A letter about payment standards put my whole model eleven percent off

I hold a passive interest in a small portfolio of scattered single family rentals, mostly three bedroom, mostly voucher tenants, run by an operator I've worked with for years. I get the reporting and I build my own model on top of it because I don't trust anyone else's assumptions including my own.

My model had rents growing at a market rate. That was the mistake. These rents don't grow at a market rate. They grow when the payment standard for that bedroom size in that authority moves, and then only up to what the unit can actually get approved for after a rent reasonableness comparison.

So last year the standard came out and moved more than I'd penciled. Eleven percent on the three bedroom figure. Great, right? Except the operator only got part of that on most of the units, because on the older houses the rent reasonableness comparison held them closer to where they already were. On two of the better-condition houses he got most of it. On one he got nothing.

I called him and asked how he decides which ones to push. He said he pushes the ones where he's put money in, because he can point at the money. The kitchen he redid, the new HVAC. That's the argument, and it's an argument he makes to a person on the phone with a form.

What I rebuilt afterward: two lines instead of one. Payment standard, which comes from the authority, and achievable contract rent, which comes from the condition of the specific house. They diverge, and the gap between them is roughly the capital he's willing to put in. That's a much more honest model than the one I had.