Immediate Value add Underwriting?

[Mallikarjun Reddy Pateel]

Hi, I'm currently Underwriting a deal. Rents are below market value. I don't have to do any rehab I can Increase the rents as is. My question is do i still underwrite the NOI, Cap rate for current rents or Market rents(which increase my NOI 20%)?

[Rick Martin]

You can write in market rents as your gross potential rents, but add loss to lease to account for the difference between your current and market rents. At some point in time on your proforma, you'll achieve market rents. How long will it take? Tenants may not decide to pay the new rent and move out, so it will take time to turn the units over. You can base your offer on the t12 and current rents, but know that at some point in year 1 or 2 you will be at market rents.