Senior Care Franchise Legato Living Promotes Passion-Fueled Entrepreneurship with a Real Estate Bonus

More than 6 million Americans are living with Alzheimer’s. By 2050, researchers expect this population to rise to nearly 13 million. Over the years, the market for senior care franchisors has only expanded, but because demand is nowhere close to being met, the effects of overcrowding don’t necessarily affect franchisee performance. While the customer need is there, the select franchisees who can make the investment and have the passion are finding themselves with an overwhelming amount of choices and an abundance of not-so-honest guidance. In this market, differentiation is king.

1851 Franchise publisher Nick Powills sat down with CEO Erin Render on a recent episode of the “Meet the Franchise” podcast to discuss how Legato Living combines passion for senior care with the business benefit of real estate ownership.

Render points to a few pitfalls prevalent in the industry that she feels buyers should be aware of, from in-home operational complexity to the idea that bigger facilities don’t always mean better, especially in memory care.

“You have caregivers that you're constantly hiring, constantly looking for new clients to serve, whereas within Legato Living, we also have a real estate component,” Render said.

With 12 franchisees owning 37 locations and nine more opening within the next six months, Legato Living is aggressively expanding its footprint by promoting a fine-tuned set of options and flexibility around real estate, including serving as a key connector to investor partnerships that support feasibility in acquisitions.

"Investors are much more likely to want to work with a brand that is supporting them and is going to be there to help balance out their weaknesses and ensure they're successful, versus just signing a lease with a random operator who maybe doesn't have that support," Render said.

Flexibility and connection to real generational wealth through real estate seem to be a powerful combination for this outlier in the senior care market. Render shared a few examples of the current work her team is paving, making real estate processes a key focus point in their operational upgrades. While Render notes that flexibility can be difficult because each franchisee's situation is hyper-specific, the work, however, is clearly paying off.

“One of our multi-unit owners who wanted to own the real estate for all of them ended up doing that for the first one. For the second one, we did a management agreement and developed a fund, so she still has some ownership in it with the cash she had,” Render said. “They're all a little different, which is the challenge, but there are definitely ways to do it. That's also what makes it fun.”

A transcript of her interview with Powills has been provided below. It has been edited for brevity, clarity and style.

Nick Powills: How did you accidentally fall into franchising? What's your franchise backstory?

Erin Render: I have worked in senior care my entire career. From a very early age, I realized there are some things that, 20 years later, were continuing- similar trends that I was seeing. While this model is traditionally large management companies and not necessarily franchising, I partnered with two other guys who are in the franchise world, and they do home care. They helped us get this started.

I've always been the type of person to want to do things differently, and so that really is what led us to franchising. We'll obviously talk more about what Legato Living is, but really just being able to have closer attention and less turnover for individuals who are experiencing dementia within their families.

Powills: Okay, so the category. First of all, I love the category, partly because in franchising, there are a ton of franchisors in the space. Yet if you look at unit performance or potential customers, franchisees still perform across every competitive brand.

What that means is that we are nowhere near supply for the demand. Two, over the years, I started working with a senior care brand back in 2005. I think about the progression. The reason I love the space is because the demand is still tremendously high, and we're still not able to build enough businesses that can hire enough people to support the end user. So what happens is a candidate says, "I'm interested in senior care," and then you go down the pathway of asking, "What exists?" Then it's like a muscle game of who has the loudest drumbeat to get into those discussions.

How do you create a point of differentiation? How do you protect it?

Render: I think the biggest difference is the vast amount of brands in franchising are doing in-home care. They are going into individuals' homes, caring for them.

You have caregivers that you're constantly hiring, constantly looking for new clients to serve, whereas within Legato Living, we also have a real estate component. A lot of people are interested in that side, as well as being able to take care of fewer people to really be able to do things the right way. I often tell individuals if they're interested in senior care, but they are looking at a lot of the bigger brands, their territories are limited. They've been around a long time.

With something like this, we have just been franchising for the last handful of years, so we have opportunities in so many markets. Individuals are buying one location, so you're not tracking individuals all over town trying to ensure that they are at the shift, arriving on time, and doing what they need to do. It's far easier to manage when you're doing that in one location with eight to 16 residents, but usually eight to 12 residents.

Powills: How has franchising been going? How many franchisees do you guys have?

Render: We have 12 franchisees with 37 locations. We have nine open, with another six within the next six months that will be opening, and then the rest are in development. Most of our franchisees are multi-unit. We always encourage two to three homes where a manager or a nurse can help manage those locations, and then the primary staff are care partners or CNAs doing the day-to-day care.

Powills: Are you happy with that growth? Are you pressured for growth? Where are you at mentally on that?

Render: I go back and forth. As any entrepreneur, I get antsy and am ready to get things moving. But then at the same time, we've just been able to really refine it. Again, it's not a common franchise business, so the real estate part of it really is the most difficult.

Really, the last couple of years I've been looking at it is that we have a really strong handle on the operations, which is what we're here for, but how can we continue to refine that real estate side so that we can get homes open quicker and avoid some of the pitfalls? Every single project, we learn something new.

We've done a lot of work on the real estate side by partnering with individuals and having some architects and things in our corner that are key to that. We just had a new real estate development partnership, and we're working on a blueprint. A lot of our homes, we have done both: we've built new and we've converted. Depending on the location you're finding, there are pros and cons of both, but we are developing a blueprint so that for those individuals who know they want to build, we can have the majority of that done so we can tweak it and speed up some of that process.

Powills: I think this next wave of franchise categories is going to be more of an investment plus passion. I'll use food because it's easier to take a non-example. I go invest $1 million in building out a restaurant. I'm paying a landlord an expensive lease on that property. Maybe I got some TI, so it cut down a little bit, but I'm still paying that in the end. It's just built back into my lease. I'm operating this business. At the end, I have an asset that I can sell.

But what's happening in franchising is the cost of build-outs is going up and leases are going up. Now that is shrinking down the net profitability of those types of businesses, which is creating this chaos. Franchise sales leaders and CEOs still want growth but are they willing to put in the work to go get those franchisees? They're not.

In your category, the reality is you have two businesses that you have the potential to buy: one is you're a landlord, and two is you're a franchisee. I think this is that next category of franchises where you use the business to pay off the dirt, and eventually at the end you have two assets that you can sell—one that builds generational wealth, which is the dirt, and one that is going to have a nice payout based on the greatness of franchising.

Now you have all these buyers out here who might be buying a senior care franchise. They're left with Nick's Burgers at the end at a 3.5x multiple, when the reality is they might be able to afford getting into a business like yours that could actually build wealth for their family.

Render: No, you're absolutely right, and we get that comment all the time. They're like, "I wish I would have known or understood this better."

That has always been our challenge from the beginning: getting that messaging across. Our goal is always to have our franchisees own the real estate, but not all of them are starting out by owning it. They are matched up or working with investors who are interested in this space. We all know that you can invest, but if you don't have a strong operator...that's really where we come in. Investors are much more likely to want to work with a brand that is supporting them and is going to be there to help balance out what their weaknesses might be and ensure that they're successful, versus just signing a lease with a random operator who maybe doesn't have that support.

Powills: I am not a fan of the bullshit broker who just sells franchises. The bulk of them are that. They're just there to filter people through without any transparency or any details on what they should actually buy. The reality is your business mode can set up generational wealth. Most franchises, unless you get super multi-unit, can't. The reason the brokers shy away from it is because it is a more complex buying process, and because that slows down the process, their commissions are going to take longer to come in. It's not hard to see why that happens.

I wish the buyers of this world would say, "Pause. Let me build my spreadsheet of pros and cons across as many brands as possible. What are you trying to accomplish financially?" Some people just want income replacement, but you have that pathway if you want to just be in senior care.

Render: That's kind of how I was as an operator. These were homes that individuals went to and said, "I wish I would have found you sooner." I suppose that's how it's translated into the franchise world.

Powills: Of your first franchisees, how many of them fall into what I would call each of the three buckets: "I had some money, I'm becoming a senior care franchisee"; "I need to be matched with someone who has a little bit more cash to be a business partner, so they're the investor and I'm the operator"; or both? How do they fall into those three buckets right now?

Render: I would say about a third of each of them. That's the challenge, but we've done it in different ways. For example, one of our multi-unit owners who wanted to own the real estate for all of them ended up doing that for the first one. For the second one, we did a management agreement and developed a fund, so she still has some ownership in it with the cash she had. They're all a little different, which is the challenge, but there are definitely ways to do it. That's also what makes it fun.

Powills: Let's say there's a buyer out there watching this. What else do you want them to know about the business opportunity?

Render: As you mentioned, any business is going to be hard. I never want someone to get in by selling them the dream and not talking about real life. It is a point in people's lives that is very challenging. We're not only passionate about the individuals we serve who are living with dementia, but also their families. We understand that they're just like you and me, trying to navigate our own families, children, and careers, and now having this sudden need to take care of a parent faced with this disease. Understanding that it is a great opportunity is important, but we do expect that there is some heart or passion behind this for serving your community, serving those living with this disease, and supporting their families. We do a lot of work with family supports and partner with a program that offers support, because without them, we wouldn't be successful either.

All the statistics show that we don't have enough beds. The other misconception is that because it's memory care, people think, "What, I don't need a 10-bedroom home with individual bathrooms?" No. It's my belief that a lot of memory care facilities are still being built too big. Really being able to focus on that common space is key; the residents are usually just in their rooms. We're building sleeping rooms, not apartments, for these individuals. It's about getting back to basics and focusing on what's important at this stage in their lives.

Powills: We haven't gotten there yet as a community or as a world, but I think of the two most heroic categories that are celebrated: veterans of our military and first responders. The reality is that those who are taking care of our aging population in a place that is scary, uncomfortable, and clearly unpredictable; the folks who are doing that, setting up businesses in this category, investing their life savings, and employing those on the front lines, eventually those in senior care are going to be seen in the same light, because it is arguably the most delicate part of our lives at the end of life. I'm grateful for having this conversation. I love what you guys are doing. I think you're trying to make a great impact in another sector of the community. Thanks for spending some time with me and talking about it.

Render: Yes, thank you so much, Nick. I appreciate the time.

Watch the full episode above or on YouTube.