When a deal lands in your inbox, do not begin by deciding whether you like it.
Begin by looking for the stain on the hangar floor.
In plain English, this first underwriting pass is a fast search for the assumption that can make the deal wrong fastest. It does not replace full diligence. It decides whether the deal has earned more of your time.
The PDF wants you seated, comfortable, and staring at the destination. Stay outside for thirty minutes.
The 30-minute walkaround
| Minute | Task | What you are looking for |
|---|---|---|
| 0-5 | Read the summary | Claimed returns, hold period, business plan |
| 5-10 | Check rent roll and T-12 | Current income versus projected income |
| 10-15 | Check debt | Maturity, rate, amortization, reserves |
| 15-20 | Check capex | Cost, timing, contingency |
| 20-25 | Check exit | Exit cap, sale costs, debt payoff |
| 25-30 | Write the top three risks | The assumptions carrying the story |
Set a timer. You are not trying to finish the underwriting. You are checking whether the current operations, loan, renovation plan, and exit can tell the same story without borrowing adjectives from the summary.
Thirty focused minutes can save two hours spent polishing someone else’s optimism.
Open the engine behind the NOI
Consider a hypothetical summary where year-three NOI grows from $700,000 to $950,000.
NOI increase:
$950,000 - $700,000 = $250,000
At a 6.0% cap rate, that increase implies:
$250,000 / 0.06 = $4,166,667
Now ask what creates the $250,000. Separate rent premiums, occupancy gains, other income, payroll changes, repairs, taxes, and insurance. If most of the improvement comes from higher rents and lower expenses with thin documentation, you found the engine carrying the valuation.
Do not argue with the $4,166,667. Inspect the $250,000 that creates it.
Claims need paperwork
If a claim depends on a document, ask for the document:
| Claim | Document |
|---|---|
| Rents are below market | Rent roll and rent comps |
| Expenses will fall | T-12 detail and manager budget |
| Taxes are modeled correctly | Tax bill and reassessment estimate |
| Debt is safe | Lender term sheet |
| Renovations create premiums | Unit-turn history and contractor bids |
The first pass should also identify what is absent:
- No current insurance quote.
- No contingency in the renovation budget.
- No extension conditions beside the loan maturity.
- No sale costs or debt payoff in exit proceeds.
- No bridge from scheduled rent to collected rent.
Missing evidence is not proof the claim is false. It is proof that confidence has arrived before its luggage.
Write the discrepancy card
Keep the output to one page:
| Risk | Why it matters | Source requested | Status |
|---|---|---|---|
| Rent premium | Drives NOI growth | Signed renovated leases | Missing |
| Exit cap | Drives sale value | Sales comp packet | Partial |
| Insurance | Hits NOI | Current quote | Received |
For each risk, write the base assumption, your checked range, the document requested, and the model line affected. A red flag without a next check is only a mood.
Decide whether it earns the hangar
Ask three questions:
- What assumption makes the upside disappear?
- Which missing document would change the answer most?
- What happens to debt coverage, reserves, and exit value if the top risk misses?
If the top risk remains unsupported, do not upgrade your confidence because the deck is attractive. Request the evidence, run the downside, and decide whether full underwriting is worth the time.
The first pass does not approve the deal. It tells you whether the wheels deserve to leave the ground.
PR Steinfurth Equity provides educational information only. Nothing on this website is an offer to sell or a solicitation of an offer to buy any security, nor investment, legal, or tax advice. Any securities offering is made only to qualified investors through official offering documents. Real estate investments involve risk, including possible loss of principal. Past performance is not indicative of future results.