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Document: Underwriting Guidelines

SOP Department: Acquisitions

Objective: The objective of this procedure is to create a uniform underwriting process for all of
our deals to maximize profits and ensure a healthy deal close rate.

Introduction: In our company, before making any kind of offer, we look at every exit strategy
and underwrite each accordingly so we can give the sellers options if need be. Meaning, we
underwrite the deal as a cash deal as well as a novation before we make an offer to the seller.

Steps to Underwriting Wholesale Deal (Cash Offer)

1. Pull Up Prop Stream Check Cash Comps

- High amount of cash comps equals HOT area
- We want to pay under cash comps if possible (you can determine our offer off cash
comps if within the last 45 days, if there are no cash comps within the last 45 days, use
ARV)
- If looking at a cash comp, look at who purchased the property, if it is a corporation that
owns the property and they own over 100+ properties, this is more than likely a hedge
fund, in which we most likely have their contact information.
- Propstream Filter Sequence (If there is a lack of comps)
o Last 30 days .25
o Last 90 days .25
o Last 90 days .5
o Last 6 months .25
o Last 6 months .5

2. Establish ARV (After Repair Value of Property) (Use Zillow + Propstream)

- Build year is within 5 years of subject property
- Sold within the last 6 months
- Similar Style (Beds, Baths, Layout, Build)
- Max Distance of ½ Mile on Propstream
- (You can also utilize Zillow to find retail comps)

3. If it fits Institutional Partnership Criteria and you know they are actively buying
(Check Nationwide Buy Box)
- Use Zillow to evaluate current rentals in the area
- Median Income - $35,000 or more
- Review Buy Boxes for the Particular Zip code
- Use nationwide buy box to check past purchases in the zip code
- Check to make sure that the property fits the proper criteria according to buy box
- Sometimes there will be multiple lay over for areas with partners, this is ideal
- Understand any fees with partners IE realtor fees, closing costs
 - Sometimes hedge funds are paying higher than traditional investors, and we can
be a little more aggressive with our offers.

**If you identify your target buyer to be a hedge fund (this is written in 2023) our goal is to
identify the condition of their previous purchases. If they are in retail condition, underwrite it like
a traditional wholesale deal. If they are in as-is condition, just make sure there is a suitable
spread underneath the as-is purchase comps. ***

4. Underwriting Formula And Requirements

- Formula: OFFER = ARV x .75 – Repairs – Assignment Fee

- Must have a minimum population of 50,000 people or be within 45 minutes of a major
metropolitan area
- Must be investor activity in the area.

5. Plugging Numbers In

Example:

ARV: $235,000

Repairs: $35,000

Assignment Fee: $25,000

Offer = $235,000 x .75 – 35,000 – 25,000

Offer = $116,250

Steps to Underwriting Novation (Wholesaling On the MLS)

Just some quick background notes for our “novation” deals. We are NOT making repairs to
these deals before closing unless absolutely necessary.

Our goal is to work with a buyer that is either using cash, hard money, private money, or a
conventional loan on the MLS.

If using a conventional loan, we are going to give buyer repair credits in lieu of making the
repairs.

As of this moment we are not working with buyers bringing FHA loans or VA loans.

Our goal is to be under contract with a Buyer within 2 weeks with listed Deals in order to close
within 60 business days.
Step 1. Preliminary Market Analysis

When gauging to see if we can sell a deal on the market in a timely manner there are several
indicators to look at in the market.

A.) Days on Market to Pending (Zillow)

Check listed properties in the surrounding areas for their average days on market before
they go pending.

On Zillow, use the “pending” filter to see the total number of pending properties in
relation to the number of listings. The higher the percentage of listed properties that are
pending, the better.

If there is a high number of listings in the area, and very few are pending, this is not a
good sign.

B.) Check Curb Appeal

With deals that we are going to be listing on the MLS, we want to make sure we’re
working in attractive areas. This means we want decent curb appeal.

Use Google Street view to check to see how the neighborhood is. We do not want
properties that are on streets that have trash everywhere, are dirty, look like there are
abandoned houses etc.

The purpose of doing this is to make sure we are not locking up a deal in an undesirable
area. Even if the numbers make sense, deals in bad areas take much longer to sell.

C.) School Districts

Using Zillow, check the quality of the school districts. We are shooting for a minimum
average of 3/10 out of the three scores. The purpose of doing this is for the same reason
as checking curb appeal. The better the area, the faster our deal will sell.

Before moving on, out of the 3 market analysis indicators that we look at, days on market is the
MOST important. Our goal is to close these listed deals within 60 business days or sooner. So,
the longer the days on the market its taking deals to close, the more it is not a deal.

Ideally, we want to be in areas where days on market is 45 days or less.

Step 2. Checking “As-IS” Comparables

A) Sold Listed “As-Is” Comps

1. Using Zillow, use the “Sold” filter and last 90 days filter.
2. Stay within the neighborhood of the property. Do NOT cross major highways / streets.
3. Identify “As-Is” properties that were sold on the MLS. Check to see what they sold at
and how quickly.

B) Pending “As-Is” Properties

1. Using Zillow, use the “Pending” filter to check for “As-Is” pending deals on the MLS.
2. Stay within the neighborhood of the property. Do NOT cross major highways / streets.
3. Check how long the properties were listed before they went pending.

The reason why we are checking for “as-is” sales and not retail style sales is because we are
also selling our deal “as-is” on the MLS.

Our goal, in order to make this a speedy transaction for us and the seller, is to price these deals
in an effective manner.

Here is a quick example of an “As-Is” Deal:

“As-Is” Property 1: $200,000 (Sold)

“As-Is” Property 2: $205,000(Pending)
“As-Is” Property 3: $187,000 (Pending)

Average: $197,333

Our sale price on the MLS is going to be $185,000. I’ll explain how we get to that number in the
next section.

Step 3. Pricing Your Deal

Pricing a listed deal is super simple once you can establish an “As-Is” value from other comps.

In our previous example, we can see that our “As-Is” value is $197,333.

Because are looking to move our deal on the MLS quickly, we want to price our deal UNDER
the “As-Is” Value to have it self-fast. We are typically looking to have our deal sale price at 10k-
20k lower than the “As-Is” value.
 A) Novation Offer Formula

Offer = “As-Is Sale Price” * .95 (commissions/closings costs) – Buyer Credits –

Spread/Assignment Fee

(Our “As-Is Sale Price” is lower than the “As-Is” Value To Move Deal Fast)

B) Plug Numbers In

Let’s plug in our numbers to find our offer.

Offer = 185,000 * .95 – 5,000 – 25,000

Offer = 145,750

Underwriting Recap Notes

Before wrapping up this document, there are a few things I want to make sure you are aware of
as an acquisitions manager.

1. Be detail oriented and ensure you are honest to your numbers. Don’t make offers to just
lock deals up.
2. Look at the deal through the lens of a disposition manager when underwriting.
3. If you are unsure if the lead is a deal, weigh out supporting evidence, and make your
best judgement. Some deals we’ve bought and made money on, we didn’t think were
deals.

That’s everything you need to underwrite deals! If you are a visual learner, ask another team
member for help and watch how they underwrite their deals.