What Investors Miss When They Underwrite a Real Estate Deal
Originally published on October 23, 2026
“A great price doesn’t necessarily make something a great investment.” – Daniel Roccanti
In this episode of Your CPA’s Take on Real Estate, Daniel Roccanti joins Faith to talk about what investors overlook when they underwrite a real estate deal. Daniel explains why the cost of owning and operating a property matters as much as the purchase price and interest rate.
The conversation covers the expenses investors most often underestimate, including property taxes, insurance, repairs and maintenance and capital expenditures. Daniel also walks through an example showing how a $50,000 increase in insurance and property taxes can reduce a property’s value by roughly $800,000.
From there, the discussion turns to the numbers that show whether a property will actually cash flow, why a higher purchase price can sometimes mean a better investment and the one number Daniel says investors should never overlook.
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Transcript
[00:01] Faith: Hey everyone, and welcome to the James Moore channel. Today I am here with Daniel Roccanti. Hi Daniel, how are you?
[00:01] Daniel Roccanti: Hi Faith, doing well. Glad to be here today.
[00:01] Faith: Good. I know it’s a busy time for you, but thanks for joining today.
[00:01] Daniel Roccanti: Always.
[00:01] Faith: So today we’re talking about what investors are missing when they underwrite a deal.
[00:20] Faith: The first question is, if you were advising a real estate investor today, what expenses are most often underestimated when they’re underwriting a deal?
[00:20] Daniel Roccanti: I see a lot of investors spend a lot of time up front underwriting the acquisitions and the financing, but they’re really not spending enough time underwriting what it’s actually going to cost to own the property and operate it.
[00:45] Daniel Roccanti: Some of the obvious ones are property taxes and insurance. In this day and age you have to assume those two are going up every year. When you buy a property, usually you’re buying it at a higher price than the person who previously bought it. That usually triggers a reassessment, which is going to increase your property taxes.
[01:09] Daniel Roccanti: So anytime you’re underwriting your deals, you need to say, “All right, property taxes were this last year.” Even if you’re using historical averages of what the increase is, you’re probably going to see a bigger than normal jump this year after a purchase. And then insurance, you just never know. Here in Florida, you get hit by three hurricanes in a year, property taxes are going to skyrocket.
[01:29] Daniel Roccanti: If we go a couple years without a hurricane, it actually might drop in price a tad bit, maybe, but most likely it’s just going to stay stagnant. So when you’re underwriting this, you probably need to underwrite more for, “What if we do get hit by three hurricanes?” Then other things I’d always want to look at closely beyond that are repairs and maintenance.
[01:52] Daniel Roccanti: This is one of those areas where, depending on the type of property you buy, like an older one or a distressed one, you’re going to have to put a lot into repairs and maintenance. If you’re looking at the old owner and what they’ve put into it, that doesn’t mean that’s what you’re going to put into it. They might have deferred a lot of maintenance on it, or there might be ways that you can gain a lot of efficiency.
[02:13] Daniel Roccanti: And then you want to look at capital expenditures. This is that big-ticket item when you’re buying a property. What am I going to need to do immediately? Then what are my timelines for the other ones? And everything in life throws you curveballs, so something’s going to happen earlier than you expected. So when you’re buying a property, you want to ask, “What is this property going to cost me to operate it going forward?”
[02:13] Faith: Absolutely. And knock on wood, our hurricane season’s been pretty gentle on us so far.
[02:38] Daniel Roccanti: Oh, we needed it. It was a few years of bang, bang, bang, and it was not fun in Florida for those few years.
[02:38] Faith: I agree. The next question is, how can rising insurance and property taxes change the actual return on a real estate investment?
[02:38] Daniel Roccanti: It could be pretty substantial, and I don’t think people realize this.
[03:02] Daniel Roccanti: Let’s do a little bit of an example here. If your property generates about half a million dollars in net operating income and your combined insurance and property tax increases by $50,000, your mind goes, “I just lost $50,000 in annual cash flow.
[03:24] Daniel Roccanti: Not great, but maybe I can handle that.” But when you really look at the true value you lost, if this is a six cap rate that just lost $50,000 in NOI, you actually just lost $800,000 worth of value. So $50,000 is cash that you lost, but the value lost is significantly more.
[03:49] Daniel Roccanti: This is why this is really important. There are a lot of people overstating their true cap rates because they’re not factoring in the increase in costs.
[03:49] Faith: Absolutely. Are investors still focusing too much on purchase price and interest rate and not enough on the cost of holding the property?
[03:49] Daniel Roccanti: Purchase price and interest rate get all the news. They get everything.
[04:13] Daniel Roccanti: It is very important. You do need to look at it. Getting a much better interest rate does make the deal a lot better, but it really comes down to the fundamentals of the deal. What is my total cost to operate this? What is the cash flow? Do I have enough to pay for everything? So a great price doesn’t necessarily make something a great investment.
[04:32] Daniel Roccanti: If anything, it’s an indication that maybe there’s something wrong. You know when you get a deal that’s too good, you’re like, “What’s the catch?” Usually it needs a significant amount of improvements. Sometimes you just found a good deal, but the reality is that most likely there’s something wrong.
[04:50] Daniel Roccanti: So now I’m like, “All right, I found a good deal, but now I have to invest all this capital to improve it.” That needs to be factored in. So if you’re just looking at purchase price, interest rates and cap rates, you really need to go back to the fundamentals. What is this deal cash flowing? What is its net operating income? That really decides whether the deal is a good one or a bad one.
[05:13] Faith: Absolutely. What numbers should investors look at to determine whether a property can actually cash flow?
[05:13] Daniel Roccanti: We keep talking about net operating income. I’m going to go back to it again, but it needs to be a realistic one. What you need to do is take your numbers, whether it’s a pro forma from the seller
[05:37] Daniel Roccanti: or, if it’s your property, your actual historic numbers. But then you need to look at it and say, “All right, it needs to be realistic here.” What happens if vacancies go down, if rent stays stagnant, if expenses go up?
[05:54] Daniel Roccanti: Are we really paying what we think we’ll pay? Do we have a huge capital improvement coming up? So really look at those property-level expenses, then take it to the next level and ask, “Can we service our debt?” I mentioned capital expenditures a little bit, but this is where it really comes in. What are our true capital expenditures going to look like?
[06:15] Daniel Roccanti: So really it comes down to net operating income. Debt service coverage ratios are a really good one. I always want to look at break-even occupancy, because I want to know how far that number can drop before I start losing actual money. And then it comes back to true real estate cash-on-cash return.
[06:39] Daniel Roccanti: I want to know what I’m actually earning on the cash I invested, and then the capital expenditure requirements that are needed going forward.
[06:39] Faith: Absolutely. So could a property with a higher purchase price actually be a better investment if its ongoing expenses are significantly lower?
[06:39] Daniel Roccanti: Absolutely.
[06:57] Daniel Roccanti: You should not be scared away by a high purchase price. You actually might find the best deals. A lot of people in this current market are scared because they see high interest rates and high prices. They don’t want to buy and they don’t want to sell. But this is the best time for some of our buyers, because you don’t have anybody else as competition.
[07:19] Daniel Roccanti: The moment everything drops, you have competition. This is your chance of buying that good deal where the numbers still work. Price and value are not the same thing. A property might come at a high price because it’s got great bones.
[07:19] Faith: Yeah.
[07:19] Daniel Roccanti: It’s not going to need a lot of capital improvements.
[07:42] Daniel Roccanti: It’s operating at great efficiency, and you just have to turn that key and go forward. That’s a great investment. It’s probably worth the price, but you need to do your due diligence and don’t be scared. Still run the deals. Like Wayne Gretzky said, you miss every shot you don’t take, and you’re going to miss every deal you don’t look at.
[08:04] Faith: Absolutely. So our last question today is, what’s one number you would never want an investor to overlook before buying a property?
[08:04] Daniel Roccanti: It goes back to the tried and true: net operating income. But we need a stabilized, real net operating income. That’s the biggest difference here.
[08:22] Daniel Roccanti: Net operating income drives so much of your investment. It drives your valuation. It drives your cap rate. It drives your debt service coverage ratio. It drives so many different numbers. So not looking at this first is a huge mistake, but it needs to be realistic. Are the vacancies realistic? Are the expenses realistic? Are my capital expenditures realistic? Because if these are not realistic, then you really don’t actually know truly what the value of your investment is.
[08:55] Daniel Roccanti: Almost every calculation starts with net operating income, so that number needs to be as accurate as possible. Then you have good data to build off of to make the best decision possible as an investor.
[08:55] Faith: Absolutely. Well, thank you so much for joining me today and talking about this, because I know moving into the new year, lots of exciting things are coming up.
[09:16] Faith: I know you’re busy, so I appreciate it.
[09:16] Daniel Roccanti: Thanks for having me again. I always love talking about real estate, so I’ll always make time for it.
[09:16] Faith: Thanks. All right, talk to you next time.
[09:16] Daniel Roccanti: Bye.
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