because they're not going to basically, you know, do a flip. Right, right. In this business, it's the only business where SBA will pay for real estate. So you get an SBA loan for the real estate and some capital needed to start the business. And we have a. We have a large number of banks and lenders who understand our business. You know, sometimes our franchisees make the mistake. You know, I know my local banker real well, and they'll go to the local bank and local banker says, a commercial loan in a, in a, In a residential neighborhood, Sorry, can't do it. But the people we work with just, they do it for a living, so it makes it a lot easier. And I've seen some deals, you know, 10% down. Right. I've seen some actually last. So it really depends on, you know, your, Your, Your income and your, Your credit score and such. But you want to make sure you're going to a lender who Understands the business and we can provide that for our franchisees.

Excellent. So what should I have asked you that I did not ask you?

Well, our franchise fee is 49,500 and with that we're going to work with you to get your license for your license in your state, all your operations. Marketing. We're very big on our marketing arm. On it. And you know, we're just, we're just looking for people that want to make the difference. Make a difference.

Okay, fantastic. And Jack, this is, you know, such a fascinating model, but getting back to the beginning of the conversation, this is something we all have to seriously think about.

Yeah.

And to your point, you're going to take your own home and convert it.

Yep.

As you know, real estate investors and when we're identifying homes to invest in should be be looking at because let's take a, for example, location, location, location. What would be a demographic profile where you say this is a good area, this is a good type of home to really consider to convert into a long term assisted care facility.

Great question. My answer is very different than if you ask anyone else. And that's just because I've been in the industry for 33 years. A lot of people are going to say you're going to look for, you know, a rich area. Well, let me tell you something. People with a lot of money have the money to keep mom at their home with a caregiver. Right. So the way I look at it personally is I want our homes to be located where there are a lot of other residential care homes because first of all, competition doesn't scare me at all. Secondly, if there's a lot of homes, you know, there's a market there. Right, Right. So I know some people that say, you know, you need to look for this economic indicator and this and this and this. And you know, the best economic indicator is just basically do a better job where work is already being done. Right. So Scottsdale, Arizona, for example, is zip code 85254 has the most residential care homes in the world. There's over 160 of them just in that zip code. And we have four that have been full for a year and a half now. So that's really what you know, when a franchisee says, I found a great area, you know, put it this way, I would never open a care home in Hollywood, California. Never something I they've got the money.

To stay home, they have the money to stay home. I it's so funny because we do the same thing in our land business. We want to go where the other land investors are. There really, there really is no competition. The market I just massive. Well, Chuck, your. Your mentorship has been. Been fantastic. But now we're at that point in the podcast where I want to ask you for your tip of the week. A website users, a book, something was actionable for the art of passive income listeners. Go improve their businesses, improve their lives. What have you got?

Okay, I'm gonna give you my tip of the week. I love the sign I see behind you. Chaos is a friend of mine. Yeah, I have a story about what I call the sexy buffalo. Okay. Now, buffalo are the only animals ever. Only animals that when they see a thunderstorm coming, they run directly into it. All other animals, including humans, run away and hide. Well, while they're running away and they're hiding, that storm intensifies. So when it finally comes over them, it's actually worse than what it was when they had that decision. Do I run into it or do I run away from it? Right, right. So I want everyone to be a sexy buffalo and run into the storm. And that's how I found success, you know? You know, we started this company when Covid hit. Who the heck would start a senior residential home, you know, during the middle of COVID Well, I'll tell you something. It was a great decision that we made because when everyone else was running away, we ran into it. And I look at it now in real estate, when everyone else is freaking out because of interest rates, run into it. Run. Because you could always, you know, you could always re, you know, refinance later when things go back down. But all your competition's freaking out right now. All of them. So take advantage of that. While they're freaking out and doing nothing. You're already going to be a year or two ahead of them when you think about it.

I love it. I love it. Well, Chuck, this has been so good. I. I want to give my tip of the week. And before I do so I want just to remind the listeners about our sponsor, which is flight school. Learn how the next 16 weeks can transform your life. Start building that passive income without renters, rehabs, renovations or rodents, and go up that bound of last land vesting quickly, safely and efficiently with Scott Todd as your Sherpa. Oh, I know you're thinking, what's that flight school investment going to be? It ain't going to cost you nothing. Guaranteed you're going to make back that tuition 180 days or less. Just show us your work, learn more, Go to the land geek.com forward/training the Langeek.com forward/training My tip of the week is learn more about this exciting business Forward Slash real estate opportunity. Go to majestic residences.com majestic residences.com download a free report to learn how the five ways franchising will disrupt the residential assisted living industry. And do that.

Go ahead Mark Let me interrupt for one second. The majestic residences.com is our is our consumer site for potential franchisees. Go to discover majestic residences.com discover majestic.

Residences.Com we'll have that. We'll have the link in the show notes. Discover majesticresidences.com I want to thank the listeners. Remind them the only way, the only way we get the quality of guests like a Chuck Bongiovanni is if you do three little favors. Follow Rate Review the Podcast Send a screenshot of your review support@thelanky.com I'm going to send you a signed copy of Dirt Rich and it just helps. All right. Let Freedom Ring thanks everybody.

Thank you, Mark.

Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations or rodents? Schedule a free consultation@thelandgeek.com training let freedom ring.