Need help interpreting financial information for multi family

[Jack B.]

This is what I see on listings on Redfin, apartment complex for just under 5 million

Net operating income, is that after expenses but before debt service? I used to know this stuff but forgot as I stopped looking at MF long ago.

Gross adjusted income? Adjusted by what?

What rent multiplier is a good rent multiplier?

The insurance expense must be monthly not annual, I pay 1/3 of that for a half million dollar house, let alone for a 5 million dollar apartment complex...

Multi-Family Financial Information

• Insurance Expense: $2,967
• Other Expense: $57,403
• Net Operating Income: $262,468
• Gross Adjusted Income: 377602
• Gross Scheduled Income: $397,476
• Total Monthly Income: 33123
• Gross Rent Multiplier: 12
• Total Expenses: 115134

[Bjorn Ahlblad]

My experience is numbers in a listing are generally wrong or manipulated to look favorable. NOI is after expenses and before debt service. Gross adjusted income is pretending all units are rented. Gross rent multiplier measures how many years it would take for the property to pay for itself with gross rents. The lower number of years the better. Jack, like many/most MF properties in our area my feeling is that property is overpriced and with proper numbers it will get worse.

Financing is onerous someone will need net worth equal to loan amount. 25% down and 5.5% interest. You will need a signed up PM. You will need reserves of 12 mos on deposit. All the best!

[Bryan Vukelich]

@Jack B. 

I agree with Bjorn.  Recommend you ask the listing agent for the actual last year and YTD income statement as well as rent roll.  For a building that size, all that info should be easily accessible and they should be able to provide you printed docs quickly.  If you go under contract to purchase the property, I also advise reviewing the property's tax returns. 

Wish you well - happy to answer any other questions you have.  

[Jack B.]

Thank you gentlemen!

[Greg Kasmer]

Jack - I think Bjorn and Bryan had some great comments. The other item that I'm noticing in multi-family is that in addition to manipulating the NOI, some sellers are also using cap rates that are not aligned with the market. Or, if they have a fairly accurate NOI, they become very "flexible" with the cap rate in order to get to a value that they want to target. I would do your research on cap rates within your target area and have some good data points for your analysis. Good Luck!

[Miguel Diaz]

Hey Jack, I am newbie in REI but I have some knowledge, in order to get your knowledge back on track, I recommend you to buy The Encyclopedia of Commercial Real Estate Advice book< I believe taht is a good source of knowledge as well the people that you can network with the experience for your case!! I hope I can contribute with you somehow with this!!