Reading a Rent Roll the Way a Lender Does
Short answer: A lender reads a rent roll for risk, not income. Underwriters trim above-market rents, apply 5–8% economic vacancy, re-class non-rent income, and recompute T-12 EGI from the haircut roll — usually taking gross potential rent down 8–14% before expenses. That haircut number, not the seller's pro forma, drives the loan.
A rent roll is a story told in numbers. Borrowers see income; underwriters see risk. Here's how a multifamily underwriter actually reads the document — and the red flags that downsize the loan.
Which columns matter on a rent roll?
A clean rent roll has, at minimum: unit number, bed/bath, square footage, market rent, current rent, lease start, lease end, tenant name, deposit on file. Anything missing is a question you're going to be asked anyway.
Six red flags underwriters circle
- Loss-to-lease > 10%. If current rent trails market rent by more than 10% across the property, it usually signals deferred turnover, distressed management, or both.
- Multiple month-to-month leases at the same unit type. That's tenant churn dressed up as flexibility.
- Deposits that don't match policy. A property advertising "1 month deposit" with $0 deposits on file is collecting cash without paper protection.
- Lease-end stacking. Six leases ending the same week = six vacancies the same week. Underwriters add a vacancy reserve for that.
- "Employee unit" or "Owner unit." Always re-priced to market in the underwriting. Don't quote it as income.
- Concessions buried in the lease. $1,400 stated, $200 monthly credit = $1,200 effective. Lenders will discover this in tenant-estoppel; you should discover it first.
What the underwriter does next
They take your rent roll and:
- Trim any rent above the 90th percentile of the market comp set (anti-fraud check).
- Apply economic vacancy — usually 5–8%, sometimes higher if the market is soft.
- Re-class non-rent income (laundry, parking, RUBS) to a separate "other income" line because it doesn't grow with rent inflation.
- Recompute T-12 EGI from this haircut roll, not from the seller's pro forma.
The number that comes out is the income line that actually drives the loan. PathIQ replicates this exact haircut so you see — before you submit — what the underwriter is going to see.
A sanity-check ratio
For most stable 5–20 unit assets in secondary markets, the lender's haircut takes top-line gross potential rent down by 8–14% before expenses. If your "underwritten" income is within 2% of the seller's pro forma, you haven't underwritten — you've copied. Re-do it.
Frequently asked questions
What columns should a clean rent roll have?
At minimum: unit number, bed/bath, square footage, market rent, current rent, lease start, lease end, tenant name, and deposit on file. Anything missing becomes a question the underwriter will ask anyway, so fill the gaps before you submit.
What red flags do underwriters look for on a rent roll?
Common ones are loss-to-lease above 10%, clusters of month-to-month leases at the same unit type, deposits that don't match stated policy, several leases ending the same week, "employee" or "owner" units quoted as income, and concessions buried in the lease.
How much do lenders typically haircut rent-roll income?
For most stable 5–20 unit assets in secondary markets, the haircut takes gross potential rent down 8–14% before expenses. If your underwritten income lands within 2% of the seller's pro forma, you've copied it rather than underwritten it.
Why is an employee or owner unit not counted as income?
Underwriters always re-price those units to market, because the occupant isn't paying market rent and the space would need to be leased to a paying tenant after a sale. Quoting it as income overstates NOI and the supportable loan.
How does PathIQ handle the lender's rent-roll haircut?
PathIQ replicates the same haircut a lender applies — trimming above-market rents, applying economic vacancy, and re-classing non-rent income — so you see the underwritten income line before you submit rather than after the loan gets downsized.