The Case for 3-Case Underwriting in Small Real Estate Deals
Why the Downside case is the only case that should matter at the sourcing stage — and how it changes which deals you do.
By Daniel Jorge Oliveira · February 11, 2026
Most small-deal real estate underwriting fails at the same point: the Base case becomes the only case that gets taken seriously. The Downside becomes a footnote. The Upside becomes the marketing.
Three-case underwriting inverts that order. The Downside case is the screening filter. It assumes cost overruns in the 10-15% range, a soft exit market, and extended timelines. If the deal still produces an acceptable outcome under those assumptions, we move to the Base case. If it doesn’t, we pass.
The discipline is not sophisticated. What’s sophisticated is the willingness to actually pass. That’s where most small-deal sponsors fail.
Why does it matter? Because the capital in small deals is often real people’s real money. The worst outcome is not missing an Upside. The worst outcome is capital loss on a deal that looked good in the Base case and fell apart in reality.
The Base case is the realistic expectation. The Upside is modeled but never relied on. And the Downside is the line we do not cross in sourcing.
Related reading: the River methodology · for accredited investors · case studies.