The 5 most important lessons I learned from underwriting 3600+ deals

I started my career in commercial investing underwriting properties. Meaning doing the financial modeling and financial projections. I’ve underwritten thousands of properties.

In this post I’ll go over some of the most important things I learned during my time underwriting deals. 

Let’s jump right in…

1 - No deal performs on the mark.

Every deal either overperforms or underperforms. You might hit in the ballpark but you’ll fall either short or above that.

So when you’re investing you want to be sure you have an investment that’s in a position to overperform on it’s expectations. 

2 - Return projections are easy to manipulate

There are 2 huge levers to pull to manipulate them the most. 

The first is organic rent growth and the second is exit cap rate. 

Those are some of the first 2 things I check when analyzing a new deal and are the 2 most important factors to see a sensitivity analysis on. 

One small swing in either of these 2 metrics and it can totally alter the deal for better or worse. 

3 - Sometimes you can’t squeeze tenants like you thought.

Landlords over the past few years have been squeezing every penny out of tenants..

$1,000 for rent

$50 for parking

$10 trash removal

$5 for pest control

$15 for amenities

$25 for common area utilities

At some point your business plan cannot be to bleed your tenants dry. 

A great way to check on an item like this is to look at the rent to income ratios of the property you’re purchasing. 

We like to see something below 30% of our proforma rents as an absolute ceiling. Anything above this and you’re selling a product that a majority of the prospective tenants can’t afford.

4 - Separate the business decision from the emotional opinion

I love my dog and believe the bond between humans and our dogs is very strong. Personally, I don’t believe in size or breed restrictions. 

After a few unit turns from large dogs, I can say I understand why some apartments have them.

Bigger claws, bigger teeth to bite on doors and counters, bigger bladders to pee on carpets, and most of the time even a large pet deposit won’t cover the damage done by a large dog. 

I’m not saying this is a deal killer but understand that sometimes the best business decision may conflict with our personal opinion. 

5 - Be a deal killer

In my background in sales, before I got into investing, I prided myself on being a deal maker.

Now I pride myself on being a deal killer.

We do everything we can to kill a deal, and if we can’t, then that’s the deal we go after. 

It’s one of the reasons we have less than a 1% acceptance rate on deals that we analyze and will continue to be hyper picky on what we bring out to our investors. 

I hope this post was valuable to you, if you’re not an investor with us yet, fill out this form HERE and we'll add you to our list.