1. Define the scenario you are underwriting
Underwriting is not about finding the "true" value of a unit. It is about evaluating a specific scenario: purchase price, rent assumption, financing structure, holding period and exit logic. Mixing multiple scenarios into one spreadsheet is a common source of confusion.
Start by writing down, in plain language, what you are actually underwriting: "Buy a 1K near station X, hold for 7–10 years with moderate leverage, focus on stable cash flow and a clean exit to another individual investor."
2. Anchor rent assumptions in station-level data
The most sensitive input in a condo underwriting model is often rent. Small changes here compound over the holding period. This is why using station-level rent benchmarks, for the right layout and walk-time band, is essential.
Avoid building a model on a single asking rent from a brochure. Instead, cross-check with local achieved rents and realistic vacancy expectations.
3. Build up to gross and net yield
From rent, you can derive gross yield and GRM. Then you deduct realistic operating costs: management fees, repairs and maintenance, insurance, taxes and an allowance for capex. This gives you a view of net yield before financing.
The objective is not to be ultra-precise to the last yen, but to avoid hidden optimism in your assumptions.
4. Integrate financing and cash-on-cash
Once net yield before financing is clear, you can add your debt structure: interest rate, amortisation, fees and equity contribution. This lets you calculate cash-on-cash returns and understand how sensitive they are to changes in rent, vacancy or interest rates.
This is where the interaction between GRM, yield and leverage becomes visible, and where many superficially attractive deals reveal their true profile.
5. Model conservative and aggressive cases
A robust underwriting template includes at least three cases: conservative, base and upside. Rent, vacancy, capex and exit cap rate can all shift between these cases. The point is not to predict the future, but to see how the deal behaves under different plausible conditions.
Serious investors rarely commit capital based on a single "central" scenario alone.
6. Summarise everything in a short memo
Numbers are necessary, but they are not the whole story. A concise underwriting memo summarising the asset, the thesis, key risks and the main numbers makes decisions much cleaner. It also allows you to revisit the deal later and see whether reality tracked the original thesis.
7. Where this template sits in your broader process
This underwriting structure is a natural extension of the screening playbook. The main guide "How to Analyze a Deal in Japan" connects these building blocks into a full lifecycle: screening, underwriting, due diligence and portfolio review.