The Method We Use to Quickly Evaluate Multifamily Deals

The Method We Use to Quickly Evaluate Multifamily Deals

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

Follow
LinkedIn
Facebook
Instagram @sterlingwhiteofficial
YouTube
SterlingWhite.info

Read More

Join for free and get unlimited access, free digital downloads, and tools to analyze real estate.

Multifamily property investing is attracting more and more interest, leading to increased demand. How do you quickly value deals to see if they’re worth making an offer on, and how do you know how much to bid?

More and more stock market and single-family rental investors want to step up to multifamily property investing. One of the most significant steps to tackle in this process is swiftly sifting through the property leads to know how much they are worth and to know which are worth pursuing.

Simplicity is Key at the Start

Whether you are browsing the web, having agents and brokers sending you deals, or driving neighborhoods, you can have a lot of potential deals to look at, and little time.

Having a quick gauge for knowing whether to toss it or dig in can help a lot. What information you accumulate and review, as well as what data you have access to, will vary from deal to deal. Personally, I love back-of-the-napkin math. It can save you time in the event the seller is asking way too much—or conversely, in the event it is a steal that you need to get under contract immediately.

analyze-multifamily

Related: How to Jumpstart Your Investing Career as a Multifamily Deal Finder

For this, you just need to know your:

  • Potential rents
  • Approximate operating expenses
  • Cost of any financing, if you need it

The Formula

Luckily, I have a partner who specializes in all things financial. He’s the one who does the real work in evaluating multifamily deals for our real estate investment firm.

When we speak with a owner, or a broker emails us a deal with limited information, we pull it all into a spreadsheet, which you can find here. Some line items and factors will vary depending on the property location, year built, etc.

Additional items to consider during underwriting include:

  • Taxes
  • Insurance
  • Vacancy rates
  • Repairs and renovations
  • Liens
  • Utilities
  • Asking price
  • Financing
  • Property management costs

One way we’ve found to quickly rule out or spot hot potential deals is by looking at current expenses. As a general rule, a Class C property in a C neighborhood will generally run a 50-55% expense ratio. If an owner tells us he is running at a 25% expense ratio for that type of product, then something is off. Most likely, their books are cooked. Not always, but most likely. Unless everything else makes it a must-have deal, you may just want to move on. On the other hand, we’ve spotted deals where the current expenses are more like 75%. That doesn’t mean it is a bad property. It can mean there is huge room for improvement and a lot of hidden value if you can get it for a good price and boost performance.

To make a quick decision, you’ll be looking at things like cap rate, NOI, and your annual returns for the first year.

how-to-value-multifamily-property

Related: Is Multifamily a Good First Real Estate Investment?

Conclusion

When you are looking at hundreds of deals, quick analysis can save you tremendous time. After running the numbers, we then formulate an offer to present to the seller. Sometimes we’ll begin by submitting a letter of interest (LOI). This really comes into play when you aren’t sure the seller is going to like your offer and you don’t want to do all the extra work unless you can get close to an agreement.

In others cases, we go straight to contract. At that point, we go deep into due diligence and obtain bank statements, rent rolls, conduct inspections, etc. All the documentation and hard facts will hopefully confirm our assumptions and verify the numbers. If you can get all this information beforehand, it’s even better. Just know it can be a lot of work and can cost money, and you might not even get under contract. Many sellers aren’t going to want to share their finances with everyone in the world, unless they are in a serious contract.

How are you evaluating your multifamily investment property opportunities?

Comment below!