What to consider when buying multifamily for the first time

[Amy Lin]

My husband and I are thinking to add a multifamily to our investment portfolio. We mainly have single family properties in Texas at the moment. We came across a property that is walkable distance to a university, 6 one bedroom units and one 3/2 unit. On the listing, it said the property's projected 5 Yr IRR of 20.2% IRR before Value Add Program. The listing stated if we put in 3k into each unit we could raise the rent $100 more than it is currently rented out for.

Is it a realistic IRR? And what other numbers or important factors should be considered prior to moving forward with the deal? Thank you in advance.

[Taylor L.]

Don't bank on the listing's underwriting, do your own. Odds are very high you'll come up with much lower returns than they did. They're probably underbudgeting on repairs & maintenance, vacancy, and property management costs. $3,000 goes very quickly when you're doing value add.

IRR is also, honestly, a poor metric to use despite its popularity. Look at your cash on cash return first and foremost.

At this point you need to (at a minimum):

- Run the numbers for yourself

- Do your own rent comp analysis

- Independently research the area