Underwriting is the process by which a lender or investor rebuilds a property's numbers to decide what to risk on them: income verified line by line, expenses restated the way the next owner will pay them, and the resulting statement run through the tests that size the loan.
- The underwritten statement is the one that decides. A pro forma persuades people; it does not persuade a file.
- A smaller underwritten NOI is not a correction. It is a different document about a different year, the buyer's first.
- Sellers who underwrite their own building before pricing it learn where the financed bids will land.
- Vacancy, management and reserves are priced in even where the owner runs the building personally.
Related terms
All termsTerm Sheet
A term sheet is the lender's written outline of the loan it is prepared to consider: amount, rate structure, term, amortization, the maximum loan-to-value, the minimum coverage, and the conditions that follow.
InvestmentNOI (Net Operating Income)
Net operating income is what a property earns from operations in a year: all collected income minus operating expenses, before any mortgage payment, income tax, or capital projects.
FinanceDSCR (Debt Service Coverage Ratio)
The debt service coverage ratio is net operating income divided by the annual loan payment.
Terms arrive with the writing.
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