🏢 Multifamily Underwriting Secrets Every Investor Must Know 💰📊

📉 Why Multifamily Deals Fail Underwriting (And How to Win) 🚀

Multifamily Underwriting Secrets Every Investor Needs to Know

If you’ve ever had a multifamily deal fall apart late in the process, chances are it wasn’t the property—it was the underwriting.

Here’s the reality:
Deals don’t get approved based on what you think they’re worth. They get approved based on how lenders underwrite risk.

As a mortgage broker working with multifamily investors across Houston and beyond, I can tell you this—
👉 Structure beats rate. Every time.

Let’s break down the underwriting secrets that separate approved deals from dead ones.

📊 1. DSCR Is the Gatekeeper (Not Your Pro Forma)

Most investors focus on projected rents and upside.

Lenders don’t.

They focus on Debt Service Coverage Ratio (DSCR) based on:

·In-place rents (not future rents)

·Adjusted expenses (often higher than yours)

·Stress-tested debt payments

👉 A deal you think is a 1.25 DSCR can easily become:

·1.10 after lender adjustments

·Or worse—below 1.0 (automatic decline)

Pro Tip: Always underwrite your deal more conservatively than the lender.

💸 2. Expenses Are Where Deals Quietly Die

Lenders will adjust:

·Property taxes (based on purchase price, not current value)

·Insurance (especially in Texas—huge swing factor)

·Repairs & maintenance reserves

·Management fees (even if self-managed)

👉 This is where most deals lose 10–20% of NOI.

Your takeaway:
If your deal only works on “tight” numbers—it doesn’t work.

🏦 3. Loan Structure Matters More Than Rate

Most borrowers focus on getting the lowest rate.

Professionals focus on:

·Interest-only periods

·Amortization schedules

·Prepayment penalties

·Loan term vs exit timeline

Example:

·A slightly higher rate with interest-only could improve DSCR and cash flow

·A lower rate with heavy amortization could kill the deal

👉 The wrong structure can cost you more than a higher rate ever will.

📉 4. Exit Cap Rate Can Make or Break Your Deal

Lenders—and smart investors—underwrite your exit.

They don’t assume:

·Cap rates stay the same

·Markets improve

They assume:
👉 Cap rates expand

Example:

·Buy at 6.0% cap

·Exit underwritten at 6.5%–7.0%

That small shift can:

·Destroy projected profits

·Kill refinance eligibility

🧾 5. Reserves & Liquidity Are Non-Negotiable

Even strong deals get declined because of weak borrowers.

Lenders want to see:

·Post-close liquidity

·Operating reserves (often 6–12 months)

·Net worth equal to or greater than loan amount (common guideline)

👉 “Cash-flow strong” is not enough.

🧠 6. Lenders Underwrite Reality—Not Vision

Value-add stories are great.

But lenders care about:

·What exists today

·Not what could exist tomorrow

If your deal relies on:

·Rent increases

·Renovations

·Lease-up assumptions

👉 Expect pushback unless you have:

·Strong experience

·Capital reserves

·A clear execution plan

🚀 7. The Real Secret: Structure Your Deal Like a Lender

The best investors think like lenders before submitting a deal.

They ask:

·What would kill this deal?

·Where are the weak points?

·How can I de-risk this upfront?

That’s how deals get approved faster—and close smoother.

📍 Final Thoughts

Multifamily underwriting isn’t complicated—but it is unforgiving.

👉 The investors who win are not the ones chasing deals…
They’re the ones structuring deals that lenders can approve.

If you’re buying, refinancing, or repositioning multifamily assets, the difference between approval and denial is often just a few underwriting decisions.

📞 Work With a Broker Who Understands Both Sides

At Medallion Funds, we don’t just submit deals—we structure them to win.

If you want:

·Faster approvals

·Better execution

·Access to 600+ lenders

👉 Let’s talk strategy before you submit your next deal.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory