Have you considered investing in residential assisted living (RAL)? Do you see it as an opportunity to make money in the real estate space? Did you know that there’s several ways to make additional revenue in this area? Then, you’ll need an attorney who specializes in RAL because of associated liabilities. You could be sued several different ways because you're taking care of other individuals. In this episode, Clint Coons of Anderson Business Advisors talks to Michelle Pinkowski, an attorney, about RAL. Michelle actually developed a system for finding the perfect location for an assisted living residence and strives to impress upon people the importance of asset protection. She’s a big proponent of having enough insurance to handle risks.
Michelle Pinkowski’s Phone Number: 303-803-4309
Full Episode Transcript:
Clint: Hi, everyone. It's Clint Coons here with Anderson Business Advisors and, in this segment, what I'm going to do is talk about residential assisted living. I know a lot of you out there have seen this as an opportunity to make money in the real estate space, and I can tell you that there's just something different that everyone should be aware of when it comes to investing because there are ways to make additional revenue.
As you know, I worked with Gene Guarino. He's an expert in Residential Assisted Living. Now, he was recently down at one of his conferences. He does an annual conference each year for Residential Assisted Living, and I met an individual there, a fellow attorney, that really piqued my interest because, when it comes to this space, at Anderson, we do the structuring. We set up the corporations, the LLCs, teach you how to structure your business the right way to reduce taxes and liability.
One area where I think a lot of people still need help is understanding how to actually run the business, understanding that your state may have certain rules, regulations, the counties that you're getting into, the cities, and how do you navigate those because we can teach you how to go out there and set a business up, how to make money doing the business but, at the end of the day, something that I think, at Anderson, we always tell you – you always need someone who understands your particular type of business, that is, what you're getting into.
You need to have an attorney that specializes in that area, especially with Residential Assisted Living because there's a lot of liabilities out there. If you've heard me talk about it before, you know that you can be sued 10 different ways and none of which you actually caused yourself but still brings liability to you because you have people working for you. You're taking care of other individuals and so that puts you in a special relationship to them.
We're not going to cover that on this call today, this podcast. What I want to do is I want to bring on a special guest. This is the individual I met down there. Her name is Michelle Pinkowski and, Michelle, why don't you just introduce yourself?
Michelle: Hi, Clint. Thanks for having me on.
Clint: It's great. Thanks for being on. You came up to me when we were down there and we just briefly chatted. I saw a great opportunity to bring you on and get this information out to our students because we have so many clients that are seeing this as an opportunity. I want them to know that they have resources, and you're one of those resources that I feel that would be definitely beneficial to people. Why don't you tell everyone a little bit about yourself?
Michelle: Thanks for that. I appreciate that. I was a practicing trial attorney for many years, and I'm a recovering trial lawyer now, how I like to say it, but I've represented–I've worked on a lot of different cases but, before I essentially retired from that practice, I spent my time representing real estate developers. It was super interesting because they had lots of different problems from construction defect cases, to people who were injured in their building, to being sued in a class action onto the ADA by disabled people, to fights with their insurance carriers, things like that.
I really fell in love we that kind of law, construction law, but then made a change and started working internationally and working with countries on the policy level to develop construction permitting systems and spatial planning systems. It was kind of interesting, actually. We lived overseas for about 10 years and wanted to make our way back home and started to look at ways to re-enter. I had just finished helping a country set up their spatial planning system and teaching people about zoning and things like that, and that's when we found out about residential assisted living.
We thought, "Wow, this kind of investment combines our love of the built environment in real estate with also being in a helping kind of a situation." We started researching, and that's when I really developed my system for finding the perfect location for the Assisted Living Residence. In getting to know more people in the industry, I learned that this is something that I can add value to people with because a lot of people, real estate investors, when you're looking for a single-family home to fix and flip or maybe you're doing multi-family, you don't really have to understand the underlying land use. With Residential Assisted Living, you really do have to understand that. I developed a system and started working with people in that environment, and then our practice grew once we came back to Colorado. Now, we have a whole practice area focusing on assisted living.
Clint: Wow. Just what you brought up there about how you got started into real estate, you went through the litany of things that I always cover about how many different ways you can be sued. You can actually go out and teach at one of our events, it sounds like, to impress upon people the importance of asset protection. Just as an aside, how many of those individuals that you represented had structures in place? Did they all have LLCs, corporations and stuff to protect themselves or were many of them just individuals that owned the properties in their own name?
Michelle: I've represented really big developers so they had a lot of structures in place and they also had a lot of insurance in place, which I'm a big proponent of, and insurance to handle the risks.
Clint: Good. You started in then RAL so you came back and you saw the opportunity there. You talked about working with people, you live in Colorado. That's where your practice is. Can you operate in all 50 states? Can you help someone who is thinking about setting up an RAL, say, in Arizona or they want to set one up in Florida?
Michelle: Yeah, absolutely, because a lot of the things I advise on is at the federal level, the Federal Fair Housing Act, and so we can work with clients and basically provide consulting services. Then, occasionally, we do need to work with local counsel if we need somebody on the ground or to interact with the cities or hopefully not the courts but sometimes the courts.
Clint: When you're bringing up the Federal Fair Housing Act, what are some of the key points you think that people would need to know if they're getting involved in RAL that they should, of course, be aware of when it comes to that?
Michelle: The first thing is to know that when someone is operating in assisted living, whether it's assisted living for seniors or disabled adults or recovering addicts because–sober homes, that's a type of group home–all of those groups are considered to have populations that are disabled, and that's what the protection is under the Fair Housing Act, is it's to protect against housing discrimination pertaining to different classes of people, including disabled people. It doesn't protect people just because they're older, but they have to be disabled, which anybody who is looking at assisted living when they're older certainly meets the definition of disabled.
Clint: Okay, let's run that down a little bit. How would that apply to me? Let's say I set up my RAL and I have a corporation where I'm running the business through and I'm leasing the property. Maybe it's from a third party or maybe I own the property and my own limited liability company. Here's my corporation. I'm doing the advertising. I'm trying to bring people in. If someone came up to me, are you saying that, if I decided not to rent them the space because I looked at that individual–I thought, "Wow, there's going to be a lot of work and it's going to cost me a lot to assist them," whereas I can bring in the other guy who's not in a wheelchair, looks pretty healthy and it's not going to take as much time to make sure that they have a comfortable environment, could that be a potential threat for someone then?
Michelle: Potentially. I think that's going to be governed by the state's regulations more than the federal Fair Housing Act because state regulations will kind of govern the limits of the care that you can provide. Really, the Fair Housing Act comes into play long before you ever get to that point. It really comes in when you're looking for the location for your group home at the beginning. Somebody will get interested in a space.
They'll come to you. They'll say, "Clint, hey, set up my structure so that I have good asset protection," so they've got all their corporate structures set up, they've gone to Gene Guarino's class, so they're excited about how to operate the business, and then they go out and they start looking for property. Sometimes, people get confused because they'll read their state health department regulation, for example, and they'll read the state licensing statute that talks about, "You're a small facility if you're 16 and under," and they'll think, "Hey, that means all I have to do is find a single-family home and I can put 16 people in there because the licensing statute says that," not understanding that that's not–the state licensing agency doesn't have the jurisdiction or the power to make that determination.
That's a whole different area, so what they really need to look at, in addition to the licensing statute, is the zoning regulations for the areas that they're interested in because it's the local jurisdictions like the city, or the town, or the township, or back east they are called parishes, all the different names of local jurisdictions, sometimes even counties. They have their own zoning regulations, and every zoning code is going to be a little bit different, and that's where it's defined how many people you can put in your home.
You have to be able to find and understand that. That's where I really have been helping people because they get really excited and then they go out and start trying to find a house. It's a little bit overwhelming to confront all of the codes for all these different jurisdictions. In your area, you probably have a lot of different jurisdictions. In the Denver area, we have a ton of different jurisdictions.
Clint: Everyone's a little bit different.
Michelle: Yeah, everyone has their own zoning regulation.
Clint: What I'm hearing is if I had a single-family home–and let's assume that I had six bedrooms–and I'm contemplating people 6, 8, or maybe 12 people in to that house, I would have to know whether or not I can actually accommodate 12 people based upon the city or the county in which that house is located, because even if the state law states that you can have up to 16 people on a property, the city is going to determine or the county will also determine whether or not you can have X amount of people.
Michelle: In that particular location, yeah. Some places are a little bit backwards. Some don't recognize issues at all in residential areas and they'll say, "Oh, if it's assisted living or if it's a nursing home, you need to be in the business district," or some even say the industrial district, which is ridiculous. That's where the Fair Housing Act comes in, because the Fair House Act says, congress has determined that it's the policy of the United States to prevent housing discrimination based on certain categories, including disabilities, which means that people who are not disabled can live in a residential neighborhood and people who are disabled also have to have the opportunity to live there.
Clint: Got it. I know that's one of those things. I remember, as an I aside, when I moved into my house–I don't know when it was, 20 years ago–I had a satellite dish, one with a direct TV, and they had in the CC&Rs that you can't have a satellite dish there, but they didn't understand that federal law trumps whatever CCR is. They tried to get me to remove it. I remember I went to the first meeting and I said, "First off, I'm an attorney. Do you really want to pick this fight with me? Second of all, you do not preempt federal law. Federal law states that I can have a satellite dish."
I can see how this comes up because these people who sit and make these regulations for the county, they don't understand federal law and they're actually violating it many times. Don't be discouraged, I guess, is what you're selling people. Just because the local county tells you, you can't have it in a residential neighborhood, federal law is going to preempt that and allow you to have that facility there.
Michelle: Yeah, that's exactly right, and it's not just the city or the county, it's also deed restrictions or HOAs like you mentioned.
Clint: Yeah, exactly. Tell us about that.
Michelle: It's the same principle. A lot of times, HOAs will like to have in their covenant something that says, "You can't have any business or commercial use," and they'll say, "Well, residential assisted living is a business use," but, in fact, there's a lot of case law out there where the courts have determined that it's actually a residential use because it is a way for disabled people to be able to live in a residential environment.
To enable them to do that, yes, they have to have the supporting infrastructure like the caregivers and whatnot and there has to be enough people allowed in a home to make that financially viable. An HOA can't prohibit any kind of group home for the disabled, including residential assisted living. They'll try sometimes, and that's where it helps to be able to say, "Well, I'm an attorney." We have some advantage to be able to start with that statement, but I'm trying to work with people also to enable them even if they're not attorneys to be able to go in and have the firepower to make that argument.
Clint: Okay, let's say this: Think about buying a property in an area that's subject to an HOA. Now, what I'm hearing from you is that the HOA is not going to preempt federal law so federal law is going to allow me to put people into that property. However, what happens if the HOA has limitation on how many vehicles you could have? They're going to say, "All right, well, fine, you can have six people in there but you can't have any vehicles in the driveway." Could they kick me on that one?
Michelle: Yeah, you could still be protected by the Fair Housing Act because Fair Housing Act says that they have to make reasonable accommodations to any rules or policies to enable disabled people to live in the home, so if it's reasonable and necessary, to argue, "Look, having two cars in the driveway is not unreasonable. It doesn't change the character of the neighborhood and it's necessary to allow us to operate this group home," then they need to allow it.
Clint: Okay, so there's a way around it, then? Because I can see them trying to prevent you a second way. Have you ever had–say that situation came up. What would you do? If I was in the RAL space and I was looking to put a home in and I get this pushback from someone at the HOA and I'm in, say, California. Would I then just contact you and you could send a letter off? How would you approach that?
Michelle: We have to look at it state by state and what their rules of professional ethics are but, yes, we prepare a letter, either that I can send or I work with your local lawyer to send it, and it helps that I prepare the letter because I understand the Fair Housing Act. People won't have to pay to get their local lawyer up to speed, so I can work with the local lawyer and, as long as they're comfortable with my work, then they send it on their letter again.
Clint: Yeah, that's really important, that people understand that because if they go to their local guy, he's not going to understand this to the level you do. That's why I brought you on, because, at Anderson, we have our platinum program where clients can call in and we don't charge them to answer their business-related questions if they're a platinum client. We get a lot of questions from RAL members about the topics that we're discussing, and that's just not our wheelhouse.
Associating with someone like you is important, I think, for anybody that's looking to do this just because they're going to then be able to tap into that resource. Now, of course, it doesn't come for free but the idea here is that now you're dealing with someone who understands it and, if you do have an issue, they can go and put their local guy who doesn't necessarily understand it–because I know where my limitations are, and they should, too–and then, collectively, the two of you can assist them in getting that house open, and up and running, and making some money off of it.
That's good, having a team approach, and I think Gene does that a lot in the way he teaches a class. You need to have a team, people on your side that understand your business and can help you move that ball forward, as I'd like to describe it, that they'll find success. If somebody is just getting started–let's say I'm considering starting my assisted living and I'm in Texas. How should I go about it? The structuring side, leave that alone, because you know what I'm going to say: Set up business entities, because that's what we do. I'm thinking from the regulations side. Do you first go and research the county or the city for ordinances or do you go identify the house and buy the house first?
Michelle: Don't go find a house first. Do not do that. I have clients who went and bought a house, thinking that they could–their pro forma is based on a certain number of residents, 12, 14 or 16, whatever, and then they go and try to pull their permit and the city says, "Wait a minute, you can only have six," and that's really disappointing. That's why you don't want to get there. I have a methodology. In fact, I've got, on my website, an online course that people can do.
It's less than two hours. It doesn't cost very much. If you want to learn how to do it yourself about how to analyze the zoning regulations in your area super-fast, you can take that course, or you can call me. I can give you some hints. I'm happy to do that, or we can do the analysis for you if you don't want to do it yourself. Basically, you need to look–what I like to do–and Gene Guarino says this all the time–find the path of least resistance.
You might be in a certain area, but that area will have 4, 5, 6 or 10 different jurisdictions that have their own zoning codes. You want to quickly look at those and find out where's your best place, where's your best entrance point. For example in my county where I live, I did this analysis. I tried all this out on myself, by the way, so I know it works. In our county, I did this analysis, and some places said, "Well, you can have to eight," and, keep in mind, you still have the Fair Housing Argument.
If you have somebody who has it in their code with big enough numbers that you don't have to make that argument, then it's a lot easier. One place will have up to eight and another place will have maybe up to six and another has unlimited. Then, there was one that did not allow it at all in the residential zone. I love this story because it's so dramatic. You can't have group homes for elderly disabled people but, in the residential district, you can have chickens, goats and potbelly pigs but no old people. Do not bring old people here.
Yes, that is a clear violation of the Fair Housing Act, but if I really wanted to get my home open and get it opened fast and get people in there, I'm not going to start in that jurisdiction because, obviously, they're backwards. You'd use this methodology to find the best entrance point and start there.
Clint: That's important, what you just said there.
Michelle: It is, yeah. That way, you're not surprised. The other thing I recommend to people is do your research before you call the planning department. Some realtors I've heard say, "Hey, just call the planning department and ask them what you can do with your property or the property you're interested in," and I'm like, "No, don't do that," because they may or may not tell you the right information. I had a situation where I knew exactly what the zoning code said and I knew that I could have an assisted living residence there.
I called for another reason–I don't know, maybe parking, setbacks or something–and they said, "No, you can't do that here." Of course, I was able to say, "Number one, well, I am an attorney and, two, I have read the code." At least if you're not an attorney, you can say, "I've read the code and I know that I can do that." Had I done that and I didn't know what my rights were, I might have gotten discouraged and given up on a jurisdiction that was really actually very, very favorable.
Clint: See, there's two things that you mentioned that I think are really important for people who are listening to this, and that is, number one, you're doing it. That's something I tell people a lot. Whenever you're going to work with a local professional or any professional, that is, and you're in a certain space, you need to make sure that they're doing exactly what you're doing because they're out there learning the issues that you're going to be facing and they're finding solutions to those problems that you come up against because it's going to affect their business just like it will yours.
That, I think, is key because so many people who are not doing it don't know what questions to ask of individuals with whom they're going to be working with. As a result, many times, you get bad advice. That is so important. I think people should really understand that. The second thing you mentioned, you had something on your website for individuals that really caught my attention there that they can go to and they can get this information on what to look for as far as the zoning for whatever state they're working in, county or city.
This program that you have or information, series of videos, if they wanted to take advantage of that, how do they go there? What's the website address? What would they need to do?
Michelle: My law firm is Pinkowski Law and then there's a tab that says "learning center". On that is the zoning. It's called Zoning Hacks to Get You Started Fast, and it really is. Hopefully, I'm not too boring but, if I am boring, it's only an hour and 45 minutes long. It's worth it. I've had people take it recently. He's actually somebody that later turned out to be a client but he went through the course first and it's really made our interactions go so quickly because he analyzes the whole zoning code and he says, "Hey, I think that we can do this here in this zone but not in this zone." He's totally grooved in. I think it's practical information and it doesn't cost that much, so Pinkowski Law: Learning Center.
Clint: One of the things we do at Anderson–and I see that you're doing the same thing–is I tell people that, "Come to one of our asset protection events first before we start working with you so then we can educate you on what it is we're going to be doing, the importance of having LLCs and corporations," and I get a lot of pushback many times from individuals. They just want to skip that step. They say, "Well, I just want you to do it for me anyway so why would I sit through this class and learn about this?"
It's because you don't know the right questions to ask then if you haven't sat through the class because we're not always going to be there with you and it makes our communication between the two of us so much more efficient. I assume that sounds like what you've done for people on the RAL space. You need to get the education first, go there, learn about this and then, when they need your assistance, they can contact you and then those conversations are going to be more meaningful because both of you are speaking out of the same book, so to speak, when it comes to addressing these issues.
Michelle: That's very true. I think if you're going to be in any space or do any business like real estate investing, the more competent you can be, then the more things are going to come your way. I've had some really good things come way just because, over the last year, I made it a point to study this area of law to learn. I went to Gene Guarino's three-day course and, before that, I did the online course and I went to our state administrator training course, as much as I could do to learn these things. I really encourage people to do that because, when you're competent, one, you understand it. It takes the mystery out of a lot of things, and people recognize that. People are drawn to those who are competent. You'll attract good partners, you'll attract good deals and your residents, ultimately, will understand that about you, too.
Clint: The last thing you want to do is open up a space and you put in 12 people then, all of a sudden, the city comes knocking and says, "Hey, you've got to kick out eight of them because you're in violation."
Michelle: Yeah, that's absolutely right. In the sober home space, group homes for recovering addicts, there is one company–I won't name them, but they would do exactly that. They were very aggressive and so they would just open up their homes, put people in them and wait until zoning enforcement knocked on their doors, and they did come knocking. There's a lot of case law out there dealing with this company, but they had a high tolerance for litigating things. I think most people who just want to open one, two, three, or even 10 Residential Assisted Livings, they want to do that because they want to help people and make a difference; they don't want to be litigating cases in court or facing zoning enforcement actions.
Clint: Exactly. The way you look at it or I always often tell people is that–let's say I hire someone such as yourself for your expertise and maybe it cost me $1000 to have this information and do some strategy sessions with you, but then I'm going to be able to open my home up and I'm going to be able to get it right from the get-go because trying to litigate this afterwards–you're going to look in a rearview mirror and say, "I so wish I would have connected with the right professional ahead of time, paid that small amount of money to get this information so we're doing it right," because litigation's not cheap.
I just spoke someone today who's involved in an unfortunate situation where he lost $75,000 in a joint venture deal gone bad, and he had gone to another attorney and talked to him about it and he came to me for a second opinion. We both gave him the same advice, which is, "You may want to sue him but it's going to cost you a lot of money and you're not going to win at the end of the day." It always comes back to understanding that litigation is never where you want to be unless you're this big company who has more money than they have sense and you just want to fight it.
That's not what we're going to be able to do and that's not what you'd want to do because that's going to take your eye off the ball. You're here to help people to run a business, and whenever you're dealing with the county, the city, the state or litigants, it's going to detract you and it's going to have a severe impact on your business and the success and liability of that. I hope people that are listening to this take advantage of it, reach out to you, go to your website, look at that video, sign up for that so they understand the issues that they need to be aware of going into a certain area so they're not doing what you just stated, buying into a house where you can only have chickens and pigs living it but you can't have elderly people, and so they're going to know ahead of time where they should be looking so they can plan out, come up with a business plan.
Is there anything else you think that the listeners need to know about when it comes to RAL and this particular issue?
Michelle: I think that, just to reiterate, understand the difference between the licensing statute and local zoning regulations. That's a big thing. You'd have to know both of them, but don't get them confused.
Clint: Perfect. Excellent, and you can help them with that. Again, if somebody wanted to contact you, what's your phone number?
Clint: Right, and your website again?
Michelle: Pinkowski Law, and I love talking to people. Call me for free consultation because I really like gathering data from people around the country and that's kind of fun for me to see. I can help my clients better that way, too, if I know what's going on over in Louisiana, up in South Dakota or down in Texas. Then, we can compare notes and benefit everybody and hopefully raise the waters for everybody.
Clint: Absolutely, and I think, just to hit on this one more time, if you're just getting started, this is a crucial step in starting your RAL business, is going and getting this type of information because it says it doesn’t have anything to do with asset protection and business planning; this is about understanding whether or not that can actually be a viable business. For those individuals, I think it's important. Also, if you've already started in this space, you may be operating as an outlaw right now, and if you don't know what the zoning requirements are and you haven't looked into it, you better get the information and just do a top-down analysis to make sure you're complying.
What I would suggest you do is go to the website there, watch those videos and then, if you need some more information, get a free consultation or sign up for a consultation time with Michelle and take it from there to make sure you're doing it right for your business. With that, I want to thank you for being on here with me today. I think everybody's going to listen to this. They're going to go, "Wow, there's so much more about Residential Assisted Living than I knew when it comes to starting that business up," and you're going to be a great resource for us so I want to thank you for coming on this podcast with me and taking the time to explain it to all of the listeners.
Michelle: Thanks very much for having me. I enjoyed it.
Clint: All right. I'll look forward talking to you soon.