Topic 3.2: Making Assumptions for Income and Expenses
This part will make up a big part of your analysis. While you are first going to determine how they deal performs on an AS-IS base, these assumptions will drive what you can potentially do to the property post-acquisition. However, as I mentioned previously, you do not want to count on what the broker is saying. Never let the rush of getting into a deal push you into getting into a bad deal. Rather, you want to underwrite to the actual numbers and verify it can sustain itself as-is. You are assuming that you can’t do a better job than the current property manager. There may be an obvious upside – like a run up on expenses, overpaying for the management or low rents – but you want to get a picture on where the property is today to see how much work the property will take to get it performing the way you think it can.