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Special Needs Housing Deal That Didn’t Work Out

A year ago I was approached by an agency that provides home healthcare services to people with special needs. They wanted to rent a 4-bedroom 2 full bath 2,000 square foot ranch, make extensive structural modifications to the house to meet state-regulated requirements (such as retrofit the house with a sprinkler system, replace bathtubs with showers, handicap accessible ramps, etc) and set up an office for a 24/7 on-site supervisor in what was traditionally the living room of the ranch. They would then move in four tenants and take full responsibility for the structure and of course their operations for which they were licensed by the state.

I met with the quality assurance consultant of the company and I toured a similar ranch to see how such ranches were set up as fully state-compliant facilities. Certificates of compliance and inspection approvals from four different state and local authorities decorated the walls of the on-site office. I took my property off the market while we did the due diligence to accommodate the needs of this company.

I felt uncomfortable when the company delayed putting down a deposit to take the property off the market, but I felt that the goodwill was a good investment in this relationship to expand this specialty business and find other similar ranches that can be converted to meet the needs of this licensed healthcare service provider company.

During the due diligence, I found that my entity could not get insurance for the situation in which a 24/7 supervisor would be present on site. I also found that there were several local and state restrictions regarding such facilities. I was willing to work with the healthcare company to address all the challenges but it became clear that this could be done by selling the property to the company instead of renting it to them.

We drew up an agreement for the healthcare company to purchase the property and the company said they needed a few more days for their attorneys to review the agreement. In the meantime, they brought in several members of their board of directors to tour the property and we established a very positive and cooperative working relationship with the individuals involved in anticipation of signing the contract and getting a deposit. I also called a well known expert in special needs housing and he said that these type of rentals work well but not in cases where there is 24/7 on-site supervision. This confirmed that the best path forward was the decision for the healthcare company to buy the property instead of rent it.

According to the quality assurance consultant for the company, I did more due diligence and showed more willingness to meet the needs of the healthcare company than the others in our area that they contacted. I felt good about this and I anticipated that finding ranches that would meet their needs would be a good win-win business.

The business model was that I would find suitable ranches, purchase them, renovate selected systems such as roof and HVAC, but not invest in anything related to walls, ceilings or bathrooms since the healthcare company would need to file permits for the modifications in their name and perform the rest of the required renovations, all after they purchase the partially renovated property. This would be a win-win rinse-and-repeat business for both parties.

It all sounded good except that the healthcare company kept stalling in signing the purchase agreement or even putting down an earnest money deposit to keep the property off the market. First they said there was a delay with their funding from the state. Then they said their attorneys were not available to review the contract.

I am usually no fool and I have learned over my years in business how to deal with people who talk a good game and don’t deliver. I have been saying for years that “contracts are good as the people signing them.”

When the property was off the market for several weeks of this learning curve, I informed the president of the company that I need a deposit to keep the property off the market and we set a date to meet at the property a few days later when he will have the check in hand.

You guessed it, he texted me that morning that he does not have the deposit.

In the final analysis, the problem had nothing to do with special needs housing. It had to do with the credibility of the decision maker. No matter how much experience you have in business, you will always encounter individuals who appear to have everything in place, but just can’t deliver. As you get more experience, you get better at weeding these people out, but every once in a while, one slips through the cracks.

I put the property back on the market as a standard rental and it rented very quickly.

I will not lose faith in all of humanity based on one person who threw away his credibility. This was just one more lesson in managing the balance of good business practices with interpersonal relationships. The price I paid for this lesson was a few weeks of lost rent and about 10 hours of due diligence effort. I can live with that.

Besides, I learned a lot about a new business model that might come in handy in the future.

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