Six Interesting Things about Automated Underwriting for Commercial Real Estate
Understanding risk and potential returns in buying, selling, or developing a property is a crucial component to being a successful real estate investor. In commercial real estate (CRE), underwriting is used to make decisions about how risky investing in a property or development could be by compiling data from a large number of sources.
However, the process of underwriting is not easy and can be tedious work. This process can be dramatically sped up with automated underwriting.
What is automated underwriting?
Automated underwriting is using existing data files from Argus or Excel to determine the property values, risk, and estimate cash flows. Automated underwriting allows investors to see projected cash flow data in a matter of minutes and is crucial in evaluating the financial risk and potential returns of a property.
1. Understanding the process of automated underwriting for an existing property.
The automated underwriting process is relatively straightforward.
Once the property information is imported, the Argus modeling program will produce a cash flow breakdown over time. Brokers and investors can then utilize the breakdown in their Excel model or another proprietary modeling program.
The beauty of the automation process is not in its modeling but efficiency in utilizing the existing information.
2. Automated underwriting will help investors conduct more business faster
The process of traditional commercial real estate underwriting takes time, often several hours to analyze a single property and its surrounding market. In the competitive world of commercial real estate investing, opportunities come with speed. The first investor to analyze the deal has an advantage.
Automated underwriting allows investors to analyze deals in a few minutes instead of a few hours.
3. Automated underwriting removes errors
Every deal goes through an appraisal. Appraisers are human and as such, can make mistakes. Commercial real estate investors are looking for every advantage to make better deals and get higher returns. Those errors can cost money, lead to poor decisions or missed opportunities.
With automated underwriting, calculations are set. The error factor is removed, and deals can be analyzed with a clear picture of the possible risks and returns.
4. Disagreements are no longer an issue.
Asset management teams don’t always agree with acquisitions teams about rent projections. Property owners don’t always agree with commercial real estate brokers about comparable market rents. So who’s right and who’s wrong? With automated underwriting, these disagreements are not a factor in the deal-making process.
Because the model data has been continually updated and rent and inflation trends are tracked in the system, automated underwriting can quickly point to the data to settle the argument.
5. Automated underwriting can lead to deal “pre-approval.”
Imagine a world where the banks are ready to lend based solely on the creditworthiness of the investor (much like residential real estate) because the property underwriting has been done in advance. A commercial real estate investor could exponentially increase their deal volume and returns.
6. Financial institutions also benefit from automated underwriting
The volume of deals lenders can process increases exponentially as well. Lenders are in the business of making money by turning money. The more loans they can produce, the more profitable the banking system becomes. Automated underwriting helps to create a beautiful cycle of efficiency and profit from the start of a real estate deal to the end.
With extensive knowledge of financial modeling and real estate analysis, an automated underwriting company, can give you the data you need, and point out any areas of concern in the numbers. This saves time and allows you to focus on evaluating the investment. Visit our Services Hub to see how you can get started today.