Underwriting of Property to Sell

Underwriting is an extension of Property valuation. A Property is evaluated for multiple purposes and the valuation method varies depending on the purpose.  A Seller would evaluate a Property to arrive at a Price, which is called as “Offer” or “Asking Price”. Based on the Price quoted by the Seller, the Buyer performs Underwriting to evaluate and forecast the performance of Subject Property to negotiate the Deal. Underwriting Analysis is done based on historical data and Assumptions. We explain some of the key terms, and jargons that are distinctive to this industry in this blog.

Assumptions / Past Analysis:

  1. Reports:
    • Rent Roll Statement: List of all the rentals, Unit-wise, in a specific Property
    • T12 Income Statement: Trailing twelve months statement of Income pertaining to the Property
  2. Price or Value of Property:
    • Offer / Asking Price: It’s the Price quoted by a Seller after performing Property Valuation
    • Whisper Price: It’s the price as per Broker at which if we bid, we can secure the Deal
    • Sale Price: It’s the price at which we, as a Buyer, shall quote to the Seller for negotiation
    • Appraisal Review Board (ARB) Value: It’s the aggregate Market value of Land and Building as per the County’s Central Appraisal District (CAD) on which Property Tax is calculated
  3. Forms of Capital:
    • Sponsor Equity: Capital that is raised by the Promoters or General Partners (GP)
    • Investor Equity: Capital that is raised by the Investors or Limited Partners (LP)
    • Debt: Capital that is borrowed from a Financial Institution
    • Working Capital: Capital that is required for running the day to day operations in a business, it can either be raised or borrowed
  4. Financial Obligations:
    • Cost of Equity: Dividend that is paid to the Equity holders
    • Cost of Debt:  Interest that is paid to the Financial Institutions
  5. Replacement Reserve: Portion of Profits that is set aside to provide for the periodic replacement of building components that wear out more rapidly than the building itself
  6. Capital Improvements or Rehabilitation Cost: The average cost at which Units of the property are expected to be renovated during the holding period
  7. Loan-To-Value or Debt-Equity ratio: The percentage or ratio at which Equity & Debt is preferred to be maintained for arriving at Sale Price
  8. Growth Rates: These can be applied on any item of Income Statement in order to forecast, they can be arrived at either based on past trend or industry norms or market comps
    • Rent
    • Other Income
    • Opex
    • Vacancy Rate
    • Bad Debt
    • Tax Growth
    • Loss to Lease
    • Concessions
    • Capital Expense
  9. Assets Under Management (AUM) Fee: A fee that is collected by the Sponsors for managing the Asset which in this case is a Property, generally its paid out as salary or fee to the employees of Sponsors or Vendors
  10. Acquisition or Disposition Fee: The cost incurred to sell the property mainly consisting of Sales Commission
  11. Closing Costs: The Processing fee for closing a Deal
  12. Hurdles: These can be set for any of the KPIs that are listed under Financial Analysis to perform Waterfall analysis


  • Financial Analysis:
    1. Cap Rate: The property’s one-year rate of ROI
      • Going-in: Property’s projected first-year NOI divided by the purchase price of the property
      • Terminal / Exit / Reversionary: Property’s projected first-year NOI divided by the sale price of the property
    2. Return on Equity: Percentage of Return (i.e., Capital Gains plus Net Cash Flow) on Equity portion of capital
    3. Return on Investment (ROI): Percentage of Return (i.e., Capital Gains plus Net Cash Flow) on Initial Investment
    4. Capital Gains Yield: Percentage of Return (i.e., Capital Gains) on Offer Price
    5. Net Present Value (NPV): The difference between present (discounted) value of cash inflows and present (discounted) value of cash outflows
    6. Internal Rate of Return (IRR): A discount rate that makes the NPV of cash flows equal to zero
    7. Equity Multiple: The number of times Return (i.e., Capital Gains plus Net Cash Flow) over & above Equity portion of capital
    8. Debt-Service Coverage Ratio: A measurement of NOI available to pay Debt obligations
    9. Cash on Cash returns: Percentage of Return (Net Cash Flow or Net Income) on Opening Balance of Equity for a particular year
    10. Preferred Return or Hurdle Rate:  A minimum threshold return that LPs must receive before the GP can receive from the balance interest
  • Non-Financial Analysis:
    1. Demographics
    2. Flood Hazard Zone
    3. Crime Stats
    4. Market Comps (Amenities, Rent etc.)
    5. Accessibility to Restaurants, Schools / Colleges, Hospitals, Entertainment, Retail, Transport (Bus / Train / Airport)
    6. Vehicles Per Day (VPD)

Setting up Critical Date notifications in Yardi

In every business, there are bound to be Due Dates for all the activities that we perform, some would be recurring while others are not. Its humanely impossible for any individual to remember all these Dates and it would be even more worrisome if the activity involves reminding another person like Tenant, Vendor, Property Manager, etc. To overcome this unproductive task, most of the software applications have in-built calendar reminders functionality & Yardi is not an exception. In this Blog, various hurdles are categorically explained under 4 broad steps that are involved in setting up the Critical date reminders.

Step 1: Save the Input Data

When managing a property, there would be many activities for which reminders can be set like Insurance, Utilities, Taxes, Repairs & Maintenance, Mortgage payments, so on & so forth. Most of these activities have fields available in Yardi by default but some may not. Not to worry, we can assist you by creating Custom Tables for such activities.

Step 2: Setup Email Templates

Every Email Template consists of multiple sections like Subject line, Header, Footer, CC, Body of mail, etc., any other regular email. Additionally, in Yardi, we have to setup few other elements like Tags, Tokens, Object Types being the most primary of them. Tags are inserted in an Email template to auto-populate details whenever an email is triggered. These Tags must be linked to Tokens (Tags in machine language), most of the Tokens are available by default in Yardi but if any Token as per need is missing, then we can assist you by writing SQL scripts to make them available. Object types are used to categorize the Tokens. Internal management email IDs can be saved in CC of the email template to receive a copy of all the emails that are triggered to Tenants.

Step 3: Setup Notifications    

After Email templates are setup, we move forward to set up periodic Frequency & Roles. Frequency must be set up for the emails to trigger Before, After, or On the Due date based on our need. Roles are then selected to capture the email ID of the recipient(s) saved under a specific Lease or Property. At this stage, we can checkmark “On Hold” checkbox that is available & performs a test run to make sure we are on the right track. 

Step 4: Setup Schedulers 

As a final step in setting up the Critical dates, we need to setup Schedulers. This is done based on the time slot that is available after reviewing to make sure that there is no clash with any other schedule in Yardi.  

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