Underwriting a 5–20 unit apartment building requires institutional discipline at a small scale.
Rebuild income from evidence
Start with the current rent roll, leases, deposits, delinquency report, and trailing-12-month collections. Separate contractual rent from collected rent. Add other income only when it is recurring and documented.
Reconcile occupied units to leases and deposits
Model physical vacancy and collection loss separately
Exclude speculative rent increases from the going-in case
Normalize every expense
Small properties often show owner-managed expenses that will not survive a sale. Add professional management, market insurance, reassessed property taxes, payroll or contract labor, repairs, utilities, and a recurring replacement reserve.
Test the debt, not just the cap rate
Calculate debt-service coverage under actual loan terms. Then test lower occupancy, flat rents, higher insurance, and a slower renovation schedule. A building should not need perfect execution to remain solvent.
Inspect the operating system
Review maintenance logs, tenant files, utility meters, vendor contracts, local licensing, and code history. Small-building value is often lost through many minor operating failures rather than one dramatic defect.
See Pro Forma vs. Actual NOI and A 6% Cap Rate Is Not a Debt Strategy.
Draymoor Ventures looks for durable real estate where current operations support the basis and growth remains upside. Share an opportunity: Steven@DraymoorVentures.com.