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When deciding to acquire a new piece of property, it’s really important to understand the financials —that’s the process of underwriting. Not all underwriting is done by banks, and there are varying degrees of how in-depth you can (and should) go. Generally speaking, the larger the property (dollar-value-wise), the more precise your underwriting analysis needs to be in order to avoid costly mistakes down the line. One of the most common mistakes investors make when underwriting a new property acquisition is relying too much on seller-provided data and not enough on their own projections. Not everyone operates a property the same way. This applies not just to expenses, but also to income potential and future plans for the property. While the seller’s data gives you a baseline understanding of the asset, there are several key points you should keep in mind when doing your own underwriting. Property Taxes: The Most Overlooked Expense The biggest and most commonly overlooked cost—with a huge impact on your operating expenses—is property taxes. Sellers will often share what they currently pay, but they rarely mention the reassessment that happens when the property changes hands. How real is this issue? Let’s say you’re buying a property in a district where the tax liability is 2% of the assessed value. The seller purchased the property about seven years ago for $300,000 and pays roughly $6,000 a year. Over the years, they’ve raised rents, and now—thanks to market growth—the property is worth $1,000,000, which is what you're buying it for. Once the sale closes, the property will likely be reassessed based on your purchase price. That $6,000 tax bill you relied on? It becomes $20,000 per year—a $14,000 annual increase, or $1,166 per month in added expense you didn’t anticipate. To put that into perspective: if you’re using a cap rate evaluation (see blog on cap rates for details), and your cap rate is 7%, this unexpected tax jump negatively impacts the valuation by about $200,000. That’s a huge difference in both property value and monthly cash flow. Vacancy Rates: Don’t Fall for “Fully Occupied” Another common mistake I see newer investors make is misunderstanding vacancy. If the property is fully occupied at the time of sale, the seller will often present their financials with $0 in vacancy loss. But over time, maintaining 0% vacancy is impossible—even under the best conditions. To have zero vacancy, every new tenant would need to move in on the exact same day the previous one moves out. Each unit would need to be in perfect condition—no turnover work, no cleanup, no downtime. Even if there’s just one day between tenants, that counts as a vacancy. Depending on your market, vacancy rates will vary, but most banks use a standard 5% (give or take). If you're a solid operator in a decent market, 5% is absolutely achievable—but ignoring it entirely will give you an unrealistic picture of your financials. The Underwriter’s Mistake: Double Counting Vacancy Sticking with the theme of vacancy, there’s another issue that comes up during financing or refinancing—and it’s one that trips up a lot of investors. Often, when submitting numbers to a bank, an investor will report income based on what they actually collected over the last year. That’s great—it reflects real performance, including any vacancy that occurred. But many bank underwriters don’t truly understand how these properties operate. They look at your submitted income, assume it reflects full occupancy, and then apply a standard 5% vacancy deduction on top of it. That means the bank is double-counting vacancy—once in your actuals, and again in their underwriting—which can artificially deflate your projected cash flow. I’ve seen this time and time again, and it can be the difference between getting approved for a loan or not. When submitting your financials, be clear: the income number you’re sharing is based on actual collected rent over the past 12 months. If there was no vacancy during that period, then yes, the bank will still apply their standard vacancy rate—just as you should when evaluating seller financials that claim 0% vacancy. Insurance: Not All Policies Are Created Equal Another overlooked expense in underwriting is property insurance. There are several variables that can significantly affect your premium, and pricing can vary drastically—even for the same property. If you’re taking out a larger mortgage than the seller had, you’ll likely need more coverage, which increases your premium. If you’re using replacement cost coverage and they were using actual cash value, that’s another difference. If they have a larger portfolio and you're newer to investing, they might be receiving volume discounts you won’t qualify for yet. The point is: never assume your insurance cost will match the seller’s. Always reach out to your insurance carrier and get a quote based on your situation. If you plan to shop around, get a declaration page with itemized coverage details so you can request apples-to-apples quotes from other carriers. Property Management: Budget for It Sellers who self-manage often don’t include property management expenses in their numbers. But if you’re a newer investor with a full-time job or just want to be more passive, you’ll probably need to hire a professional property manager. This can become a sticking point when trying to make a deal pencil out. Personally, I always argue that a seller’s time has value, even if they’re not paying someone else to manage the property. But that argument doesn’t go far when it comes to lender underwriting. If the deal only works by excluding a management fee you know you’ll need, it may not be a deal worth doing. At the very least, forecast those expenses into your underwriting. To do that, contact a few local property management companies. Don’t just get their base fee—ask about additional costs for maintenance coordination, leasing fees, admin charges, and anything else they’ll bill for. That’s how you get a real sense of your future operating costs. Income Upside: What the Seller Isn’t Doing So far, we’ve talked mostly about expenses—but don’t overlook income potential. You might be thinking, “How can I collect more income than the current owner?” Simple: many landlords settle into a routine and stop optimizing their properties. They miss out on rent increases, amenity fees, and opportunities to reposition the asset. Look for opportunities to add value through renovations and improvements. New flooring, paint, fixtures—these upgrades can justify higher rents and attract better tenants. And don’t forget other income streams like pet fees, late fees, parking, or even laundry. Capturing rent growth that the previous owner left on the table is one of the most sought-after opportunities in real estate investing. Final Thoughts: Do the Work, Avoid the Regret No matter what type of asset you’re looking at, it’s essential to perform full due diligence. Take the seller’s numbers with a grain of salt—especially on variable expenses—and make sure you recalculate fixed costs like property taxes, insurance, and management. Doing this allows you to make your best offer confidently, knowing you’re buying an investment—not a problem that eats your cash and keeps you up at night.

In 2024, just over 65% of American households—roughly 85 million—were owner-occupied. Of those, nearly 90% carried homeowners insurance. If you’re one of them, chances are you’ve felt the sting of rising premiums. Since 2019, homeowners' insurance rates have climbed about 38% nationwide, with some regions hit even harder. A few states have seen increases of over 50%, while others have experienced more “modest” (and I use that term loosely) hikes of 10–15%. As of this year, the national average annual premium is $2,329 for a $300,000 home. Whether you own or rent, insurance costs impact your bottom line—either directly through your own premiums or indirectly through higher rent as landlords pass along the costs. So what’s driving this spike in insurance costs? There’s no single culprit, but a few key factors are doing most of the damage. 1. Natural Disasters Are Becoming More Frequent—and Expensive. We’ve seen a rise in extreme weather events: floods, tornadoes, wildfires, hurricanes—you name it. Insurance companies aren’t just reacting to past claims; they’re bracing for future ones. And to do that, they’re raising premiums today to cushion for tomorrow. 2. Inflation Is Hitting Construction Costs Hard. We’ve all felt inflation at the grocery store and the gas pump, but it’s also pushing up the cost of rebuilding homes. Labor, materials, and logistics are more expensive than ever. When it costs more to repair or replace a home, insurance companies have to pay out more on claims, and that cost circles right back to us. 3. They Just Don’t Build ’Em Like They Used To. You’ve heard it before—and in this case, it’s true. Many older homes were built with higher-quality materials and craftsmanship. Today’s construction often emphasizes cost-efficiency over durability. That means more homes made of lightweight materials like wood frames instead of brick, which translates into greater vulnerability to storms and fires, and more total losses instead of repairable damage. 4. Reinsurance: The Insurance Behind Insurance. Here’s a lesser-known factor with a big impact: reinsurance. It’s basically insurance for the insurance companies. Reinsurers step in to cover part of the losses when claims exceed certain thresholds. As claims rise and rebuilding costs soar, reinsurers have increased their rates too. And just like everything else in the economy, those costs trickle downhill, landing right on our doorstep. When you add it all up—weather disasters, inflation, declining construction quality, and reinsurance premiums—it’s no surprise insurance costs are going up. The bottom line? Whether you’re a homeowner or a renter, this is a shared burden. And unfortunately, it’s one more example of how macroeconomic trends and global challenges hit close to home—literally. Jesse Brewer is a real estate investor, broker, and elected county commissioner in Boone County, Kentucky.

Running a scattered-site property management company like CAP Real Estate keeps me on my toes. One minute I'm crunching numbers, the next I'm mediating a tenant issue, and then I'm strategizing about our next acquisition. It's a constant juggling act, and without the right tools, it would be impossible. That's where Rent Manager comes in. We've been using it since the beginning – it's the only software we've ever known, actually. And honestly, I'm not sure how we'd manage without it at this point. They recently did a piece on us for their blog, and it's a pretty good overview of how we use the system. You can check it out here. It's funny because when you're in this business, you're always looking for ways to make things more efficient. Rent Manager has been a real game-changer for us in that respect. One of the biggest things for us is the flexibility of the platform. We've built so many custom processes using Rent Manager's features. From tailoring owner statement packages to generating the exact reports we need, it's all there. The mobile apps, like rmAppSuite Pro, have also streamlined our entire work order process. Our maintenance techs can use it in the field, which means faster turnaround times and happier tenants. And rmResident? That's been our tenant's best friend. They can pay rent, submit maintenance requests, and access their lease info all from their phone. It makes everyone's lives easier. One of the things I appreciate most, though, is the support they offer. Their team is always willing to help, and Rent Manager University has been a lifesaver for training our staff. It's a pretty comprehensive system, and there's always something new to learn. We're even expanding our services now, offering back-office support to other property management companies. And as we grow, I know Rent Manager will be right there with us, helping us scale and continue to provide top-notch service. If you're in the property management business, I can't recommend Rent Manager enough. Do your research, but in my experience, it's the most customizable and comprehensive solution out there. It's an essential tool in our toolbelt, and honestly, I don't know what we'd do without it. Check out the full article on the Rent Manager blog to learn more about how we use it and how it can help you too.

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