A Flaw Costing Millions: The #1 Underwriting Mistake I See Professionals Make

The lender requires the first year's insurance to be paid at closing and the first 3-6 months of projected property taxes escrowed. This is where the underwriting mistake occurs.

I learned this on a currently 400 hour project building my own property analyzer. If you raise this initial capital for the year one insurance and 6 months of taxes, but then have nothing to offset it, it's as if the capital you raised vanished like a fee. It's not a fee. It's a pre-paid expense.

The standard way of not accounting for this underwrites hundreds of thousands or even millions of dollars off.

The operational expenses should show the taxes as insurance in full amount to maintain the NOI calculation, etc. Below the line should be a category for pre-paid expenses from the capital raise.