What a real estate investor needs for underwriting

Too many real estate investors go into the underwriting process without preparing the right way. There’s one huge thing you need to help increase your chances of getting a “yes.”

You need a document know as a property portfolio. That’s how you present market numbers in a well organized, professional way to your banker.

Your property portfolio should have:

  • Actual numbers
  • Fair market value (using real estate comps)
  • Current principle balance on your loan
  • What you think your property will rent for (another market analysis)
  • What your current loan payment is

Let’s look at fair market value in detail, then the ratios that this information gives your banker.

Fair market value using real estate comps

To determine fair market value, you’ll need to do what’s called real estate comps, which is a comparable analysis in the neighborhoods. Then you need to update those number consistently.

Comps will not end up on your financial statement. You need them on a separate document called a property portfolio. It will exist outside of your accounting software and show the fair market value.

You can update them once a year, or you can update them every day. But if you’re preparing to apply for a loan and want to get a whole bunch of money, it’s going to help to have an up-to-date estimate of the fair market value on the property.

Whether you have ten properties or hundreds of properties, it might be good to run comps on all of them. That will help you have a better long-term strategy even past individual loans. You’ll be able to see where you have wiggle room and even where you might be able to refinance and pull more equity out.

Determining your ratios

Once you have that information, you can compare fair market value and loan to rent and mortgage to get two really important pieces of information: Your debt coverage ratio and your loan-to-value ratio against the fair market. In other words, you need to let the banker know you’re making enough money to pay everything plus some and that you’re not fully leveraged in that house yet.

Those two numbers are so important that if all I did with my clients was turn in a piece of paper with those two numbers, it would increase their ability to get loans.

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