Underwriting is the heart of smart real estate investing. It’s how you pressure-test a deal, spot red flags, and make sure the math holds up in the real world—not just on a spreadsheet.

The problem? Most investors make the same avoidable mistakes over and over again. Some are too aggressive with projections. Others don’t stress-test the downside. Some skip due diligence or rely too heavily on broker data.

Whether you’re underwriting deals yourself or reviewing models from a sponsor, avoiding these 10 mistakes can mean the difference between a strong return and an expensive lesson.

Let’s break it down.

1. Over and estimating Rental Income and Occupancy

The Mistake: Investors often assume the future will look like their best-case scenario—top-of-market rents, high occupancy, fast lease-ups. The problem? That’s rarely how it plays out.

Why It Hurts: Inflated income numbers lead to overvalued deals, missed DSCR thresholds, and eventually—negative cash flow.

How to Fix It:

• Use actual in-place rents, not “pro forma” numbers.
  
  
• Build in realistic vacancy and credit loss assumptions.
  
  
• Base projections on recent market comps, not broker claims or seller promises.
  
  
• Adjust rent growth assumptions downward (1–2% max is more realistic in many markets).
  
  

2. Underestimating Operating Expenses

The Mistake: Many underwriting models lowball ongoing costs like property taxes, insurance, repairs, utilities, and capital reserves.

Why It Hurts: Small misses add up. If you’re off by even $0.50 per square foot, that could cut your NOI and dramatically lower your property value.

How to Fix It:

• Use detailed OpEx budgets based on historicals plus market standards.
  
  
• Factor in property tax reassessment post-purchase—this is a massive blind spot for many.
  
  
• Always include reserves for CapEx, tenant turnover, and inflation.
  
  

3. Failing to Stress-Test the Financial Model

The Mistake: Relying on a single “most likely” outcome without running downside scenarios.

Why It Hurts: One change—like a rise in interest rates, delayed stabilization, or rent drops—can wipe out your returns.

How to Fix It:

• Run best, base, and worst-case models.
  
  
• Test key sensitivities: vacancy, interest rates, exit cap rates, rent growth, and OpEx inflation.
  
  
• Include buffers in your cash flow: 3–6 months of reserves, flexible timelines for lease-up or construction.
  
  

4. Flawed Debt Service Coverage Ratio (DSCR) Planning

The Mistake: Miscalculating DSCR or assuming financing terms that no lender will agree to.

Why It Hurts: If the DSCR doesn’t meet the lender’s requirement (usually 1.25x or higher), your deal may not qualify for financing at all.

How to Fix It:

• Use conservative financing assumptions (interest rate, LTV, amortization).
  
  
• Confirm lender-specific DSCR thresholds during underwriting.
  
  
• Run DSCR stress-tests at higher rates or lower NOI to ensure cushion.
  
  

5. Relying on Seller or Broker Data Without Verification

The Mistake: Trusting rent rolls, financials, or market stats provided by the seller or broker without doing your own verification.

Why It Hurts: Their job is to sell the property. Your job is to validate everything.

How to Fix It:

• Abstract all tenant leases yourself.
  
  
• Get estoppel letters from major tenants to verify terms.
  
  
• Verify income with bank statements or rent deposit histories—not just PDFs.
  
  
• Audit expenses like property taxes, utilities, and management fees against third-party benchmarks.
  
  

6. Skipping Physical Property Inspections

The Mistake: Relying on photos or third-party summaries instead of doing your own walkthrough and inspections.

Why It Hurts: Deferred maintenance, ADA issues, or outdated systems (like plumbing or electrical) can eat up your reserves fast.

How to Fix It:

• Personally walk the property and surrounding area.
  
  
• Hire a qualified inspector for HVAC, roof, foundation, and systems.
  
  
• Order an environmental Phase I report (and Phase II if red flags pop up).
  
  
• Don’t ignore issues like mold, pest damage, code violations, or non-compliant signage.
  
  

7. Ignoring the Market Context

The Mistake: Evaluating a property in isolation—without understanding local demand, job trends, absorption, or competition.

Why It Hurts: A good building in a bad submarket is still a bad investment.

How to Fix It:

• Analyze submarket-specific vacancy rates, rent growth, and demographic trends.
  
  
• Study the construction pipeline for oversupply risks.
  
  
• Consider economic factors like job growth, migration patterns, and new developments in the area.
  
  
• Get boots-on-the-ground insight from local brokers and property managers.
  
  

8. Overlooking Property Tax Reassessment Risks

The Mistake: Assuming property taxes will stay flat after acquisition.

Why It Hurts: In many markets (especially in Texas, Florida, and California), taxes jump to reflect the purchase price—doubling or tripling annual costs.

How to Fix It:

• Contact the local county assessor to estimate post-sale taxes.
  
  
• Use a realistic mill rate and valuation in your model.
  
  
• Build in tax increases over time, not just a static number.
  
  

9. Weak Exit Strategy Planning

The Mistake: Assuming you can sell at a low cap rate or refinance easily with no margin of error.

Why It Hurts: Exit assumptions often make or break the projected IRR. If the market softens or rates rise, you could be stuck—or forced to sell at a loss.

How to Fix It:

• Use a higher exit cap rate than your entry cap rate.
  
  
• Plan multiple exits: sell, refi, hold long-term.
  
  
• Model your equity multiple and IRR under various exit timelines (3, 5, 7 years).
  
  
• Include re-tenanting or CapEx costs before exit.
  
  

10. Using Outdated Tools or Manual Models

The Mistake: Relying solely on Excel models with hard-coded formulas and no audit trail.

Why It Hurts: One formula error—or versioning mistake—can derail an entire underwriting model. And you won’t even know it until it’s too late.

How to Fix It:

• Use modern underwriting platforms with cloud-based sharing, live data integration, and error validation.
  
  
• At minimum, build templates with version control, formula checks, and color-coded assumptions vs. hard-coded numbers.
  
  
• Review models with a second pair of eyes before presenting or using them.
  
  

Bonus Tips: What Else to Watch Out For

Even if you avoid the top 10, don’t forget to:

• Analyze tenant creditworthiness—especially for single-tenant deals.
  
  
• Review zoning and permitting to avoid development delays or non-conforming use.
  
  
• Understand lease structures—triple net, gross, modified gross—and how they affect cash flow and expenses.
  
  

Final Thoughts

Underwriting isn’t just about numbers. It’s about risk. It’s your opportunity to figure out where the deal breaks, not just how it looks if everything goes right.

The best investors aren’t optimistic—they’re prepared. They ask hard questions, build conservative models, and verify every assumption. Utilizing the right tools, such as CRE software or real estate underwriting software, can significantly streamline your process, reduce errors, and give you access to real-time market data that improves decision-making.

If you’re underwriting deals, reviewing a sponsor’s pitch, or raising capital for a CRE project, these are the blind spots that can cost you. Avoiding them doesn’t guarantee success—but it gives you a much stronger foundation to build from.