Sold a 31-lot park after three years and cleared $38k on a deal I underwrote at a 19% IRR. The sewer ate it.
Closing statement came back last month so I have the real numbers now.
Bought a 31-lot park in a small industrial town, 28 occupied, all tenant-owned homes, lot rent $265 against market I judged at $390. Price $780k at 75% LTV, so about $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. Underwrote a three-year hold, rents to $375 by year two, exit at a 7% cap. Modeled 19% IRR and I believed it.
What actually happened, in order:
Month 4, the lift station alarmed. Pump was original, the second pump had been disconnected years earlier and the panel wired for single-pump operation, which nobody caught because I inspected the station by looking at it with the seller standing next to me. Emergency pumping and vac truck service while a rebuild was designed: $11,400 over six weeks.
Month 9, the rebuild bid. New duplex pumps, new panel, new floats, wet well repair because the concrete had spalled. $86,000. I had $40k in reserve.
Month 11, during the excavation, the contractor found that roughly 400 feet of the collection line was clay pipe with root intrusion at three joints. Camera work confirmed it. That was another $61,000 and it wasn't optional, because the city had by then been out to the site and had opinions about what was reaching their main.
Month 12 to 15, I funded $190k of underground work total out of a HELOC on my own house at whatever the rate was doing that year, plus $18k of interest I hadn't planned to pay anywhere.
The rent plan, meanwhile, slipped. I went $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 I did not want to be the new owner raising rent 40% in the same year I dug up the whole park. Two residents left anyway and one abandoned a home, which cost me $6,800 to deal with and left a lot vacant for eight months.
Exit: $1,020,000 at a 7.1% cap on a T12 that was real. After debt payoff, closing costs, the HELOC balance, and the interest, I put roughly $38k in my pocket over three years and one month on $215k of equity plus the $190k I injected. Call it a 3% annualized return on the money at risk, and I worked for it.
What I'd do differently, plainly:
I'd pay for a licensed contractor and a camera on every foot of private sewer before removing a contingency, every time, no exceptions, and I'd treat the cost of that inspection as part of the purchase price rather than as a thing to negotiate.
I'd size the reserve to a full replacement of the most expensive single piece of infrastructure, not to a percentage of revenue. On this deal the number was $86k for a station rebuild, and I could have known that from a phone call to a pump contractor before closing.
I'd never fund park capex from personal credit. If the deal needs $190k it needs $190k of committed capital at close, either from the price, from a seller holdback, or from a partner. Borrowing against my house turned an operating problem into a household one.
And I'd stop treating the rent-to-market gap as the reason to buy. The gap was real and I captured most of it. It just paid for the pipe.