Can someone explain underwriting in detail?

[Account Closed]

What exactly is underwriting? What is the purpose of having an underwriter? Is it something you have to have when purchasing a property and why?

[Alexander Felice]

Underwriting is how you measure, mitigate, and spread the risk of an investment. 

For a real estate investor this means understanding what expenses and risks the property will have and addressing each and every one of them. The more risk you can account for and spread, the more stable your asset will perform. 

On BP the term underwriting is mostly synonymous with "making sure your numbers are right" which for SFR and small multifamily is a fairly satisfactory explanation. As deals become more complicated the risk mitigation plans do as well.

Underwriting will be different depending on the business, for instance how and insurance underwriter mitigates risk will be different than residential multifamily will be different from commercial retail, etc but essentially everyone is doing the same thing: moving and limiting risk.