Year one on an 11 room house: 38k NOI against a 52k underwrite. Not rents.

Posting the variance because the shape of it surprised me and I've since seen it in two other operators' books.

Acquisition: 610k on an eleven room licensed house in a mid-size market with a hospital and a community college inside two miles. Rooms at 725, all furnished, utilities included, weekly common area cleaning. Potential gross 95,700.

What I underwrote: 8% vacancy, 5% credit loss, opex at 42% of effective gross. That gave me 52k of NOI against 44k of debt service. Thin, but it was supposed to grow.

What happened: economic occupancy landed at 74%. Rents were fine. Every room that came available took between 19 and 34 days to fill, and I had 14 move-outs across 11 rooms. My 8% vacancy assumption was a portfolio-level number applied to a property where the unit of turnover is a room, and rooms turn three to four times faster than apartments. Fourteen turns times 26 average vacant days is 364 room-days, which is 9% right there before a single collection problem.

Then collections. Three residents left owing between 400 and 1,900. Credit loss came in at 4,100, close to 4.3%, so that assumption held.

Then utilities. I budgeted 700 a month. Actual was 1,180. Eleven adults, individual space heaters, laundry running constantly. That's 5,760 of pure miss.

Then the fire marshal flagged the second floor rear egress and two rooms sat empty five months while I got the work permitted and done. 18,300 in work, plus the lost rent already counted above.

NOI 38.4k against 44k of debt. I fed it 9k from the operating account and I'm still not sure I priced the asset wrong so much as I priced the labor of it at zero.

What I changed. I underwrite turnover in room-days now, expected turns times expected days vacant, and I stopped using a percentage. I hold a licensing and code reserve of 20k separate from capex, because the inspection cycle is not a maintenance event and it doesn't respect your capex schedule. And I model utilities per occupied bed with a winter number and a summer number instead of an annual average.

If I'd done all three at underwrite, the deal shows about 39k of NOI on paper and I don't buy it at 610k. That's the whole lesson.