Underwriting a multifamily acquisition is the work of turning the seller's package into a defensible view of value, debt capacity and return. The order below is the one most teams follow.
1. Check the package is complete and consistent
Offering memorandum, rent roll, trailing twelve months (T-12), and the current year's budget if there is one. Unit counts, occupancy and average rent should agree across all of them; where they do not, note the difference and ask.
2. Establish in-place income
Build income from the rent roll, not from the memorandum. Apply a vacancy and credit loss assumption that reflects history and the market, and account for concessions. Compare the result with the trailing income on the T-12.
3. Normalize expenses
Start from the T-12 and adjust: real estate taxes to what applies after a sale, insurance to a current quote, a market management fee, payroll, and a replacement reserve. Compare expense ratios and per-unit costs with similar properties.
4. Arrive at an underwritten NOI
The result is the number everything else rests on. Keep the bridge visible: from the seller's NOI to yours, line by line.
5. Value it
Apply a cap rate drawn from comparable sales, and cross-check against price per unit and the replacement cost. State a range, not a point.
6. Test the debt
Size the loan against a DSCR minimum, a debt yield minimum and a loan-to-value limit, using the terms available. The binding constraint determines the proceeds.
7. Model the hold
Rent growth, expense growth, any renovation program and its cost and premium, the exit cap rate and costs. Report levered and unlevered returns and the equity needed.
8. Stress the assumptions
Show what happens to value and DSCR when occupancy, rents, the cap rate or interest costs move. The assumptions that change the answer most are the ones to diligence first.