How We Underwrite Every Deal
A transparent look at our acquisition analysis process — from initial screening to final recommendation. Every number, every assumption, fully documented.
Disciplined underwriting is the foundation of everything we do. Here's exactly how we analyze a potential acquisition.
Step 1: Buy-Box Screening
Before we run any numbers, a deal has to pass our buy-box filter: - Minimum 2 units - Wisconsin location in a market we know - Asking price within our target range - No major structural red flags from listing photos
If it doesn't pass, we don't waste time on full underwriting.
Step 2: Income Analysis
We look at two income figures: - Current rents — what tenants actually pay today - Market rents — what comparable units rent for
We underwrite to current rents, not market. Rent upside is a bonus, not a justification for overpaying.
Step 3: Expense Modeling
We use conservative expense assumptions based on our portfolio actuals: - Vacancy: 5-8% depending on market - Management: 8-10% of effective gross income - CapEx reserve: 5% of gross rent - Insurance, taxes, utilities: actual quotes or recent actuals
We don't use seller-provided expense numbers. We build our own model from scratch.
Step 4: Financial Metrics
From the income and expense model, we calculate: - Net Operating Income (NOI) - Cap Rate — NOI / purchase price - DSCR — NOI / annual debt service - Cash-on-Cash Return — annual cash flow / total cash invested - Rent-to-Price Ratio — monthly gross rent / purchase price
Step 5: Risk Assessment
Every deal gets a risk memo identifying the top 3-5 risks and our mitigation plan. Common risks include deferred maintenance, tenant quality, market concentration, and environmental concerns.
The Verdict
Based on all the above, each deal gets one of three ratings: - Pass — doesn't meet our criteria - Pursue — meets criteria, worth deeper due diligence - Strong Buy — exceeds criteria across the board
We pass on far more deals than we pursue. That's by design.