How We Found Our First Group Home Property

HOW WE FOUND OUR FIRST GROUP HOME PROPERTY AND TURNED IT INTO A MILLION DOLLAR BUSINESS!

Operating a group home can be a rewarding endeavor, but finding the right property to start one can be pretty challenging. Location is a critical factor, and in some states like California, the high cost of real estate can make it even more difficult. In my experience, it can be tough to purchase or even rent a property in today’s real estate market.

THE STEPS WE TOOK

I remember when Uncle Dave and I wanted to start sober living back in 2008-2009, we had a good credit score and were pre-approved for amounts that could buy a decent-sized house. I recall an instance in 2009 when my husband and I attempted to purchase property in the Long Beach area of California. The real estate market was fiercely competitive, with cash buyers snatching up properties left and right. Despite our efforts, we couldn't secure a property as cash buyers had already taken the best options. This led us to explore various avenues, from hard-money lenders to Realtors, in our quest to find a suitable property for a group home.,

Unfortunately during the housing crash, most houses were owned by the banks, which held foreclosure sales on the courthouse steps. I sent Uncle Dave to one of these foreclosure sales, and he returned empty-handed. I expected to get a house at a great deal through one of the foreclosure sales. This was not the case as there are “Sharks” at the foreclosure sales with stacks of cashier’s checks, all different sizes, in their pockets. The amounts were sequenced based on their previous experience with the other “sharks” buyers. They all bid against each other. The catch is that you need cash to purchase foreclosed homes. I want to compare it to Storage Wars, where the players know how far the others will bid for a storage locker. 

OUR FIRST PROPERTY

How did we get our first property without millions of dollars? We rented instead of buying. The more important question is, how did we locate the property that was to be our first group home? I called, emailed and searched online for months, speaking with so many different people. From realtors to lenders to property managers. I also sent a ton of emails to whoever I thought might know of a large house to start a group home business. 

SOMEBODY HELP!

Who would know about large properties for rent or sale in Los Angeles? Realtors, Brokers, Developments, Construction workers, listing agents, property managers and companies, and actual owners of property. During the time we were looking, the housing crash had just begun, and people were losing their homes to foreclosure left and right. I decided to try to buy a foreclosure home, and in California, foreclosure sales are held on the steps of courthouses. I sent my husband, soon to be known as Uncle Dave, to the courthouse steps. He quickly realized that “Sharks” were going to win all the foreclosure sale auctions because they had stacks of cashier’s checks for all different amounts to be the highest bidder on a property. 

DONT GIVE UP

This made me furious, and I needed cash to buy a foreclosed property for my new business. I started calling hard-money lenders, banks, and anyone willing to lend me money so I could get a couple of cashier's checks to buy a property in foreclosure. While looking for cash, I called the lenders and found that the interest rate was at an almost all-time high of 16-20%. This was outrageously too high, as no matter what property I bought, even as equity in the property built as house prices went back up, I would not be paying much, if anything, towards the principal of the loan. My payments would go to interest, and it would not be a good investment if I had to borrow the money. 

PERSISTENCE IS KEY

Because of my persistence in contacting so many people in the real estate industry, I got the lucky call that would change my life forever. 

One night, a hard-money lender called me, asking me if I was still looking for a property to run as a group home. This lender had a friend who was remodeling a property and I told him we were still looking for a property. I anxiously told him yes we still are looking and we're interested in the property a friend was remodeling. My husband and I jumped into the car to look at this property immediately after getting off the phone. We didn’t see the inside that night, but we did get to look at the area, which happened to be where the Rodney King Riots started, so the entire area had been remodeled. The property was literally across the street from the metro train tracks. Two blocks from a huge shopping center with a grocery store, fast food restaurants, a retail discount store, a bank, and other little businesses. It was alas across the street from the famous Nickerson Gardens Project where you don't go if you don't live there. We knew at least we would not be a sore thumb standing out. Later on after we rented the property we found out it was used as a true halfway home. In fact, we would prove to fit in perfectly with the neighborhood. 

TOO BIG TO HANDLE?

This property was huge consisting of a 4-unit apartment with a single-family house in front. We were so eager to sign the lease, we overlooked the common area maintenance changes on it. These were charges the new property owner was making us pay that included property taxes, insurance, and all maintenance and repairs. It was a residential lease with these crazy and arguably illegal charges that imposed a significant financial impact on the monthly base rent. This taught us to read future leases more carefully and consider all to the responsibilities that are placed on the tenant before signing it! I'm a lawyer but our excitement blinded the financial logistics.

MAXIMIZING PROFITS

In time we added beds for a total of 50 beds making it a money maker for us. It just took time to figure out when and how to add beds. I wish I had a coach back then to help us make more money faster.

We had struggles with this 5-year triple-net lease when it was discovered that there were plumbing leaks at the property. We spent thousands trying to fix a leak that no plumber could find the source of without replacing all the plumbing. We were not going to pay for that as a tenant.

In retrospect, the property was too big for our first group home. Yet we never gave up and made it a profitable business that became the foundation of at least 15 more group homes we would operate over the next 15 years.

LOOKING BACK

My experience also showed me the many different methods you can use to find a property, so I put together a list with more suggestions with recommendations for purchasing a property. This guide will save you time by providing you a list of all the different ways to find a property.

In our case, leasing the properties was our only option due to funding constraints. We didn't think of creative financing options or to partner with a property owner back then. For those considering operating a group home, it's essential to carefully weigh the pros and cons when acquiring a property and consider the financial implications.

EXPERT COACHING

It can be a very complex and demanding process obtaining your first property. We recommend getting a coach or mentor to run ideas past them and guide you through the first steps of building a successful shared housing business. SOS Housing experts are ready to guide you each step of the way so you can save time and money.

We will tailor a plan based on your personal circumstances and help you figure out what will work for you. Invest in yourself today. Or purchase our guide to help you find a property for your group home business.