The Importance of Appraisals in Assisted Living Investing: Tips & Strategies by Brett Chotkevys

As the owner and operator of Platinum Resort Assisted Living in Georgetown, Texas, alongside my wife, we’ve crafted a life of financial freedom through assisted living investments. We've built millions of dollars in equity and established consistent cash flow thanks to our strategic partnerships with banks and lenders, who finance our projects.

Today, I want to dive into an essential element that can make or break a deal in this industry: the appraisal. The appraisal is a crucial part of the financing process that cannot be overlooked. If handled correctly, it ensures that your project progresses smoothly and as planned. However, a poor appraisal can have disastrous consequences, potentially derailing your investment. Here's how to prepare for an appraisal, and why it’s vital to get it right.

Understanding the Role of the Appraisal in Your Investment
Every bank you work with will require an appraisal to determine the value of the property and, in some cases, the associated business. Whether you’re purchasing an existing assisted living facility or constructing a new one, the appraisal provides the lender with an independent, third-party valuation of the real estate and business involved. This is often a prerequisite before securing financing.

A good appraisal ensures that the value of the building aligns with the bank’s expectations, while also helping to estimate the future value of the property and the business. If the appraisal comes in lower than expected, it could create significant problems. For example, the bank might reduce the loan amount or, in some cases, completely withdraw from the deal. In some instances, the bank might still move forward with the deal but will base their loan on the lower value set by the appraisal.

To avoid these pitfalls, you must be proactive in preparing for the appraisal, ensuring that the valuation aligns with your expectations and business model. If the appraisal doesn’t match your projections, the result could be a deal that’s no longer financially viable.

The Impact of a Low Appraisal
A low appraisal can have a number of negative consequences. If the appraised value is significantly lower than the projected value, the lender might only approve a loan based on the lower amount. This means you could find yourself in a situation where you need to bring additional capital to the table to proceed with the deal. In the worst-case scenario, the deal might fall apart entirely.

A low appraisal could also result in the bank requiring additional collateral, especially if the property alone isn’t sufficient to cover the loan. This might mean putting up other properties or assets, such as your primary residence or rental properties, to back the loan.

It’s vital to understand that commercial appraisals can be expensive, typically costing between $5,000 to $10,000. Therefore, it’s important to do your homework to set yourself up for success before the appraiser arrives.

Who Are the Appraisers?
You won’t have the ability to select your appraiser directly, and neither will the bank. Typically, banks work with a list of approved appraisal companies, some of which specialize in commercial real estate, and others, more specifically, in assisted living facilities.

In my experience, there are two main types of appraisers you might encounter:

Local Appraisers: These professionals have deep knowledge of the local market, understanding the specific neighborhoods and regions in which your property is located. However, they might not specialize in the assisted living space, which could be a disadvantage if they aren’t familiar with the unique needs and valuations of this type of real estate.
National Appraisers: These appraisers are specialized in senior living properties and have experience working across the country. They understand the nuances of evaluating assisted living facilities, nursing homes, and other types of senior housing. However, they may not be familiar with the specific nuances of your local market, potentially overlooking valuable aspects of your location that could affect the appraisal.
Whether you work with a local or national appraiser, it’s essential that they understand the intricacies of assisted living properties, including both the real estate and the business valuation components.

How to Prepare for Your Appraisal
To ensure your appraisal reflects the true value of your property, I recommend preparing in the following ways:

Clarify the Care Levels: Different levels of care, such as independent living, assisted living, and memory care, can significantly impact the value of your property. Be clear with the appraiser about the services you provide, including the types of care offered and any special certifications, such as Alzheimer’s or dementia care. This will help the appraiser understand that your property may be superior in pricing and care compared to others that do not provide such services.

Create a Comprehensive Market Analysis: While the appraiser will conduct their own market analysis, it’s crucial that you provide them with a well-researched overview of the local market, including comparable properties, occupancy rates, and pricing structures. This helps to avoid discrepancies between your expectations and the appraiser’s findings.

Be Transparent About Your Business Model: Make sure the appraiser understands the financial aspect of your business, including projected cash flow and future growth. A detailed business model that showcases how your assisted living facility will generate revenue and provide value to residents is key to ensuring an accurate business valuation.

Document Your Niche: In the assisted living industry, not all properties are the same. Be sure to highlight your unique aspects, such as specialized care services, certifications, or high-end amenities that differentiate your property from others in the market. Providing detailed information about your property’s niche can help ensure that the appraiser is comparing it to similar properties rather than irrelevant ones.

Conclusion
Appraisals play a vital role in securing financing for your assisted living investments, and a poorly prepared appraisal can jeopardize the entire deal. By proactively preparing for the appraisal process, providing detailed information about your property and business model, and ensuring that your appraiser understands both the real estate and the business aspects of assisted living, you can set yourself up for success.

​Remember, while you can’t control the appraiser, you can control how well you prepare and present your property. Take these steps seriously, and you’ll have a much better chance of achieving a favorable appraisal that supports your investment goals.