Underwriting Cash Flow Before You Buy: The Numbers That Actually Move

Start from gross scheduled rent, not asking rent

Pull three to five genuinely comparable rentals within a mile, same bedroom count and condition, listed in the last 90 days. Use the median of leases actually signed where you can verify them. Optimistic rent assumptions compound through every other line of the analysis.

Price the four expenses beginners skip

Vacancy, capital expenditures, management, and turnover are the lines that turn a paper winner into a cash drain. Even self-managing owners should charge management to the property, because your time has a price and one day you will hire it out.

• Vacancy: 5-8% of gross rent in stable markets, higher for student or seasonal areas.
• Capital reserves: 5-10% of gross rent, or a per-component sinking fund.
• Management: 8-10% of collected rent plus a portion of a month for leasing.
• Maintenance: 5-10% of gross rent depending on the age of the building.

Read three numbers together

Cap rate tells you how the asset performs independent of financing. Cash-on-cash tells you how your specific deal performs with your specific loan. Debt service coverage tells you how much room you have before a bad quarter becomes a missed payment. A deal that looks strong on one and weak on the other two is usually a financing story, not a real estate story.

Stress-test before you sign

Rerun the deal with rent down 10%, vacancy at double your assumption, and one $6,000 capital event in year one. If it still survives, the offer is defensible. If it only works in the base case, you are buying an assumption.