A 31 lot manufactured housing park underwritten at a 19 percent IRR that got eaten by sewer infrastructure

Take a case worth studying closely: a 31 lot park in a small industrial town, 28 occupied, all tenant owned homes, lot rent at $265 against a market judged at $390. Purchase price $780k at 75% LTV, roughly $215k of equity in including closing costs. Private sewer collection with one lift station discharging to the municipal main, city water at a master meter. The underwriting called for a three year hold, rents climbing to $375 by year two, exit at a 7% cap, modeling out to a 19% IRR. What actually plays out in a case like this, in order: Month 4, the lift station alarms. The pump is original, a second pump had been disconnected years earlier and the panel wired for single pump operation, something a walkthrough with the seller standing nearby would never catch. Emergency pumping and vac truck service while a rebuild gets designed runs about $11,400 over six weeks. Month 9, the rebuild bid lands. New duplex pumps, new panel, new floats, wet well repair because the concrete has spalled. $86,000 against a $40k reserve. Month 11, excavation turns up roughly 400 feet of clay pipe with root intrusion at three joints. Camera work confirms it. Another $61,000, and not optional once the city has been out to the site and formed opinions about what is reaching their main. Months 12 through 15, an operator in that position typically ends up funding $190k of underground work out of personal credit, plus unplanned interest on top. The rent plan slips too. Say $265 to $315 in year one and $315 to $360 in year two rather than straight to $375, partly on notice timing and partly because raising rent 40% the same year the whole park gets dug up is a hard sell. Two residents leave anyway and one abandons a home, costing roughly $6,800 to resolve and leaving a lot vacant for eight months. Exit: $1,020,000 at a 7.1% cap on a real T12. After debt payoff, closing costs, and the borrowed capital plus interest, the return comes out to roughly $38k over three years and one month on $215k of equity plus $190k injected. Call it a 3% annualized return on capital at risk for the work involved. The lessons hold regardless of who runs the numbers: pay for a licensed contractor and a camera on every foot of private sewer before removing a contingency, every time, and treat that inspection cost as part of the purchase price rather than something to negotiate away. Size the reserve to a full replacement of the most expensive single piece of infrastructure, not to a percentage of revenue. On this deal that number was $86k for a station rebuild, discoverable with one phone call to a pump contractor before closing. Never fund park capex from personal credit; if a deal needs $190k, it needs $190k of committed capital at close, from the price, a seller holdback, or a partner. And the rent to market gap is not by itself the reason to buy. It can be real and still get consumed by the pipe.