August 21, 2018

JF1449: Make $100 More Per Person In Your Senior Living Properties with Doug Fullaway

If you’re in the senior living space, you know that not every resident has the same needs. Doug and his company are experts in fine tuning systems and processes of senior living facilities. Doug also raises money and does his own investing, there are a lot of great tips in this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Doug Fullaway. How are you doing, Doug?

Doug Fullaway: I’m doing well, thank you.

Joe Fairless: Well, I’m glad to hear that. A little bit about Doug – he’s the president of Fourteen Plus. He specializes in investing in and growing the senior living market. He’s been in the senior living space since 2002. He’s the author of the book “Investing in Senior Living.” You notice a trend here…

He’s based in Portland, Oregon, and with that being said, Doug, do you wanna give the Best Ever listeners a  little bit more about your background and your current focus?

Doug Fullaway: Certainly. I’m an Oregonian by birth. I’ve lived in Costa Rica, the Netherlands and Singapore, and early in my career – I spent most of it in the high tech world, in electronic design automation… But in 2002 I found somebody asking me to help turnaround the company in assisted living. At that point I didn’t know what it was, but I grew to love it and we grew that company to be the largest provider of software to the senior assisted living communities in the United States, with thousands of sites or customers.

I ran the software business and stayed in that until about 2016, when a large company came along and offered us lots of money and made my investors very happy.

I stayed with that company for a number of years, but several years ago I realized I was making significantly better money by investing in senior living, so that’s why my focus is on this space.

Joe Fairless: You helped turn around the company…

Doug Fullaway: That wasn’t my company. I wasn’t the founder… The founder had kind of given up; he was gonna close the company, and I worked with him and we turned it around… It was a struggle for a number of years, but we grew to have literally thousands of sites using our software for assisted living management.

Joe Fairless: Wow… And you said your investors, so did you recruit investors to invest in that company?

Doug Fullaway: Yes, I did recruit investors. I had to bring in more money, and of course, you wanna keep your promise to them.

Joe Fairless: Yes, that is important, that’s for sure. Okay, so you were in the software/technology space within senior living… And we’ll get to your investing here in a second, but why was it that your company was sought after from the senior living communities?

Doug Fullaway: Yeah, you know, partly just being in the right place at the right time. When we approached an operator, we would ask a very simple question – would you like to increase your revenue by $100/resident/month? Of course, they all said yes, and of course, they’d say “How much?” and we’d say “Well, $5 or $6/resident” and they’d go “That can’t be…” Well, in fact it was, because the business had been running in kind of an informal way. Martha, who was 87 years old, asked you to deliver the paper in the morning – of course you wanna take care of her. You’re a good person. But pretty soon you’re delivering 100 newspapers in the morning and putting in real labor and not getting paid for it… So people were giving away services and by putting our software in place, they could easily keep track of all the service and charge appropriately… So remarkably, resident satisfaction would go up because you delivered what you said you would do, you kept your promises, and at the same time they would pay you more money… So it was a good thing for everybody.

Joe Fairless: Just educate me on some tasks that were sporadically monetized but then with your software they were fully monetized?

Doug Fullaway: A really simple one is bathing. Some people just don’t need any help at all, some people just need a reminder… Some people actually need help because they have a very difficult time getting undressed and taking care of it. So there’s varying degrees of need there.

An informal way of doing that was you’d just put bathing assistance on the list, and the caregiver didn’t know what they had to do or not do until they talked to the person… So the person who took 30 minutes to help with bathing was very different from the person who took 5 minutes. You could then be more granular and specific about the charges – “This person needs five minutes”, “This person needs 30 minutes”, “This person needs 45 minutes”, and then that showed up on their bill”, and that’s what made the difference. It was so easy to do that the people would do it, and the residents didn’t object, because they were getting the service.

Joe Fairless: What’s a couple other services?

Doug Fullaway: Another service would be help with medication management. It’s actually the biggest consumer of labor in assisted living. People have 11, 12, 14 medications they have to take typically three or four times during the day, and many of these people are beginning to have issues with memory, so they forget, they get confused… So that’s one of the things that takes a lot of time, and obviously has to be done very carefully, so that people get the right medications at the right time.

Another service is something that sounds really simple, but it actually takes a lot of time… Help with ambulation. If they have trouble getting up out of a chair and walking to the dining room, it’s best that somebody’s there to accompany you.

There are many people who don’t need any of this assistance, but there are others who need lots of things, and it varies person to person and it changes over time.

Joe Fairless: You mentioned assisted living, and we’ve also said senior living… Are they different?

Doug Fullaway: They are. Let me start at the top. If we look at all the kinds of care for anybody who’s older, there is skilled nursing, there is memory care, there is assisted living, and there’s independent living. Independent living is kind of like a college dorm for old folks; it has a dining room, but they care of themselves completely. That’s considered part of senior living or senior housing.

Assisted living means they need more help, the things we just talked about. Memory care means they need even more help. So senior housing or senior living refers to everything except skilled nursing. Skilled nursing is a very different business, highly regulated. It’s more regulated than the nuclear industry, there are more pages of things you have to do per the Federal rules, and it’s entirely paid for really by government programs, mostly Medicare… Whereas senior housing and senior living have no reimbursement really for the most part; it’s 92% private pay.

Joe Fairless: I’ve seen memory care, assisted living and independent living communities, but I don’t think I’ve ever seen a sign that I’ve passed by that said “Skilled nursing community.”

Doug Fullaway: Yeah, it’ll just be called a nursing community, or it will have a name like a rehabilitation center… But the key there is it’s paid for by a government insurance program.

Joe Fairless: Got it. Okay, that’s good context, and there’s some helpful pieces of information for anyone interested in investing in assisted living. What is your focus now as an investor?

Doug Fullaway: Really, my focus is 100% on helping great operators raise the equity they need to grow their business. Operators are very good at doing those things, but they are so busy because they have so many things to manage that they aren’t necessarily great at raising the money they need to grow their business… So that’s where I focus my time – finding them the equity. They typically can find the loan they need pretty readily, because there’s lots of sources… But equity is always a difficult thing for them to find.

Joe Fairless: When you say “Great operators raise equity”, are you referring to the assisted living and senior living?

Doug Fullaway: Yeah, I’m referring to the operator of the property and all the services that go into doing that. For example, let me give you a list of kinds of things an operator has to worry about. They have a bunch of regulations and there are different rules in each state; they have to comply with those… Things like the water temperature coming out of the tap in the bathtub cannot exceed a certain temperature. It must be more than and less than.

They have to deliver all those care services. A typical building will have three to five thousand individual services delivered every week in the building; that’s a lot of stuff to keep track of.

They’ve gotta make it as much like home as possible. That means there’s gotta be fun things to do, there need to be activities… They can’t afford to pay the staff $20/hour, so they have a real issue with staff turnover, because — do they pay minimum wage? Yes. Often $12, $13, $14/hour is pretty common. But that means they’re competing with lots of other entry-level jobs out there… So controlling staff turnover is hard.

Making sure they don’t give away services that I talked about earlier – that’s  a big issue. In this business – and let me contrast this with running a multifamily investment… In a multifmaily investment if you have 100 residents, you probably have 3-4 employees. In senior living, if you have 100 units, you’re gonna have 55 employees. It’s clearly a more complex business to run.

And then you’re running a restaurant, only it’s three meals a day forever, so making it cost-effective and yet high-quality is a real challenge in itself… And just like the multifamily business, they’ve gotta maintain the building, the asset… So they have all those things to do, and then you say “Oh, by the way, go raise some more money for the next property.” That’s a big time-sink for them, so that’s where I fit in, as trying to help them with that problem.

Joe Fairless: And where does your network of investors come from?

Doug Fullaway: There are family offices, there are high net worth individuals, and I have a fairly long list of individuals who can put in, for example, a $50,000 investment. I have a whole range of those.

I am not big enough and I intentionally don’t go after state pension funds or endowments or those kinds of things. They’ve asked, but they look at me like “Oh, you’re too small. We can’t do that”, although many of them are asking and I’m doing fine with the list that I have.

Joe Fairless: How did you build the relationships with the family offices?

Doug Fullaway: Difficult. It took a long time. I started with somebody I’d known and I didn’t really realize was in a family office… He was an accounting kind of guy, he had an MBA from Cornell; I’d known him for many years and I used to go skiing with him, and then I found out he was actually the president of a multifamily office that supported three families.

So I got to know him, and showed him some investments and helped him succeed, and then he introduced me to some other people. I’ve also made it a point to go to family office events, just to be there, be known… And then I have a partner who helps me, who used to be in the venture capital world; he was at Norwest Ventures and he has a long Rolodex of high net worth high-tech people that were his clients, who trust him because he helped them make lots and lots of money. So those are really the two major sources.

Joe Fairless: How many projects have you partnered on with operators?

Doug Fullaway: In the last year I have helped raise money for 8 projects successfully.

Joe Fairless: Wow!

Doug Fullaway: I look at a lot of them. In the last 30 months I’ve looked at 1.6 billion dollars of potential… There’s clearly been 500 million of that that I wouldn’t go near, because the numbers didn’t make sense. They had labor costs at 22% of revenue; well, the industry norm is someplace in the 40% to 55% range, so they just didn’t work… But I see lots of things and I’m very picky about which ones I help with, because the magic ingredient in senior living is really the operator.

You can have the same building in the same location either making great returns for the investor or being a disaster, all based upon the capability of the operator. I don’t go looking for projects, I look for operators.

Joe Fairless: We’ll dig into that… Real quick, the eight projects over the last 12 months – how much total equity was that?

Doug Fullaway: They average 5 million each, so it came to 42 million.

Joe Fairless: Wow, that’s a whole lot of buckaroos.

Doug Fullaway: Well, actually, in this space I’m a little tiny player. Think about BlackRock with its billion-dollar-plus funds on a regular basis… You have Goldman Sachs in this space, paying attention; there are some very large private equity players. The amount I’m raising is actually considered very, very small.

Joe Fairless: You said you wouldn’t go near a lot of them that you looked at; you mentioned one thing, the labor, where maybe they have a 22% of revenue, with the industry norms around 45%… What are a couple other things that you have noticed that made you turn the other direction?

Doug Fullaway: There is a problem that exists, I’m sure, across all kinds of real estate, but in the senior living space there can be a local market where you’ve gotta understand what the real supply and demand look like, and what they’re gonna look like two years from now. So when I go in and see a proforma, and a nice set of numbers, and a good market study, and then I quickly go look  at the Census Bureau data and I see that the number for those over 75 is at a certain level, and I look at the available supply, and I see that they’re already meeting the demand, if makes me really wonder about why somebody thinks they can put somebody new in. They’re gonna have to have a significantly better product in order to attract people away from their existing property that they’re living in, and that just seems like a higher risk proposition.

On the other hand, if somebody will look at the data for a proposed community or a community to be acquired, and look at the demand within 3 miles, 5 miles – with a 20-minute drive, to be specific – and in a market that’s supposedly over-built, there might still be great opportunity. So that’s one of the big things I look for – the supply and demand for the very specific location and the product being offered.

Often, they hire somebody that’s not really an expert at senior living; somebody is moving out of doing multifamily into senior living, and they use the same people to do the market study. There are some great firms out there that are absolutely good at doing it, and it’s not that expensive to get it right.

Joe Fairless: What is a good firm that would be great at that type of market study for senior living?

Doug Fullaway: There’s a firm called IRA that does studies all across the country, and they absolutely understand the senior living market; they understand all kinds of real estate markets, actually… And because their data is very thorough and very well thought out — when I see a study from them, I usually can’t find any holes; it’s almost like “Oh, if they wrote it, it’s exactly right.”

I do one other thing which is so simple that any investor can do, but it often tells me a lot – I simply go to Google Maps, I put in the location and type in the word “assisted living” and I do it again for “senior living” and I see what’s in the area, and then I build my own list of competitors and compare it with what’ I’m being told in the offering memorandum. More often than not I find that they haven’t really discovered everybody. That’s always a red flag for me, which is “Okay, why don’t you know about this competitor?”

Joe Fairless: [laughs] I would think that’d be a major red flag…

Doug Fullaway: Quite frankly, it’s difficult, because the terminology varies. There’s these things called residential care facilities; well, what’s that? It’s really an assisted living and under-the-law in some states — for example, here in Oregon there’s both assisted and residential, and there’s some slight differences in the size of the rooms… But from a consumer point of view, there’s really not much difference.

Joe Fairless: Do you know what IRA stands for with that market study group?

Doug Fullaway: You know, I’ll have to look… I don’t remember off the top of my head. It will come back to me here.

Joe Fairless: Because I tried to google it after you said that and I couldn’t figure it out. No biggie. So the supply and demand — I wanna ask a couple follow-up questions on that, where you look at the Census Bureau data for people over the age of 75 within a certain area… So that gives you the potential demand; then what about supply? What resource do you look at in order to identify the supply?

Doug Fullaway: There are several places I go look in the “public” that don’t cost me any money… If you go to, they’re doing reviews of sites, but they almost always describe the number of units available there. So it takes me a little time. Now, if I have a market where I’m doing lots and lots of investigation, for example South Florida, I can go to the National Investment Center,, and I can pay for a one-year subscription to their data for a market, which is all of Florida.

Yeah, it does cost $2,000 to do that, but I see every building —  see not only what kind of units they offer, but I can see what their asking prices are, I can see what the occupancy is for an area; I can’t see for one building, but I can choose an area that’s a three-mile circle or a zip code, and as long as there’s more than three competitors in that space  – and there almost always are – then I get to see what the total occupancy is. So if I see total occupancy at 95%, that’s usually a really good indicator that there’s plenty of room for somebody else to be in there, because most of the buildings are close to full. So that’s another place I go…

And then the final thing I can do is — this is a friendly industry… If you call the association in the state and make friends with somebody and talk to them, you can usually find out lots of things that aren’t necessarily published, and I do that.

Joe Fairless: Call what association in the state?

Doug Fullaway: For example, the Assisted Living Association; there’s one in every state. Or sometimes they’re healthcare associations. There are two national organizations, one called Argentum, which really focuses on assisted living, independent living and memory care, and there’s another one called “The American Healthcare Association”, which primarily focused on skilled nursing, but they have a group called “The National Center for Assisted Living.” So you really can go to two sources and get a lot of information pretty quickly.

Joe Fairless: You mentioned that the magic is in the operator, you talked about some things that would disqualify the operator… What are some specific things that would qualify him/her?

Doug Fullaway: I wanna see that the CEO has been in the business for at least ten years. If it’s less, then I’m a little suspicious. I wanna see that the CEO has direct reports – somebody who’s really the head nurse; the titles vary, but really a head nurse… Someone who worries about the day-to-day operations, and a good chief financial officer. So I wanna see the right staff.

The next thing I wanna see is let’s call it the hospitality factor. After all, we’re trying to make sure that there’s a great home for somebody… So it’s not like I can measure a ratio or a number, but I go visit people, I see them, and I just see if they’re gracious to the people around them all the time… Do they go out of their way without being asked to talk about creating a nice place for their employees and for their residents? It’s about making a lifestyle and a home for people, so I really wanna see that. It’s a little hard to measure, but it’s important and it doesn’t take that much time to figure it out.

Joe Fairless: Yeah, I imagine the ten or greater amount of years of CEO – that’s easy to disqualify or qualify people right out of the gate… And then direct reports, I would think – and I don’t know the business, so correct me if I’m wrong, but I would think that that would just be a plug-and-play model where every CEO, if they’ve been in the business for 10 years, they would have that staff structure, so does that vary at all?

Doug Fullaway: It does, and let me give you an example. There was an operator that I knew who had over two billion multifamily buildings under management. Very experienced, been in that for 30+ years, and he was gonna start off in the senior living world and he didn’t have a single person on his staff who knew anything about senior living. He thought it was just gonna be the same.

Well, he’s a great CEO, but I’m sorry, he needed a vice-president who’d been in the business at least 10 years. Now, he did eventually go get two people who had that kind of experience, put them in, and he’s now grown into building number (I think it’s) 15 or 16, and his returns for his investors are in the 23%-24% range. If you get the right people in place and you do this the right way, it’s a great place to invest.

Joe Fairless: Where do those returns come from? Is it on the sale, or is it making that 20%+ cash-on-cash return during operations?

Doug Fullaway: It’s really on the sale. The cash-on-cash certainly — you can acquire something that might have a 5% cash-on-cash in the first year, but if you run it properly, you’re gonna grow it to be the high teens pretty readily. It might take 3 or 4 years to do that, but in the industry I helped lots of operators find a building that’s poorly run, that’s in the bottom 25% of performance, and just over the next three years move it up to median, and that doubles the value for the investor. They refinance it at 5 years, and that’s what creates it… So it doesn’t necessarily have to be a sale; it could be just a refinance.

Joe Fairless: Based on your experience in this industry, what is your best advice ever to real estate investors?

Doug Fullaway: Go find a great operator; if you do that, good things will happen.

Joe Fairless: How do you come across operators in senior living?

Doug Fullaway: There are a couple things you can do… Find the local association – the California Assisted Living Association, for example – and go to their conferences, and hang out and talk to people and you will figure out pretty quickly who the top 9 or 10 operators are, and go introduce yourself and just say “I’d like to invest.”

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Doug Fullaway: I’m ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:23:07].05]

Joe Fairless: Best ever book you’ve recently read?

Doug Fullaway: Recently – well, the best ever book I’ve read is Management by Peter Drucker, and I re-read it about a year ago; even though it’s an old book, it’s an amazingly interesting book.

Joe Fairless: Best ever deal you’ve done?

Doug Fullaway: I bought a small assisted living community in a small town for 5.2 million, and we sold it four years later for 10.

Joe Fairless: How much did you all put into that property and the operations?

Doug Fullaway: One million dollars.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Doug Fullaway: I got together with a group of people to buy a property; we all knew each other, it all seemed friendly, and three years in I realized I didn’t understand the investment motives that each of the investors have. Some wanted a long-term dividend, and some wanted to flip it and make money, and that controversy created a horrible dynamic.

Joe Fairless: How did you resolve it?

Doug Fullaway: We talked it out and it took several years to get everybody to agree it was just time to sell… So I parted company, essentially.

Joe Fairless: Best Ever way you like to give back?

Doug Fullaway: I built a business game, a Monte Carlo simulator of a poorly-run assisted  living community that’s used now at several universities, and I’m building a new generation of that. It really helps you run a business on paper, so to speak, with a computer, to learn the ins and outs of the business.

Joe Fairless: How can we see that or check it out?

Doug Fullaway: Well, that you can’t see… It’s not widely distributed. We’re working on one we can distribute to the world, because I deliver it in person to these universities. I go and do it.

Joe Fairless: Okay, cool. That’s interesting.

Doug Fullaway: To put it another way, we’re working on that generation next.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you and learn more about what you’ve got going on?

Doug Fullaway: There they can download the book for free.

Joe Fairless: Oh, cool. And I’ve gotta ask you about the name… It seems ironic to me since you’re in senior living, but your company is Fourteen Plus…

Doug Fullaway: Well, I chose that name because everybody asks…

Joe Fairless: [laughs]

Doug Fullaway: And the real answer is if you look at NCREIF, National Council of Real Estate Investment Fiduciaries  – there’s a mouthful… Over a five-year timeframe, senior living has produced the highest return on any type of real estate property at 14.7%. So Fourteen Plus means I wanna do better than average.

For example, multifamily did 8.3% in that same time period. And this has been true for the last 15 years, it has not changed. It is the best place for a real estate investor to put their money, and people don’t know that.

Joe Fairless: Well, Doug, thank you so much for being on the show… Really educational and also very practical for us to take action on after this interview, looking at deals the way that you look at them; you talked about ways you disqualify deals, if the labor costs are 22% of revenue, but the industry norm is around 45% or something like that… Looking at the supply and demand, looking at other competition within the footprint – a 20-minute drive, and making sure that the operator has that accounted for… Raising money for projects and how to find good operators, and then some characteristics of a good operator… Lots of great stuff.

Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Doug Fullaway: Joe, thank you very much.


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