EP 392 How I’d Underwrite a $19M Apartment Deal Using AI (Live Demo)
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Have you ever looked at an investment opportunity and thought, Wait… this actually looks pretty good?
A newer building. Attractive projected returns. A business plan that seems reasonable.
You start imagining what the property could become.
But before you get too attached to that possibility, there’s a question worth asking:
What has to happen for those returns to become real?
That question guided a recent live session where two investors brought an apartment deal for us to review together using AIREI OS.
The property had 144 units, was built in 2022, and had an asking price we discussed at approximately $19 million. We worked through the documents, adjusted assumptions, and tested a lower purchase price.
And even when the projected returns started looking attractive?
My judgment was to pass.
Let’s walk through why—and what this experience taught us about using AI in real estate investing.
First, Give AI Something Real to Work With
We started with four documents: the offering memorandum, the trailing 12-month financial statement, the rent roll, and the debt matrix.
Together, those documents help tell the story of what the seller is presenting, how the property has performed, who occupies the units, and what financing might be available.
We uploaded them into AIREI OS and ran the initial analysis.
The system extracted information, reconciled figures, flagged discrepancies, and identified assumptions that needed our input.
That last part matters.
We still had decisions to make about purchase price, future rents, expenses, property taxes, vacancy, and our eventual exit.
AI gave us a place to begin. We had to decide whether the assumptions belonged in the model.
A Full Building Doesn’t Tell the Whole Financial Story
One of the first things that caught my attention was the difference between physical and economic occupancy.
The property was roughly 90% physically occupied. At first glance, that might sound reassuring.
But the recent financials showed economic occupancy of approximately 57%.
Those figures measure different things. Physical occupancy tells you how many units are occupied. Economic occupancy reflects rental revenue relative to potential rental revenue, with the precise calculation depending on the underlying data.
You need to understand the gap.
Is it coming from concessions? Delinquency? Vacancy? Write-offs? Something else?
We also saw substantial fees in the financials, including late fees and lease termination fees. That prompted more questions about what was being charged and what was actually being collected.
Because you can charge a resident a fee without receiving that money.
Before I get excited about future income, I want to understand the income arriving today.
The Expense You Don’t See Still Matters
Another issue stood out: property taxes appeared as zero in the figures we reviewed.
That needed an explanation.
There might have been an incentive, an accounting treatment, or another reason. We couldn’t establish the answer from the documents in front of us.
For the demonstration, we entered a provisional tax assumption. That assumption would need to be verified before anyone relied on the underwriting.
But the lesson was already clear.
An expense missing from the presentation can materially change the investment once you include it.
And that’s where experience becomes part of the process. You have to recognize which numbers need another question, another document, or a conversation with the broker.
Attractive Returns Can Depend on a Difficult Turnaround
We then modeled a purchase at $12 million, substantially below the asking price discussed during the session.
Under the assumptions we entered, the model showed approximately a 2x equity multiple for limited partners and a projected LP internal rate of return around 15%.
Those numbers could catch your attention.
They were also projections tied to a specific set of assumptions—including improving economic occupancy over time.
That improvement would require execution.
A capable management team. Better collections. Effective leasing. Time to work through the existing problems. Enough capital to support the property along the way.
The model also showed negative cash flow in the first year.
So the question became:
How confident are we that we can deliver the turnaround this spreadsheet needs?
A lower price can improve the math. It doesn’t automatically make the operational work easier.
Stress-Test the Story Before You Believe It
We reviewed different purchase prices, exit assumptions, cash flow outcomes, and debt coverage.
We also examined the economic occupancy needed for the modeled property to break even.
The break-even threshold was above 70%, while recent economic occupancy was substantially lower.
That gap deserved attention.
The underwriting helped us see how sensitive the outcome was to recovery. It gave us a way to question the business plan before committing capital to it.
And for me, the combination of weak recent performance, financing constraints, and a demanding turnaround outweighed the appeal of the projected returns.
Where AI Earns Its Place
The most valuable part of this session was watching the analysis become a conversation.
We could ask questions, inspect assumptions, compare scenarios, and spend more time discussing the investment decision.
AI helped organize and surface the information. We still had to verify it, interpret it, and decide what we were willing to take on.
That’s the investment process I want more people to understand.
AI does the analysis. You make the judgment.
Sometimes that judgment leads to a better offer.
Sometimes it leads to more due diligence.
And sometimes it leads to a pass.
Look Past the Returns
The next time a deal catches your attention, give yourself permission to slow down before falling in love with the forecast.
Ask what supports the projected income. Check which expenses need verification. Understand the financing. Consider what the management team would actually need to accomplish.
Then ask yourself whether the potential reward justifies the work, uncertainty, and capital required.
A projected return is an invitation to investigate.
Your judgment determines whether the opportunity deserves your money.
Want to see how we’re building AI into our investment process?
Join our free Real Estate Investing × AI Masterclass, where we’ll walk through practical applications for general partners, family offices, and investors managing real portfolios.
And I’d love to know 👉 What’s the first number you check when reviewing a deal?
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