EASIEST WAY to UNDERWRITE REAL ESTATE

hey have you ever wondered how to analyze a rental property without using a calculator or spreadsheets I'm talking about the simplest napkin underwriting in the world now this is what I'm going to do I'm going to take the number of units we're talking about units here and I'm going to multiply that times the rent okay so let's say I have 40 units and let's say the rent just to keep it simple or 1,000 bucks I have $40,000 of income that's a month and times 12 and that is $480,000 okay okay now that's the gross income the total most maximum amount that can be collected from this property from that number that's our income we got that done we have our expenses I'm going to take the 480,000 and for for Simplicity right now I'm going to assume that we collected the rent on every unit which would never happen but let's just assume it for right now because we're doing napkin underwriting okay I'm going to take half of this and say I'm going to spend it in expenses in the state of Florida if I'm on the East Coast it's definitely going to be 50% if I'm on the west coast I'm probably going to be around 38% you have to know the taxes the expenses the insurance that's going to include our vacancy here uh a loss collections uh electric electricity Insurance taxes Etc and I'm going to have $240,000 of what is called noi that is determined by GI less expenses equals noi and all I do now is flip the page and take my noi of $240,000 divide it by the percentage that I would like to make on the property and I have my value if I would like $240,000 to be a 10% return then I would know that I would only pay I could pay 200 $2. 4 million for that property at $2. 4 million I would then know I would earn a 10% return if I only needed a six % return because let's say it's a better location New York Chicago Miami Fort Lauderdale Los Angeles San Diego uh a Denver or Boulder and I'm like I would great property I don't need but a 6% return I could now pay $4 million and the way you figured that this called cap rate you basically just divide by the six the eight the 10 the four the three whatever the cap rate is cap rate is basically the percentage you would want to receive on the property if you pay cash now the last thing I'm going to show you how to do here and very important once you've done your napkin underwriting the way we do and we teach our students to do very simple okay just keep it very simple why because I want to be able to get on the phone with a broker it goes like this I find a deal I do my napkin I call the broker okay I'm trying to test my napkin against what the broker says that property should or should not bring or what the expectation on The Price is the last thing you want to do here is you want to take this offer remember we came between 2.

4 million if it's a 10 cap and we we did $4 million if it's a six cap I'm going to have a spread so I know somewhere between 2. 4 and $4 million is going to be what's expected by the seller and anticipated by the buyers I won't be the only buyer hopefully okay I'm now going to divide by the number of units by my offer to see if my offer per per unit lines up with the marketplace okay in the case of $2. 4 million I would be paying 40 units I'd be paying $60,000 a unit I'm like 60 Grand a unit in Miami never going to happen Denver never going to happen La never going to happen again okay uh New York City never going to happen but if I go to Jackson Mississippi maybe okay maybe Jackson Mississippi I can find some old rural community they don't have a bunch of jobs maybe I could maybe it makes sense I'm using this as a check as a metric to figure out hey what's right what should be in that ballpark what's what's what's a reasonable for me to make an offer to this seller okay because I don't want to offend them I want to get a conversation going I'm going to show you in another video the exact steps by the way the sequence in which I make offers I find a deal I underwrite it this fast I'm telling you in under 60 seconds I'll know somewhere between $2.