How to become an expert underwriting deals?

Question

What's the best content you've found to help you learn how to underwrite these deals?  I've taken a couple webinars but dont remember a whole lot.  Really looking to hone in and learn how to do this better.  What would you recommend? TIA

Evan Polaski · Answer

@Nick Rivers, where do you feel you are coming up short?  There is the tactical "act" of underwriting, then there is the much more valuable "art" of underwriting.

The act can easily be taught.  I like the Adventures in CRE as a good resource for model building and underwriting.  But ultimately, if you have a model you are wanting to use as: "plug in in-place rent in cell C10.  Plug in post renovation rent in cell E10..."  Or put in your interest rate here, and your loan balance there.

The art is where I think most people struggle, and I don't think this can really be done without real world knowledge.  For this, the learning is done by continually talking with people in the market you are looking and similar deals.  What are current loan terms today versus 2 months from now versus in 2 yrs?  How much will this unit cost to renovate?  What are actual rents in that submarket today?  What are tenants expecting in terms of updates?  How much will those updates cost?  Should you add a playground or dog park, or would your money be better spent on putting in gated access?

If you are just downloading data room info from brokerage sites and plugging into a model, you are refining your skills on the "act", which is certainly necessary and helps make the process faster.  But the "art" really only comes with time in market and a deep understanding of both the market and the operations of assets.

Jonathan Bombaci · Answer

@Nick Rivers This might be a bit controversial, but I actually don’t think underwriting is the most important part of "finding deals." A lot of people tend to overcomplicate it. To this day, I still use the BiggerPockets Calculator for everything from 2-4 unit properties all the way up to the 224-unit portfolio we're working on closing this February. For me, the first pass at underwriting is simply about determining if a deal is worth exploring further.

In the current market, I’d say 9 out of 10 deals are dead on arrival. The exercise of underwriting helps you sift through those to find the 1 out of 10 that’s worth taking a closer look at. It shouldn’t take more than five minutes to do an initial underwriting. My advice? Make it a habit—underwrite one deal a day until you get the hang of it.

The tougher part, and I think what you’re really asking, is how to turn solid underwriting into a profitable deal. That’s less about the numbers and more about developing a niche and understanding your product. Once you walk a property, you often have to throw your original underwriting out the window. At that point, you’re building a business plan—something you can take to the bank. That might include things like adding units, converting commercial space to residential, or finding ways to boost income (like adding parking).

The key is recognizing opportunities while walking the property, and that takes experience. The more properties you walk and the more industry conversations you have, the better you’ll get at identifying these opportunities. There’s no shortcut to experience, but you can accelerate your learning by leveraging other people’s experiences.

One of the best ways to do that is by attending meetups. My Team hosts 12+ Free meetups each quarter in Massachusetts, New Hampshire, and Maine, under the name Simplified Real Estate Meetups. That said they’re everywhere in every state. Check out the "Events" tab here on BiggerPockets to find some near you. Talking to people who’ve done deals in your market, both successful and unsuccessful, will give you invaluable insights and help you develop your niche.

I know that’s a broad answer, but hopefully, it gives you a good starting point!

Nick Rivers · Answer

Thanks Charles,  but do you have any courses or webinars you would recommend?  I'm more serious about it now so I don't think I retained a lot when I took them. Thanks

Chris Seveney · Answer

Bruce Kirsch has a great course on underwriting. He was a former professor and has online courses that are good to have. Not sure if I can put the link in so left it out. Note I have no affiliation with him.

Charles Seaman · Answer

@Nick Rivers If you've already taken courses and webinars, then the only thing that will help you become more proficient is by actually underwriting deals on a regular basis.  Courses and webinars are great if you're getting basic information to help start you off, but you'll never truly retain the information if you don't apply it.

Robert Rixer · Answer

Underwriting is highly overrated by new investors. The real skill is understanding the variability and risk in each number which is not always numerical or scientific. The only way to achieve this is by looking at and doing real deals.

Charles Seaman · Answer

@Nick Rivers Check your connection requests and inbox.  I sent you a link that might help you.

Jaycee Greene · Answer

@Nick Rivers I would HIGHLY recommend walking through an underwriting exercise with someone 1:1 that already does the type of U/W on a property type that you're interested in.

Nick Rivers · Answer

Yeah I just need to get some different viewpoints on underwriting and then actually do it myself a couple times a week.  I think my main pain point is underwriting the property as it is and then seeing what it could be and then making decisions on if it's worth and how those decisions are made.

How to become an expert underwriting deals?

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