This follows my last post on underwriting downside instead of upside. The short version: I stopped asking "does this deal work if everything goes right?" and started asking "does this deal work if everything goes wrong?" A 3/2 in Clarksville put that to the test.

The property: 1,400 square feet, built 1998, decent neighborhood, $260,000 asking price. The broker's pitch was simple — rent it for $1,700/month, finance conventionally, collect checks. Clarksville has real rental demand. Fort Campbell anchors it. About 43% of households rent. The market isn't the problem.

The seller's version

Purchase Price	$260,000
Monthly Rent	$1,700
Annual Gross Rent	$20,400
Vacancy	0%
Insurance	$1,200/yr
Taxes	$1,800/yr
Maintenance	$1,200/yr
NOI	$16,200

20% down is $52,000. Debt service at today's rates:

Rate	Monthly Payment	Annual Debt Service
7.25%	$1,419	$17,027
6.50%	$1,315	$15,776

At 6.5%, the seller's numbers produce $37/month. At 7.25%, negative $69. Neither is a deal. But the rate isn't the problem — the assumptions are.

The normalized underwrite

Vacancy: No property runs at 0%. One tenant turnover typically means 30+ days vacant. I use 8% — $1,632 off gross.

Maintenance: $100/month on a 27-year-old Tennessee house isn't maintenance — it's wishful thinking. The $100/month may work is the house has gone through a major rehab: New roof, updated electrical panel, new water heater/AC unit etc. My floor is 1% of purchase price though: $2,600/year.

Property management: I don't self-manage, except the homes we have where the families have been there a very long time. Pencil in 8-10% of gross rents regardless — your time has value, and the numbers need to survive a manager if you ever want to scale. At 9%: $1,836/year.

CapEx reserve: The HVAC, roof, water heater, and appliances on a 1998 build aren't new. I set aside $2,000/year, separate from maintenance.

Gross Rent	$20,400
Vacancy (8%)	($1,632)
Insurance	($1,400)
Taxes	($1,900)
Maintenance (1%)	($2,600)
Management (9%)	($1,836)
CapEx Reserve	($2,000)
True NOI	$9,032

Now run it against debt service:

Rate	Annual DS	Annual CF	Monthly CF
7.25%	$17,027	($7,995)	($666)
6.50%	$15,776	($6,744)	($562)

The rate drop saves $104/month. You're still losing $562/month on a clean underwrite — $6,744/year before any surprises.

Rates don't fix price.

I hear investors say they're waiting for rates to drop before buying. On this deal, 7.25% to 6.5% moved the needle $104/month. It didn't turn a losing deal into a winning one.

To reach break-even at 6.5% with a normalized underwrite, you'd need to buy around $162,000-$165,000. That's $95,000-$98,000 below asking.

If rates dropped to 5% tomorrow, break-even moves to roughly $185,000. Still $75,000 below what the seller wants. In real estate, you make money on the buy side. The purchase price locks in your outcome — the rate adjusts it slightly.

Clarksville stays on my list.

I like this market. Fort Campbell generates one of the most reliable tenant bases in the country. The population is growing. Tennessee landlord law is about as friendly as it gets.

The broker's $1,700 rent figure was accurate for a 3/2 in a decent neighborhood. The rent wasn't the problem. The price was — it required zero vacancy, no management, bare-minimum maintenance, and no capital reserve. Accept those assumptions and you're not investing, you're subsidizing someone else's housing out of pocket.

The seller didn't move on price, so I passed.

The investors who get burned aren't the ones who pass. They're the ones who buy deals that only pencil on paper and spend three years making up the difference.

What does your single family underwrite look like? Are you running real normalized expenses, or banking on appreciation to cover the gap?