Do you remember the moment when you first discovered the world of multifamily investing?
The excitement, the sense of limitless potential, and the dreams of financial freedom that danced through your mind? Along with that excitement, there was probably a healthy dose of fear and uncertainty.
That’s totally normal… especially when you’re just starting out!
But, what if I told you there’s a SECRET WEAPON that can help you confidently navigate the complex world of multifamily investing and secure winning deals, all while minimizing the risk of making costly mistakes? That secret weapon is called underwriting.
When it comes to real estate investing, underwriting is the magic ingredient that separates successful investors from those who struggle to achieve their goals.
So today, we’re going to dive into the fascinating world of underwriting and discover how it can help you transform your real estate game forever.
Let’s get started. 👇
Ken, What Even is Underwriting?
Underwriting is the process of analyzing and evaluating the potential risks and rewards of a real estate investment. In simpler terms, it’s the due diligence that needs to be done before diving headfirst into a deal. By accurately assessing the true value of a property, identifying potential risks, and determining the potential upside profit, you can make informed decisions and avoid costly mistakes.
Okay… But Why is Underwriting So Important Anyway?
Good question. Imagine you’re a pilot flying a plane…
You wouldn’t take off without checking the weather, fuel levels, and conducting a thorough pre-flight inspection, would you?
(Fun fact: I used to be a pilot back in the early 2000s, and even operated several Cessna Pilot Centers in Northeast Ohio)!
So you can think of underwriting as the pre-flight checklist for real estate investing. By thoroughly analyzing a property, you can:
- Identify winners and avoid losers: By accurately assessing the property’s value, potential cash flow, and profit potential, you can confidently decide whether a deal is worth pursuing or walking away from.
- Uncover sneaky expenses: Many investors fail to consider hard-to-find expenses that can have a significant impact on their bottom line. With a thorough underwriting process, you can identify these potential pitfalls and factor them into your decision-making.
- Unlock the hidden upside: By analyzing the untapped potential in a multifamily property, such as under-market rents or low occupancy rates, you can identify opportunities for value-add strategies that will supercharge your earnings.
At the end of the day, it’s all too easy to feel overwhelmed by the numbers when you’re just starting out. Fear of the unknown can be crippling, causing you to miss out on countless opportunities while you hesitate and second-guess yourself.
Underwriting FIXES this issue.
5 Key Metrics to Become an Effective Top 1% Underwriter
Now that you understand the importance of underwriting, let’s take a closer look at the crucial metrics that can help you accurately analyze and evaluate potential multifamily deals.
- Set Up a Complete Master Spreadsheet: To streamline your underwriting process, set up a master spreadsheet that includes all essential data points. For example, you can use our KRI Deal Screener to determine, in just a few minutes, whether a deal is worth digging into, and eliminate the need to spend countless hours fully underwriting deals that simply don’t make sense.
- Spread the Seller’s Numbers: Carefully analyze the seller’s T-12 (trailing 12-month statement), as it provides valuable insights into the property’s historical income and expenses. Be careful! A common mistake beginners make is leaving out an important number, just because it isn’t included in the seller’s numbers.
- Analyze Rents and Rental Income: Assessing the property’s current and potential rental income is a critical part of the underwriting process. Most investors see upside potential in rents, but it’s crucial to base your assumptions on solid data. Analyze the property’s rent roll, research market rents, and consider any risks associated with your projections.
- Complete a Market Survey: Knowing your market is very important when evaluating potential deals. Conduct a thorough market survey by researching comparable properties, analyzing their rents, amenities, and occupancy rates. Also, you NEED to go out there and visit properties in person. This hands-on approach helps you gain a deeper understanding of the property’s condition, location, and potential challenges or opportunities.
- Create a Year Zero Scenario: After gathering all the relevant data, use a standard spreadsheet to compare the seller’s numbers against your projections. This “Year Zero Scenario” helps you identify any discrepancies or unrealistic assumptions, ensuring that your underwriting analysis is as accurate and reliable as possible.
Start Securing Winning Deals With My NEW Multifamily Underwriting Course!
While those five steps provide a solid foundation for getting started with underwriting, there’s SO much more to learn if you’re serious about achieving success in the world of multifamily investing.
To help you accelerate your journey and unlock your full potential, I’m super thrilled to introduce my new Multifamily Underwriting Course (and all-in-one spreadsheet) specifically designed for aspiring multifamily investors like you.
Here’s what you can expect when you enroll:
- In-depth lessons on advanced underwriting concepts and strategies
- Step-by-step guidance on how to analyze and evaluate multifamily deals
- Real-world case studies showcasing successful underwriting in action
- Access to our proprietary “Back of the Napkin” spreadsheet tool, designed to simplify and streamline your underwriting process
- …And so much more!
No more fear of the unknown, no more hesitating or second-guessing yourself, and no more missing out on countless opportunities. This course will give you the knowledge, skills, and confidence you need to easily determine whether a deal is a WINNER or a LOSER.