How Are You Stress-Testing Your Deals in Today’s Market?

Question

I’ve noticed a shift lately in how investors are underwriting, interest rates are higher, expenses are less predictable, and tenants seem more price-sensitive in some markets. Personally, I’ve started running more conservative models, building in higher vacancy assumptions and smaller rent bumps than I used a couple of years ago.

At the same time, I don’t want to get so conservative that I miss good opportunities. There’s always a balance between protecting downside and chasing upside, and I’m still figuring out where that line should be today.

I’d really appreciate hearing how others are approaching this. I know BiggerPockets has investors at all stages, from first deal to institutional level, so I’m curious what’s working for you.

Questions:

• What assumptions are you baking into your underwriting right now?
• Are you stress-testing interest rates, vacancy, or rent growth more aggressively than before?
• Do you think today’s environment favors caution, or is it creating openings for bold plays?

What assumptions are you baking into your underwriting right now?

Are you stress-testing interest rates, vacancy, or rent growth more aggressively than before?

Do you think today’s environment favors caution, or is it creating openings for bold plays?

Eric Fernwood · Answer

Hello @Daniel Sehy,

We haven’t had to adjust our analytics because we’ve always taken a conservative approach. Rent is the most critical factor when evaluating a property, so we estimate it four times: software analysis, manual review, onsite inspection with property manager input, and a final check before listing. Combined with a full accounting of recurring costs, this process has kept our projections accurate across more than 570 properties.

Another key factor is consistency. For over 17 years, we’ve focused on the same tenant demographic. With vacancy rates below 2%, we’ve built reliable projections based on years of historical data specific to this group.

In short, accuracy is everything. One bad assumption can turn what looks like a solid investment into a money drain.

Jackie Carmichael · Answer

Daniel — great question. I think a lot of investors are wrestling with exactly this balance right now. A few things I’m seeing and recommending:

1. Interest Rates:

I always model deals with today’s rate +1% buffer. If it still pencils, I know I can ride out short-term bumps. For BRRRR/refi plays, I underwrite the exit at today’s rates, not at a “future lower” rate.

2. Vacancy & Rents:

Instead of 5% vacancy, I’m underwriting 8–10% in most markets. For rent growth, I only assume 1–2% annually unless there’s a clear catalyst (new jobs, university expansion, etc.).

3. Expenses:

Insurance has been the biggest wild card. I’m padding OPEX by at least 10–15% above last year’s actuals, especially in states seeing big premium hikes (TX, FL, Midwest storm belts).

4. Leverage:

Deals that only work at max leverage are too tight right now. I’d rather see a deal that cash flows at 70–75% LTV. If it works there, it’s truly solid.

My take: caution is smart, but the best opportunities are usually found in uncertain markets. If you’re well-capitalized and have flexible financing lined up, you can pick up assets others are passing on.

On my side, I work with investors to structure financing (bridge, DSCR, and long-term) so they can underwrite multiple scenarios — that way if rates move or expenses creep, they still have a viable exit.

Curious — in your underwriting right now, which is hitting deals harder: rising expenses or interest rates?

Jackie Carmichael · Answer

@Daniel Sehy

Really appreciate that, and you hit the nail on the head — it’s rarely one big miss that kills a deal right now, it’s the stack of little ones.

For your questions:

1. Deals with a 5-year catalyst:

If it only barely pencils today, I underwrite it two ways:

• Base Case: Works at today’s numbers with minimal upside assumed.

• Catalyst Case: Layer in the rent growth/redevelopment/rezoning story.

If the deal only works because of the catalyst, I’ll usually pass. But if it’s breakeven today and the catalyst is a free option on top, that’s worth considering.

2. Modeling unknowns:

I’ve started running a “shock test” — instead of just bumping vacancy or rates, I model:

• +20% property tax hike

• +20% insurance premium

• A major CapEx hit (roof/HVAC) year one.

If the deal survives one of those hits without going negative, it’s in the safe zone.

3. Non-financial variables:

GC risk is huge, and I’d add sponsor capacity. Teams running too many projects simultaneously are taking longer to execute, which turns into soft costs and carry drag. I also now stress-test exit liquidity— who’s your buyer in 2–3 years if debt markets stay tight?

The way I frame it for clients: today’s market punishes thin margins. If you’re okay with a slimmer return today, make sure the floor is strong enough to survive the “death by paper cuts” while you wait for the upside.

Ken M. · Answer

.I keep it simple. I look at Redfin.com Solds in the last 3 months in the neighborhood, of like construction, size, year and build, then I also look at Rentals for the area to make sure my offer cash flows. If it doesn't cash flow, I reduce my offer.

Daniel Sehy · Answer

@Eric Fernwood - 570 properties with <2% vacancy is an achievement. Respect where it’s due. That level of consistency across tenant class and underwriting is rare, especially with what’s changed in the past 24 months.

You hit something big here:

A couple questions I’d love your take on (and open to the group too):

What’s one assumption you see newer investors getting dangerously wrong right now — even if the spreadsheet looks clean?

How do you handle underwriting for a market you want to enter, but don’t have years of your own tenant data in?

Any heuristics or “deal breakers” that have stood the test of time for you — regardless of macro conditions?

We’re refining our own underwriting logic daily, this convo is gold for those of us focused on long-term scalability, not short-term flash.

Daniel Sehy · Answer

@Jackie Carmichael

Love this, Jackie, seriously sharp take.
You're echoing a lot of what we’re seeing: the deals that used to work at 80% LTV now collapse with even minor rate or insurance shifts. And you're right, it's not just interest rates anymore… it's death by a thousand paper cuts (taxes, premiums, OPEX creep).

We’ve been asking ourselves:

So I’m curious:

What do you do if a deal barely pencils today but has a 5-year catalyst story?Do you still walk, or take a smaller return now in exchange for long-term upside?

How are you modeling the unknown unknowns, like a tax hike or deferred maintenance blow-up?

What’s a non-financial variable you’re now stress-testing that you didn’t consider a year ago?
(We’re starting to build in team fatigue and GC risk, because those delays are becoming real line items.)

Appreciate your insight, this thread needs more of this kind of insight.

How Are You Stress-Testing Your Deals in Today’s Market?

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