Acuity climbed for 14 months. The resident agreements wouldn't let me reprice.

What does a tiered agreement actually look like in practice, is it a points score off an assessment tool with a dollar figure attached to each band? I'm trying to picture the document you wish you'd inherited.

This is the multifamily lesson in a much more expensive costume. When I buy a small building I'm buying the lease terms that exist, not the rents the seller thinks he could get. Below market rent with 14 months left is a real liability and I underwrite it as one. You bought eleven contracts that fixed your revenue and left your cost side completely open. The difference is that my tenant's demands on me don't double while they live there.

In the small towns I look at the private pay ceiling is set by what a paid off house sells for, and it isn't much.

Did the change of ownership trigger a fresh licensing survey on your side? In some states the transfer itself brings the surveyors in within a set window, and if they cite you on staffing ratios while you're already running hot on agency, that's a second cost stacked on the first. I'd want to know the survey history and the exact change of ownership process from the state agency in writing before I ever signed, and that process is different state to state.

The admission screen is the part that jumps out at me. In rentals I've learned that everything painful downstream was visible at application if I'd asked the right question. Sounds like the equivalent here is the initial assessment, and whether it gets redone on a schedule or only when something bad happens. Did the seller have any assessment on file for the four residents whose care blew up, or was it all in a caregiver's head?

On the debt side, a going concern like this gets underwritten on a coverage test that assumes payroll stays roughly where it was at close. A 17 point swing in payroll as a share of revenue will break most covenant structures long before the cash actually runs out, and then you're negotiating with your lender at the same time you're chasing caregivers. Worth asking what your covenant tolerance is in writing before you sign, and confirming with the lender how they measure it, because operating business covenants are written differently than they are on plain rental property.

The agency number is what I'd want to dig into. 38 against 19 in house is exactly double, which means the moment you're covering even a fifth of your hours with agency your labor line is up 20 percent. Did you ever get the mix back down, or was the local hiring market just closed to you? I'm curious whether that was a market thing or a reputation thing at that particular house.

Agency exists because the operator has no bench, and building a bench costs money before it saves any. A regional operator can float four or five floaters across six houses and never call agency. One house of twelve beds cannot. That's the structural piece, and it's the reason the buyer who took it off you can probably run the same book at 55 percent payroll without changing a single resident agreement.

How do you even measure acuity before you close? You can't interview residents about their care needs while you're a stranger doing diligence, and the seller's file is the seller's file. Is there a standard tool where the numbers mean the same thing across operators, or do you have to hire a nurse consultant to walk the building and score it independently?

I'll push back on the diagnosis. You'd have had the same 14 months with perfect tiered agreements. Tiered pricing gets you maybe 700 a month more from four residents, call it 2,800, and you were burning 9,200. The thing that killed the deal was paying 38 an hour because you had no one else to call, and no contract clause fixes that. Buying a single twelve bed house without a staffing pool underneath it is the actual bet, and you lost that bet, not the paperwork one. @lantern is on the same point from the other side.