rental-underwriting

name

rental-underwriting

description

Analyze a residential rental property as an investment — 1-4 unit single-family / duplex / triplex / quadplex, condo, townhome. Computes: gross rent multiplier (GRM), cap rate (by property class, 4-12% range in 2026), cash-on-cash return (target 8-12%), DSCR, IRR (10-year hold), internal/external repair budgets, vacancy assumption, property tax + insurance projections, PM fees, capex reserves, and the BRRRR refinance math (cash out + new debt service vs hold-cash returns). Supports 30-year conventional, FHA, VA, DSCR loans, hard-money + refi (BRRRR), seller financing, subject-to. Also produces a Section 8 vs market-rent scenario comparison for affordable-housing investors. The 1% rule survives as a screening heuristic in low-cost markets but is officially noted as outdated in HCOL areas. TRIGGER on "rental analysis", "rental underwriting", "cap rate calculator", "BRRRR", "DSCR loan", "house hacking", "rent vs buy", "Section 8", "STR vs LTR", "investment property analyzer", "1% rule", "cash-on-cash".

Residential Rental Underwriting

You analyze a residential rental property end-to-end — from listing screen to deal-go/no-go memo. Output is a working financial model (Python or Excel) that an investor can rerun with their own assumptions, plus a one-page deal memo summarizing the math.

============================================================ === PRE-FLIGHT ===

• Property basics: address, asset class (SFR / 2-4 unit / condo / TH), bed/bath, sqft, year built, lot size, current condition (turnkey / cosmetic rehab / heavy rehab / teardown).
• Acquisition: purchase price, closing costs, rehab budget, holding period.
• Rental: current rent (if leased) or market rent comp. Unit count + per-unit rent for multifamily.
• Financing: down payment %, interest rate, term, points, lender (conventional / DSCR / FHA / VA / hard money + refi).
• Operating expenses: property tax (county), insurance, HOA, utilities (LL pays vs tenant), PM fee %, vacancy %, maintenance %, capex reserve %.
• Strategy: long-term rental (LTR), short-term rental (STR), BRRRR (refi target), Section 8.

Recovery:

• If rent comp is missing, pull from Rentometer / Zillow Rental Manager / RentCast API → fall back to local CMA.
• If property tax unknown, estimate via county assessor's mill rate × assessed value (≈ purchase price × assessment ratio).

============================================================ === PHASE 1: ACQUISITION COSTS ===

Purchase Price                  $X
+ Closing Costs (2-3% buyer)    $X
+ Initial Rehab Budget          $X
+ Holding Costs (rehab period × $/mo)  $X
+ Lease-up / Reserves           $X
= Total Cash Invested (All-In Basis)    $X

If financed:
  Down Payment                  $X (purchase × DP%)
  Loan Amount                   $X
  Cash to Close = DP + Closing + Points + Initial Rehab + Holding + Reserves

VALIDATION: Cash to close ≤ user's available capital. If not, surface gap.

============================================================ === PHASE 2: STABILIZED OPERATING STATEMENT ===

Gross Potential Rent              $X (sum of monthly rents × 12)
Less: Vacancy & Credit Loss       ($X)  (5-10% typical, lower for Section 8)
= Effective Gross Income          $X

Operating Expenses:
  Property Tax                    $X
  Insurance                       $X
  HOA / Condo Fee                 $X
  Utilities (LL portion)          $X
  Repairs & Maintenance           $X (8-12% of EGI common rule of thumb)
  Property Management             $X (8-10% of collected rent)
  Lawn / Snow / Pool              $X
  Reserves (CapEx)                $X (5-10% of EGI to fund roofs, HVAC, water heaters)
  Other                           $X
= Total Operating Expenses        $X

Net Operating Income (NOI)        $X
Less: Annual Debt Service         $X
= Cash Flow Before Tax            $X

VALIDATION: Expense ratio plausible (35-50% of EGI for SFR; 40-55% for small multifamily).

============================================================ === PHASE 3: KEY METRICS ===

Compute and label all of:

Metric	Formula	2026 Target
Gross Rent Multiplier (GRM)	Purchase Price / Annual Gross Rent	< 10 = good, > 15 = thin
Cap Rate	NOI / Purchase Price	A: 4-6% / B: 6-8% / C: 8-12%
Cash-on-Cash Return	Annual CF Before Tax / Total Cash Invested	8-12% target
DSCR	NOI / Annual Debt Service	DSCR lenders want ≥ 1.25
Debt Yield	NOI / Loan Amount	≥ 10% typical lender ask
Cap Rate vs Loan Constant	Cap Rate - Loan Constant	Positive = positive leverage
Break-even Occupancy	(OpEx + Debt Service) / GPR	< 80% is comfortable
Total ROI Year 1	(CF + Principal Paydown + Appreciation) / Cash Invested	12-25% with leverage
1% Rule	Monthly Rent / Purchase Price	≥ 1% (HCOL-area exception)
2% Rule	Same	≥ 2% (low-cost market screen)

Also project 10-year IRR with assumptions: rent growth (default 3% annual), expense growth (3%), appreciation (3-4%), exit cap rate (entry +25-50 bps).

VALIDATION: All metrics computed without div-by-zero. Negative leverage flagged.

============================================================ === PHASE 4: BRRRR REFINANCE MATH ===

If strategy = BRRRR, compute the refinance event explicitly:

After-Repair Value (ARV)             $X (comp-based)
× LTV (cash-out)                     75-80%
= New Loan Amount                    $X
Less: Existing Loan Payoff           ($X)
Less: Refi Closing Costs             ($X)
= Cash Out at Refi                   $X

Cash Invested After Refi:
  Original Cash Invested             $X
  Less: Cash Out at Refi             ($X)
  = Net Cash Left In                 $X (target ≤ original DP, ideally $0 — "infinite return")

Post-refi monthly cash flow:
  NOI                                 $X
  - New Debt Service                  $X
  = Cash Flow                         $X (must be positive)

VALIDATION: New debt service supportable by NOI (DSCR ≥ 1.20 post-refi). If "net cash left in" > original DP, BRRRR didn't work as designed — surface for user review.

============================================================ === PHASE 5: SECTION 8 SCENARIO ===

For affordable housing investors, run a side-by-side:

Market Rent Scenario                Section 8 (HCV) Scenario
-----------------                  -----------------------
Rent: $1,800/mo                    HUD Fair Market Rent: $1,650/mo (HCV cap)
Vacancy: 8%                        Vacancy: 3% (waitlist demand)
Late/non-payment: 3%               Late/non-payment: 0.5% (HUD direct deposit)
Turnover cost: $1,500              Turnover cost: $1,200 (longer tenancy)
Inspection cost: $0                Inspection cost: HQS annual + bi-annual
Marketing: $300/turnover           Marketing: PHA waitlist (zero)

Output side-by-side Year-1 cash flow comparison. Section 8 often outperforms despite lower headline rent due to stability + low vacancy.

VALIDATION: HCV FMR pulled from HUD's official table by zip + bedroom count.

============================================================ === PHASE 6: DEAL MEMO ===

Generate deal_memo.md:

# Deal Memo — {Address}

**Strategy:** {LTR/STR/BRRRR/S8}  
**Purchase Price:** $X  
**All-in Basis:** $X  
**ARV / Stabilized Value:** $X

## Returns

- Cap Rate: X.X% (target {min} for {class})
- Cash-on-Cash: X.X% (target 8-12%)
- DSCR: X.XX (lender minimum 1.25)
- Year-1 Total ROI: XX% (incl. appreciation + paydown)
- 10-yr IRR: XX%

## Strengths

-

## Risks

-

## Recommendation

- [ ] Buy
- [ ] Pass
- [ ] Buy at lower price ($X max)
- [ ] Need more diligence (specify)

VALIDATION: Memo fits on one page. Metrics tie to the proforma.

============================================================ === SELF-REVIEW ===

• Complete: All 6 phases present? BRRRR + S8 scenarios if strategy matches?
• Robust: Handles div-by-zero? Flags negative leverage? Realistic expense %?
• Clean: Excel model + memo tie out exactly?
• Investor-credible: Would a BiggerPockets-active investor accept the analysis?

Common gap: forgetting reserves (CapEx for roof, HVAC, water heaters). Real numbers, not aspirational.

============================================================ === LEARNINGS CAPTURE ===

~/.claude/skills/rental-underwriting/LEARNINGS.md — what worked / awkward / patch / verdict.

============================================================ === STRICT RULES ===

• Never use a vacancy assumption of 0%. Realistic floor is 5%.
• Never skip CapEx reserves. Deferred maintenance kills cash flow long-term.
• Never present the 1% rule as a primary metric in HCOL markets. Use cap rate + CoC.
• Never assume rent grows at expense rate. Expenses (esp. insurance, taxes) often outpace rent growth.
• Always run sensitivity on rent (-10%) and rate (+1%) — that's where deals break.