How should a new investor read a fund deck that projects lot rent jumping from 290 to 425 in year two
Consider a private offering for a fund buying manufactured housing parks in three states. Say the deck shows six acquisitions, 480 lots total, average in-place lot rent at 290, with market rent claimed at 425 to 460 across the portfolio. Underwriting takes rent from 290 in year one to 425 by end of year two, then 4 percent annual increases, with an expense ratio underwritten at 34 percent, an 8 percent preferred return, a 70/30 split after, a five-year hold, and a stated exit at a 5.75 percent cap. Occupancy in-place sits at 88 percent, underwritten to 96 percent by year three through infill, on 65 percent loan to cost, floating with a cap purchased for 24 months. Four things in that stack deserve scrutiny, in order. First, a 46 percent rent increase in 24 months on residents in the lowest-cost housing in their market invites regulatory and reputational risk even where it is legal. Second, a 34 percent expense ratio undercuts the 35 to 45 percent range typical for this asset class, before the sponsor has operated the assets at all. Third, an exit cap set below the likely purchase cap is where the projected returns actually come from, and it is the assumption an investor has the least ability to test. Fourth, moving occupancy from 88 to 96 percent on 480 lots means finding, moving, and setting close to 38 homes, which is an operational lift, not a spreadsheet adjustment. Of those four, the exit cap assumption usually does the most damage if it is wrong, since it drives the return math directly. The rent increase and expense ratio are the ones a new investor is right to flag, though they can sometimes be explained by real operational upside. The infill number is the one most often overweighted because it feels concrete and countable, when in practice an experienced park operator can execute that pace faster than it looks on paper.
