Multi-Family Cap Rates

Buying & Selling Real Estate
7yFollow

Multi-Family Cap Rates

Jonathan Marsh
Littleton · Member since 2018 · 43 posts · 14 votes

I'm actively looking for a multi-family property to buy. I'm particularly interested in the 4-10 unit size to start out. I have a few basic questions. When analyzing a multi family property, what are the main aspects you look for? (Cash Flow, Purchase price, Ability to Resell, etc.). 

1Reply
58 views

Most Popular Reply

Alina Trigub
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
7y

@Jonathan Marsh 

1) you need to differentiate between the type of properties you're looking for: 2-4 units is considered residential MFH, 5+ units is considered commercial

2) in terms of the main aspects, there are too many to list. Search through BP, listen to podcasts, and read a few MFH books prior to starting your journey. You'll be a lot better equipped once you get educated. 

3Reply
See this reply in the discussion

42 Replies

Jump to latestLatest
  • Jonathan Marsh
    OP
    Littleton · Member since 2018 · 43 posts · 14 votes
    7y

    @Bruno Araujo-Sounds like it. That's certainly something I would consider for a large unit (50-100+,etc). For what I'm looking at right now (4-10), I think I'd probably try and get the deal done myself without syndication.

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Talk to a realtor in person. They can explain better and find you more deals....


    0Reply
  • Rebekah Scott
    Investor · Denver, CO · Member since 2017 · 9 posts · 6 votes
    7y
    @Jonathan Marsh Jonathan, if you are newer to the multi-family unit, buying a 4-plex in Colorado Springs May be a really good option for you. I have placed many of these, and had really great returns. Roughly 400k, $1,000 for each unit, really low taxes, and cheaper (than Denver) property management. Class B and class C properties, but they do really well, and there is a ton of room for growth in them. Like I said, I have placed several of these, and happy to send you the model I use to run the numbers. It is extremely elaborate.
    2Reply
  • Reed Huddleston
    Real Estate Professional · Colorado Springs, Colorado (CO) · Member since 2016 · 30 posts · 11 votes
    7y

    @Rebekah Scott Can you please send me the model you use to run the numbers? I would be very curious to see how that pans out with what is on the market right now. It's pretty rare to see any $400K fourplex with $1000 rents on market here. Its more like $450K for $900 rent. or $399K for $800 rent 

    1Reply
  • Handie Kunen
    Rental Property Investor · Bedminster, NJ · Member since 2014 · 42 posts · 5 votes
    7y
    @Jonathan Marsh start with some education. I recommend Jake and Gino, Michael Blank and Joe Fairness’ podcasts, and also David Lindahl’s books on multifamily investing.
    1Reply
  • Brian H.
    Carolina · Member since 2017 · 519 posts · 222 votes
    7y
    Originally posted by @Russell Brazil:

    I like rent growth.  I now only buy in areas where rent growth is strong.

     For a newbie investor... what are some good methods you have used to determine the rent growth in an area you may not be super familiar with?

    0Reply
  • Maurice D.
    Coppell, TX · Member since 2015 · 485 posts · 310 votes
    7y

    @Russell Brazil what metrics help you gauge rent growth? do you look at rent averages (year over year) ? etc

    0Reply
  • Cipriano G.
    Rental Property Investor · Jamison, PA · Member since 2016 · 12 posts · 7 votes
    7y
    @Bruno Araujo read wheelbarrow profits by Gino Barbaro and Michael Blanks new book financial freedom through real state investing both very good.
    0Reply
  • Lawrence Brooks
    Rental Property Investor · Northern Virginia · Member since 2018 · 5 posts · 0 votes
    7y
    @Russell Brazil Thanks for responding. Have you had to downward adjust rents to offset prospective losses?
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Brian H.:
    Originally posted by @Russell Brazil:

    I like rent growth.  I now only buy in areas where rent growth is strong.

     For a newbie investor... what are some good methods you have used to determine the rent growth in an area you may not be super familiar with?

     Just market knowledge of the supply and demand in the area. Higher income areas tend to have high demand, increasing populations, increased commercial development (not increased residential development)

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Lawrence Brooks:
    @Russell Brazil Thanks for responding. Have you had to downward adjust rents to offset prospective losses?

     Ive had rents drop on my Frederick properties before. Demand isnt as high that far out.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    1Reply
  • Brian H.
    Carolina · Member since 2017 · 519 posts · 222 votes
    7y
    Originally posted by @Russell Brazil:
    Originally posted by @Brian H.:
    Originally posted by @Russell Brazil:

    I like rent growth.  I now only buy in areas where rent growth is strong.

     For a newbie investor... what are some good methods you have used to determine the rent growth in an area you may not be super familiar with?

     Just market knowledge of the supply and demand in the area. Higher income areas tend to have high demand, increasing populations, increased commercial development (not increased residential development)

     Cool. Thanks for the response, Russell. 

    0Reply
  • Sergio Aguinaga
    Detroit, MI · Member since 2018 · 148 posts · 38 votes
    7y
    @Russell Brazil how do you determine which areas will increase significantly in rent and which won’t?
    0Reply
  • Jim Thomas
    Contractor · Atlanta, GA · Member since 2018 · 32 posts · 14 votes
    7y
    @Jonathan Marsh 1. Confirm the rent roll - make sure the existing tenants have leases that dont expire soon 2. Inspect the condition - get access to each unit to make a list of potential interior repairs 3. How old are the HVAC units and water heaters? 4. Does the roof need to be replaced? 5. What is the crime rate in the neighborhood (trulia)? 6. Are adjacent properties boarded up? 7. What have been the repair expenses, capex and utilities over past year? 8. How much is insurance and taxes? 9. What has been the eviction rate and costs over past year?
    0Reply
  • Jonathan Marsh
    OP
    Littleton · Member since 2018 · 43 posts · 14 votes
    7y

    @Jim Thomas-Awesome tips. Thank you!

    0Reply
  • Bruno Araujo
    Los Angeles · Member since 2018 · 16 posts · 2 votes
    7y
    Originally posted by @Cipriano G.:
    @Bruno Araujo read wheelbarrow profits by Gino Barbaro and Michael Blanks new book financial freedom through real state investing both very good.

    Ordered both. Thank you.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free