All Forum Posts by: Patrick Sharr

@Ryan Daigle Thanks, that's what I was thinking is sometimes if you want the maximum market rent, your vacancy rate may be sitting higher for longer and vice versa.  Then it just comes down to doing the cost benefit analysis of lost revenue with the higher vacancy for a longer period compared to having tenants in there at a lower rate.  That's good knowledge about the bad debt and vacancy.

@Greg Dickerson That's very helpful information around the estimates depending on the market and history of the property.  You're right these estimates should be even higher with the current environment, it definitely makes it harder to find a good deal with those increased projections but it is better to be on the safe side since we don't know how long this will last in certain markets.

Hi,

I'm trying to get my repetitions up underwriting mock apartment scenarios.  Looking for knowledge from the groups' experience.  When thinking about vacancy, concessions, loss to lease, bad debt:

1) When initially underwriting deals before going through due diligence, what percentage of gross potential rent do you factor in for concessions, loss to lease, bad debt to be conservative?

2) Have you seen a relationship between vacancy rate and concessions, loss to lease, bad debt or are they not highly correlated? If vacancy goes down from year 1 to year 2, does bad debt and concessions usually go up?  I guess it would depend on the local market and property for this one.  If it's a good market and vacancies are reduced, you might not have to give that many concessions or write off as much bad debt.

I'm in the same boat looking for a small multifamily property. I'm going to use the FHA loan and live in the property for at least a year which is the requirement. The good thing about the FHA loan is you are only required to put 3.5% down. You could go the conventional financing route, but the lender will typically require 15-25% down payment depending if you will live there or it will be non-owner occupied. Also, higher interest rates for investment property compared to owner occupied. Regarding how much you can potentially qualify for, talk to your lender. My lender said 75% of fair market value rent in that area reported by the appraiser is factored in for each unit you would not be occupying. For example, if the fair market value rent for a 2 BR in an area is $1,000, the lender would consider $750 as income towards covering the mortgage payments.