Updated 6 months ago on . Most recent reply
Your common underwriting pitfalls
What are some common pitfalls to your underwriting you wish you could solve? For me, every underwriting spreadsheet I found was never exactly what I needed.
I’m curious to hear your thoughts
Most Popular Reply
Here lies the problem:
every underwriting spreadsheet I FOUND was never exactly what I needed.
You are essentially starting a business and investing tens of thousands of dollars - I still cannot understand why people don't MAKE their own spreadsheets. If you can't make one, you likely should not be investing yet. Why? Because you don't know what you're doing,
IF you MUST use a sheets you found - take the parts you like from each and create your own.
For me personally - I don't use anything pro forma or even appreciation. I look at cashflow and equity capture at the buy. Really the only two things I care about - cashflow should at the MINIMUM sustain the business while equity capture increases your net worth. After that I like to add in depreciation to my return.
Pitfalls - underestimating insurance and CapEx. Insurance here in Louisiana has increased dramatically over the past 3-4 years - 50% in a lot of places. The cost of labor and materials has also gone up substantially AND big things do wear out. The roof will need to be replaced at some point. Siding. Appliances. Paint. AC Units. General wear and tear. And these items can hit sooner than expected. So make sure you budgeted good for these - I'd do no less than 10% for CapEx and 10% for general maintenance.
I don't have any problems with spreadsheets - simply add or create what you would like into yours. The KEY is accurate INPUTS (estimates for your categories).
Go look up the 4 square method by Brandon Turner on YouTube - super simple that will get you started off in the right direction.