Multifamily underwriters, are they worth it ?

Question

We have been buying multifamily properties for quite a while now. Before acquiring properties we have been doing all the underwriting ourselves. As we are growing, we are entertaining the idea of hiring a third-party underwriting company. I feel it might be good to get another set of eyes, especially if the city we are buying in is new to us. My question is

1) Has anyone worked with a third party underwriting company that they can recommend, as well as mention the benefits using them compared to keeping it in-house ?

2) Do you think it’s worth using Third-party underwriters on purchases under 50 units ? Or should we continue doing our own underwriting ?

Would love some feedback on this subject.

Seth Ferguson · Answer

If you're able to take that new "free" time and raise more capital and increase your deal flow, I would say it's a wise decision.

Greg Dickerson · Answer

@Niv Levi I would only use this as either a quick first look to help sort through deals or as a double check to audit your underwriting. If you are syndicating and using investor capital you have a fiduciary responsibility. They are relying on you to thoroughly vet the deal yourself. If you were to tell your investors that you do not do your own underwriting I doubt they would trust you with there money as I am sure you would not either.If you are using your own money that's a different story.

John Casmon · Answer

@Niv Levi There's merit to bringing on an underwriter, but it doesn't absolve you and your partners from the assumptions and projections. As @Greg Dickerson stated, we use help to do the initial underwriting, but I still go through all the assumptions and projections before submitting an offer. What may be more useful is having someone come in and handle the data entry and then you can review it and adjust as needed.

Kyle Kovats · Answer

Totally agree with this Greg. I think they're great to serve as a filter to determine which deals are worth spending time on. At the end of the day, it's best for you to know your cap ex plan and for you to be confident in what different cap ex projects will bring to the property.

Niv Levi · Answer

@Tyler Kastelberg Thank you for the feedback. I like the idea of hiring a freelancer, that definitely feels more like our style. I will check out your company to see if the can help. Thanks again

Tyler Kastelberg · Answer

@Niv Levi @Greg Dickerson @John Casmon Full disclosure: My business supplies the real estate industry with pre-vetted freelancers, so I'm a bit bias. I don't think hiring a third party consulting company to do your underwriting is worth it ... for all the above reasons ... AND they're expensive. However, I think you're on the right track with interest in building a team. If you're like 80% of other real estate investment companies in the US, you have the need for support but can't afford a full-time analyst to join your team. Your best bet might be to lean on talented freelancers. Surround yourself with quality support staff who can provide you the necessary information in the proper format to give you the power to say "go" or "no go" on projects.

Kent Leach · Answer

I really like for at least 3 different sets of eyes to underwrite a deal from scratch without any prior communication beforehand.

Mitch Provost · Answer

@Niv Levi, as @John Casmon is referring, the input is unique to your own risk tolerance and should be reviewed/adjusted with your input. But outsourcing is always a good plan to make your own operation more efficient. Since much of underwriting is gathering data and entering it into the model accurately, that could be wise money spent. The real value in underwriting is the few adjustments to the input based on your own experience of how well you can recover from any risk events after you close the deal. Your focus on these details is your value opportunity, not spending time gathering data and entering it.

Aaron Stuiber · Answer

I really like what @Seth Ferguson said. Honestly if you're comfortable and you've had success in the past underwriting your own deals then the only reason to change it up would be to free up time for other money making activities. If you're ever looking for another set of eyes I would also suggest just simply reaching out to another professional that you trust and someone would give you honest advice on the deal.

Tj Hines · Answer

@Niv Levi Haven't used 3rd party underwriters. We do it all in - house. Even when it's time to scale out, I'd feel most comfortable using our underwriting practices we know work and it's been vetted on many levels. This is not to say that we will never consider it. My thinking is, if timing is an issue then it may be worth hiring a 3rd party to free you, or your teams time up to focus more on relationship building activities that will bring in more capital. Be sure to vet the 3rd party with references and their standard common practices when underwriting/analyzing deals and the market