Underwriting rentals
Conservative pro formas that survive stress.
Vacancy, insurance, capex, and management.
Underwrite conservatively — include wind, flood, vacancy, management, capex, and insurance reserves. Seasonal markets may show peak winter rents but shoulder-season gaps of 15–25% on furnished units in Palm Beach County.
Expense realism
Insurance premiums on coastal assets can double after storm years — stress-test expenses at +20% and +40%, not just current bills. HOA master policy pass-throughs and special assessments belong in trailing-twelve-month analysis, not pro forma guesses.
Revenue documentation
Use executed leases and bank deposits for in-place rent. Market rent letters support acquisitions; DSCR lenders may require Form 1007 from a licensed appraiser. Peak December rent annualized overstates cash flow on seasonal assets.
Management and turnover
Budget leasing fees, turnover paint and carpet, and appliance replacement on every renewal. Furnished seasonal units may turn twice per year — model turnover cost explicitly, not as a vague maintenance line item.
Debt service sensitivity
Run DSCR at current rate and +150 bps before you offer. Floating-rate bridge loans on value-add projects can compress cash flow within 12 months if lease-up slips past pro forma.
Rental underwriting essentials
- Trailing rent and vacancy documented
- Wind, flood, and hazard in pro forma
- HOA fees and assessment history reviewed
- Management and leasing fees included
- Capex reserve at 5–10% of rent
- Insurance stress test modeled
5–10% on annual leases; higher on furnished seasonal units. Use submarket data, not listing agent optimism.
During due diligence — before you remove financing or inspection contingencies.