Property Underwriting Deal Case

Reviewed by Fallon Han· Updated 2026-05-22 18:50:08.416

This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.

I am a master of finance student in the U.S. on an F-1 visa, and I want to practice for real estate private equity internships. Can you give me a hands-on property case using a simple model and assumptions check? I want to practice rent growth, cap rates, debt sizing, and exit sensitivity like I would in an interview.

Absolutely. Here is a realistic property underwriting case you would likely see in a first-round real estate PE interview. Deal: 250-unit Class B multifamily in Dallas - Purchase price: 50,000,000 - In-place NOI: 3,000,000 - Expected year 1 gross rental revenue: 5,400,000 - Other income: 150,000 - OpEx growth: 3 percent annually - Rent growth: 4 percent annually for years 1 to 3, then 3 percent - Vacancy and credit loss: 5 percent - Exit cap rate: 5.75 percent base case - Entry cap rate: ask me to infer it from purchase price and NOI - Debt: 65 percent loan-to-cost, 5.75 percent interest only, 5-year term Your task is to sanity check the assumptions, estimate forward NOI, size the debt, and test value at exit under different cap rates. I will push back like an interviewer if your math or logic is weak.

Great. First, how should I think about the entry cap rate and whether the purchase price makes sense? I want to make sure I do an assumptions check before building out the model.

Good instinct. Start with entry cap rate as in-place NOI divided by purchase price. Entry cap rate = 3,000,000 divided by 50,000,000 = 6.0 percent That gives you a quick valuation read. For a Class B multifamily asset in Dallas, 6.0 percent can be reasonable depending on growth, location, and whether the seller has underwritten expenses conservatively. In an interview, I would want you to say: - Does the cap rate line up with market trades? - Is the current NOI stabilized or still below market? - Are rents mark-to-market or already at market? - Is there any deferred maintenance or capex that should affect basis? If you want to be sharp, note that a purchase at 6.0 percent cap on in-place NOI implies the buyer is paying about 16.7 times NOI. That is not crazy, but the story must support rent growth and operational upside.

Understood. For the debt piece, if the loan is 65 percent loan-to-cost on a 50 million purchase, how much debt can I size? And how would I talk about whether that leverage is healthy?

Loan sizing is straightforward: - 65 percent of 50,000,000 = 32,500,000 of debt - Equity required before fees and closing costs = 17,500,000 To assess whether leverage is healthy, I would walk through coverage and risk: - Interest-only debt at 5.75 percent means annual interest expense = 32,500,000 times 5.75 percent = 1,868,750 - Debt service coverage ratio at in-place NOI = 3,000,000 divided by 1,868,750 = 1.61x That is a decent cushion for multifamily. In an interview, say the leverage is moderate rather than aggressive because: - DSCR is above 1.50x - The asset is stabilized enough to support the loan - But if NOI misses or rents weaken, the cushion can compress quickly Also mention that if the lender underwrites to stressed NOI or applies a lower leverage cap, loan proceeds could be limited by coverage rather than LTV.

Now can you help me build a simple 5-year exit case? I want a clean way to estimate NOI in year 5 using the rent growth and expense growth assumptions, then calculate exit value at a 5.75 percent cap rate.

Yes. Use a simple step-up approach and keep the logic transparent. Start with revenue. If year 1 gross rental revenue is 5,400,000 and rents grow 4 percent annually for years 1 to 3, then 3 percent for years 4 to 5: - Year 2 revenue = 5,400,000 times 1.04 = 5,616,000 - Year 3 revenue = 5,616,000 times 1.04 = 5,840,640 - Year 4 revenue = 5,840,640 times 1.03 = 6,015,859 - Year 5 revenue = 6,015,859 times 1.03 = 6,196,335 Add other income if you want it to grow with inflation, but for a clean interview answer, keep other income flat at 150,000 unless told otherwise. Now estimate expenses. If year 1 OpEx is implied by NOI, first solve it: - Year 1 effective revenue = 5,400,000 plus 150,000 = 5,550,000 - Year 1 NOI = 3,000,000 - So year 1 OpEx = 2,550,000 Grow OpEx at 3 percent annually: - Year 2 OpEx = 2,626,500 - Year 3 OpEx = 2,705,295 - Year 4 OpEx = 2,786,454 - Year 5 OpEx = 2,870,048 Then year 5 NOI = year 5 revenue plus other income minus year 5 OpEx - Year 5 NOI = 6,196,335 + 150,000 - 2,870,048 = 3,476,287 Exit value at 5.75 percent cap rate: - 3,476,287 divided by 0.0575 = about 60,457,165 That is your rough year 5 sale price before selling costs.

That helps. How would I handle exit sensitivity if the cap rate expands or compresses? I want to be able to talk through best case and downside case quickly in the interview.

Use the same year 5 NOI and flex only the exit cap rate. That is the cleanest sensitivity. Base case: - Year 5 NOI = 3,476,287 - Exit cap rate = 5.75 percent - Exit value = about 60.5 million Upside case with cap compression to 5.50 percent: - Exit value = 3,476,287 divided by 0.0550 = about 63.2 million Downside case with cap expansion to 6.25 percent: - Exit value = 3,476,287 divided by 0.0625 = about 55.6 million Interview language: - If cap rates compress, value is supported by stronger market pricing and income growth - If cap rates expand, even solid NOI growth can be offset by lower multiple expansion - This is why I focus on both growth and exit assumptions, not just IRR on paper A strong candidate also notes that cap rate sensitivity matters more than small changes in NOI when leverage is meaningful.