Underwrite a Duplex, Triplex or Fourplex One Door at a Time

Begin with a unit-by-unit rent roll

A duplex, triplex or fourplex should be underwritten one door at a time before results are combined. Unit size, condition, lease dates and payment performance can differ within the same building. A single average rent may be useful for comparison, but it can conceal the work required to achieve that average.

Build a rent roll with unit identifier, bedrooms, bathrooms, lease term, scheduled rent, collected rent, deposit, balance due and owner-paid utilities. Add condition notes and known work. Keep sensitive resident information appropriately protected. The purpose is to connect physical units with financial obligations and actual collections.

Reconcile the income path

Suppose a hypothetical triplex has scheduled monthly rents of $1,300, $1,350 and $1,400, totaling $4,050. If one resident receives a $300 concession for a particular month, that month's scheduled and collected income differ. If another unit is vacant for a month, the impact is its actual rent rather than an arbitrary equal share.

Compare leases and rent ledgers with bank evidence when available. Ask about prepaid rent, deposits, delinquencies and informal agreements. A seller's total can be accurate for one purpose while including money that should not be treated as recurring rental income. Document the adjustments rather than assuming dishonesty or accepting the total without review.

Assign expenses correctly

Separate per-unit expenses from common-area and building-wide costs. Owner-paid water, shared lighting, landscape service and trash arrangements can materially affect a small building. Confirm meter configurations and any lawful reimbursement arrangements. Do not assume a new owner can change utility billing immediately or without cost.

Management, maintenance and capital funding should reflect the building's actual needs. A small multifamily property may have several kitchens and bathrooms but one roof. Estimate the timing of replacements and turnover work rather than applying a single allowance without explanation. Use qualified inspections and local quotes to improve the model.

Test concentration at the unit level

Model the highest-rent unit vacant, a routine turnover and a common-system repair. These scenarios reveal different vulnerabilities. The first reduces collections, the second adds work and time, and the third can affect the whole property. Test them individually before combining reasonable downside conditions.

Summarize the result in an annual operating budget and a monthly cash schedule for the first ownership year. If two leases expire together, show the possible concentration of turnover costs. The advantage of a small building is that the investor can investigate every door closely. Use that advantage to make an offer and financing request based on the property's real starting operations, with a separate, clearly funded plan for improvement.

Turn the rent roll into a first-year plan

Place lease expirations, expected repairs and renewal decisions on a monthly calendar. If several leases expire together, test the effect of simultaneous vacancy and turnover. A building can have strong annual potential while requiring a larger cash cushion during one concentrated period.

Review whether rents include utilities or other services. Two units with the same stated rent can produce different net results if one carries more owner-paid costs. Adjust comparisons carefully and obtain advice before changing billing arrangements or lease terms.

After acquisition, reconcile the rent roll with collections every month. Investigate discrepancies and preserve the resident-level record. The schedule should remain a current operating tool rather than a document assembled only for financing. Accurate unit records support management, lender reporting and future diligence, giving the investor a clearer view of which improvements are producing results and which obligations still require attention.

Reference desk: effective rent is more than a face amount

The rent written on the first page of a lease may not equal the income collected over the full term. Concessions, credits, unpaid balances and included services can change the effective result. Read amendments and reconcile the ledger so the operating model reflects the actual agreement and collections.

Deposits and prepaid rent need separate treatment. A transfer at closing may create both cash and a future obligation. Work with the appropriate professionals and manager to establish accurate resident-level records. Do not treat every receipt as current operating income available for distributions.

Compare each unit with relevant market evidence. Size, layout, condition, parking, laundry and utility arrangements can influence rent. A building's highest-rent unit is not automatically a valid assumption for every other unit. Document the differences and any work needed to achieve a higher supported rent.

For operating expenses, distinguish allocation from total cost. Assigning a shared water bill among units can help analysis, but it does not change the amount the owner must pay. A proposed reimbursement arrangement requires review of leases, meters, applicable rules and implementation costs. Do not count the benefit before the arrangement is established and lawful.

Use the unit calendar to plan turnover and improvements. A staggered approach can preserve income, while simultaneous work may create efficiencies but concentrate cash needs. Compare the two using realistic vacancy, contractor timing and available reserves.

After closing, keep the rent roll synchronized with actual operations. Changes in rent, occupancy and balances should flow into monthly reporting. The value of detailed underwriting is that it can become a useful management system. The investor then has a reliable basis for evaluating renewal decisions, repairs, financing and future value rather than rebuilding the property's story from incomplete records each time a new question arises.

Reconcile each unit's lease, collections and deposit record before averaging rents, and place overlapping expirations on the first-year calendar to reveal possible concentrated turnover cash needs.