On today's show, we're talking about a situation that confuses a lot of investors. How can the same property have two different underwriting models, and how can both of them be correct?

The answer comes down to perspective.

A lender is underwriting the property for one purpose. An investor is underwriting the property for a different purpose. Those two objectives overlap, but they are not identical.

Let's use a real-world example.

There are a number of state and local programs around the country that offer some form of property tax abatement for qualifying projects. Perhaps the property provides affordable housing, senior housing, or satisfies some other public policy objective.

The economics can be very meaningful.

Suppose the property would normally pay one million dollars a year in property taxes. Under the applicable program, the actual tax expense might be a $700,000 difference in net operating income.

But there is a wrinkle.

The tax abatement has to be approved each year. There is a small but non-zero risk that the property might not qualify one year. Should you assume the tax abatement in your underwriting?

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