Jason Williams, Ph.D.'s Linkedin Analytics

7 Red Flags I typically see in underwriting. Red Flag #1: Trusting but not verifying I have seen uncountable times, underwriters using information directly from the broker / seller without verifying firsthand or using a trusted third party. Red Flag #2: Using temporary trends for the long game We are in different times than we were 3 years ago. For example: If you had 23% rent growth 3 years ago, you cannot assume you will have the same growth rate year after year. Red Flag #3: Arbitrarily following a guru There are reputable “GURUs” out there. There are also many more “GURUS” who are only selling a program and do not have your best interest at heart. Be careful who you put your trust and hard-earned money into. Red Flag #4: Blindly putting numbers into a model Do you know what all the numbers in your underwriting model mean, or what they represent? If you don’t, how do you know if the values are accurate for your market or not? Red Flag #5: Considering only annual cashflow Many underwriting models only consider annual numbers. Can you accurately run a business if you only knew what you should be getting once a year? I have seen many times annually positive cashflow, however, on the monthly schedule, you are tapping into reserves for the first 6 months. Do you have enough? Red Flag #6: Not stress testing Everyone underwrites “conservatively”, but do you account for worst case scenarios and what kind of returns you would get at those conditions? Stress testing and sensitivity studies should be an active part in your underwriting. Red Flag #7: Not concentrating on a single market If you know your market and you know your market very well, You will be able to make more accurate and meaningful assumptions and predictions in your underwriting model. Stretching to multiple markets will be more difficult for each market you invest in. Bonus Red Flag: The biggest red flag of all is not having coaching, teaching or mentoring to help facilitate using an Ironclad Underwriting Model