Streamlining Multifamily Deal Analysis
Hello BiggerPockets community,
I've been searching the internet lately, sifting through a multitude of deal analysis tools, Excel templates, proformas, and DCFs, all aimed at deciphering the viability of multifamily properties. Yet, amidst all the resources, I find myself overwhelmed and uncertain of where to start.
My objective is simple: I want to master the art of underwriting multifamily deals. I aim to utilize other people's money to invest wisely in buy-and-hold multifamily properties. I understand the significance of key metrics such as IRR and CoC in evaluating the potential of a deal, but the abundance of information out there is making it challenging to find a straightforward, user-friendly solution.
What I seek is a singular, comprehensive tool—a master template, if you will—that I can consistently rely on from deal to deal. Something that cuts through the noise and provides me with the essential metrics necessary to assess the quality of a potential investment quickly and efficiently.
I'm open to suggestions and advice from those who have navigated similar paths. What tools or templates have you found most useful in your multifamily investing journey? How do you streamline your deal analysis process while ensuring thorough evaluation?
Thank you in advance for your insights.
Most Popular Reply
You may be getting caught up in the paralysis of analysis. First decide the area(s) of interest to you as an investor - both geographically and the type of investment (SFR, small / large multi, storage, etc). Give some consideration to the amount of money you want to invest for a down payment plus any closing & renovation expenses here too, although if you find a sweet deal you can find outside money to extend your reach.
Next run the property through a quick analysis. For residential, compare the actual rents (*not* rents suggested in a proforma) with properties currently for rent and with historical rents for similar properties using sites like Zillow and Rentometer. Once you're comfortable with the total gross rent you can charge, multiply the total monthly rental income by .95. This allows for a 5% vacancy, and gives you the effective rent.
Next, multiply the effective rent by .55. This allows for 45% of the effective rent to be spent on all your expenses (taxes, insurance, management, common area utilities, etc. - but not your mortgage payment), and gives you the net operating income (NOI). If you're comfortable with a smaller percentage for expenses, change this part of the calculation - just realize you're ratcheting up your risk exposure on the property.
Divide the net operating income by the prevailing interest rate (5%? Hey, I can dream!) to get the total amount of debt the net operating income can support. Divide this number by .75 or .70 to reflect a down payment of 25% or 30% respectively, and compare that result to the asking price.
All the above takes about 10 or 15 minutes max - even using just a calculator. The majority of that time is spent verifying rental income for the unit mix in the property. Congratulations - you've just eliminated the vast majority of properties you choose to evaluate. Once you've done enough of these, you can decide if you want to invest even these 10 or 15 minutes - you'll recognize which properties are beyond the realm of reason and discard them immediately.
Now take the analysis one level deeper by looking at the property's current condition. How much do you anticipate spending for renovation, and can this money come from the NOI or will you need to spend it out of pocket immediately after acquisition? Does the property lend itself well to other income streams - paid laundry, storage area, or carports for example? What will it cost to make those income streams happen?
Also, keep in mind that you should have enough profit (NOI minus principal and interest) to be able to realize a reasonable rate of return and still be able to set aside some money for capital expenditures - for example, money for new roofing, paving repairs for drives and parking areas, etc.
In the end, you have to get to the other side of analysis though. Put that calculator down and pull the trigger.
Good luck with it!
You may be getting caught up in the paralysis of analysis. First decide the area(s) of interest to you as an investor - both geographically and the type of investment (SFR, small / large multi, storage, etc). Give some consideration to the amount of money you want to invest for a down payment plus any closing & renovation expenses here too, although if you find a sweet deal you can find outside money to extend your reach.
Next run the property through a quick analysis. For residential, compare the actual rents (*not* rents suggested in a proforma) with properties currently for rent and with historical rents for similar properties using sites like Zillow and Rentometer. Once you're comfortable with the total gross rent you can charge, multiply the total monthly rental income by .95. This allows for a 5% vacancy, and gives you the effective rent.
Next, multiply the effective rent by .55. This allows for 45% of the effective rent to be spent on all your expenses (taxes, insurance, management, common area utilities, etc. - but not your mortgage payment), and gives you the net operating income (NOI). If you're comfortable with a smaller percentage for expenses, change this part of the calculation - just realize you're ratcheting up your risk exposure on the property.
Divide the net operating income by the prevailing interest rate (5%? Hey, I can dream!) to get the total amount of debt the net operating income can support. Divide this number by .75 or .70 to reflect a down payment of 25% or 30% respectively, and compare that result to the asking price.
All the above takes about 10 or 15 minutes max - even using just a calculator. The majority of that time is spent verifying rental income for the unit mix in the property. Congratulations - you've just eliminated the vast majority of properties you choose to evaluate. Once you've done enough of these, you can decide if you want to invest even these 10 or 15 minutes - you'll recognize which properties are beyond the realm of reason and discard them immediately.
Now take the analysis one level deeper by looking at the property's current condition. How much do you anticipate spending for renovation, and can this money come from the NOI or will you need to spend it out of pocket immediately after acquisition? Does the property lend itself well to other income streams - paid laundry, storage area, or carports for example? What will it cost to make those income streams happen?
Also, keep in mind that you should have enough profit (NOI minus principal and interest) to be able to realize a reasonable rate of return and still be able to set aside some money for capital expenditures - for example, money for new roofing, paving repairs for drives and parking areas, etc.
In the end, you have to get to the other side of analysis though. Put that calculator down and pull the trigger.
Good luck with it!
I agree there is a lot of data to sift through. Start with rents in the area, this is your gross income. From there you can subtract expenses and calculate a cap rate which will help you compare different properties. From there look at other factors like what is the alternative to renting at the subject property, is it close to shopping or major employment centers, parks etc..? What other benefits would a renter have tot living there. Can you improve the property to raise rents? Look at the capital expenditures. Be cautious of properties that look too good on paper.
Once you have a property in contract you'll be able to look at the property books and be able to determine exact numbers.
This is a complex topic so totally understandable you are feeling overwhelmed.
I had a similar goal to yours where I wanted to learn how to underwrite multifamily deals. I found a really helpful course on WallStreet prep. Just google Wallstreet prep real estate financial modeling. It takes you through underwriting. This is a great start. I think it's $400.
It's an extensive course and requires a decent time commitment but I would start there and use their templates.
#5 Multi-Family and Apartment Investing Contributor
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#5 Multi-Family and Apartment Investing Contributor
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@Anthony Blanco: I think inherently underwriting a deal is hard and will never be streamlined.
That being said, any model can be used for a quick and dirty model just to see if the deal generally pencils before you dive in more.
I love the Adventures in CRE models. They are well built, well thought out, more detailed than the handful of "guru" models I have seen. At at a high level, once you have gone through a model a handful of times, you can get an output very quickly to know if you need to dive in deeper.
But, TRULY underwriting a deal comes down to market knowledge and the nuances of each deal. There is no shortcut for that. Items like:
What is the average income of the area and can they afford more rent?
What is the current condition of your units and what will it cost to get them to the level you want?
What does the market want to see in your units? I.e. is granite acceptable, or does it need to be quartz? Are repainted cabinets fine with tenants, or do you need new, modern flat panel cabinets to get your underwritten rents?
Does your property have in-unit laundry or just a facility in clubhouse?
Are market comparables all built in early 2000's and your potential is built in 70's?
Does the pool equipment need replaced?
Is the pool decking crumbling and need replaced with all new furniture?
How is the fitness center? Is there one? Do the comps have one?
This is just a list of 8 questions that I came up with in 15 seconds that all affect how you underwrite the deal. But the upside is, the more you underwrite and think about these things, ideally with some real world experiences behind it to confirm your assumptions, the faster it will go next round.
@Dennis McNeely, appreciate your insights and the valuable info. Just shot you a DM and would like to chat more if you're up for it. My thinking here is this is similar to cold calling. It's all about crunching numbers and analyzing deals, knowing that for every 'x' output, there's a 'y' result waiting.
@Greg Kasmer, Thanks for the info. At the moment, I'm leaning towards starting with Blank's and Beardsley's models. I've been feeling a bit like I'm running in circles trying to pinpoint 'the best model.' I agree that it's time to dive into practical underwriting with past deals and learn as I go.
One idea that might help is to learn how to disqualify deals quickly so you don't spend hours running numbers only to realize it isn't a good deal for you.
Personally, I like to run every deal through an easy back-of-the-napkin test before even pulling up an actual underwriting model.
Here are two easy back-of-the-napkin calcs that could save you a lot of time.
Gross Rent Multiple: Price/Annual rental income. Know your area. For example, I know almost everything in Minneapolis sells between 7x to 9x. If the asking price on a deal shows a 12x GRM, don't even bother underwriting it.
Half of Income = NOI: This one is very common in multifamily. A lot of folks just divide their annual rental income by 2 to ballpark NOI. Apply your cap rate and you'll generally know where pricing is landing. Again, if it's nowhere close to the asking price, you can move on to the next one.
Once you've narrowed down the list you can spend more time diving into each deal.
If you want to get into multi-family underwriting, I suggest the following YouTube channels:
https://www.youtube.com/@BreakIntoCRE
https://www.youtube.com/@tacticares
https://www.youtube.com/@adventuresincre
Break into CRE has some VERY affordable courses on underwriting Excel underwriting models. I bought several myself which were essential to my first models. Most of these have free versions of their models you can get.
But I never found one that was ready to do everything I needed out-of-the-box, so I built my own.
My goal is to build something like what you are talking about for simple deals - a user friendly Excel that even a Realtor like me could use! But my current version isn't show ready yet.
@Bradley Buxton, Thanks for the tips! I'll definitely keep these factors in mind as I dive into the numbers. Right now, I'm on the lookout for example deals to analyze. If you have any additional advice or resources on finding and analyzing past deals, I'd greatly appreciate it!
@Caitlin Logue, you're exactly right! Very overwhelmed but determined. I believe I found the course you were talking about:
Real Estate Financial Modeling Course (wallstreetprep.com)
Seems to have a ton of great information and I like how the example template is nice and organized.
@Evan Polaski, thanks for the great advice. It seems the list can go on and on regarding the nuances of each deal. My goal is to do a quick analysis to disqualify a property as fast as possible and move on to the ones that are more aligned with my goals.
@Account Closed, this strategy is fantastic—it really reminds me of the sales game where the aim is to get to a 'NO' as quickly as possible. I love the idea of quickly weeding out deals that aren't a good fit to avoid wasting hours crunching numbers.
Running a quick back-of-the-napkin test on each deal before diving into detailed underwriting is genius. It saves time and ensures focus on the most promising opportunities.
These are great for streamlining the process - thank you again!
@Brian Adams, thanks for sharing these YouTube channels—they look like excellent resources! I've already watched a few BreakIntoCRE videos, and they've been really insightful. I'll definitely explore the other channels you mentioned.
As for BreakIntoCRE's templates, did they help you analyzing your first deals? Did you run into any problems or noticed any important information that may have been missing?
I don't use the exact model that BreakIntoCRE's courses creates. I just used the knowledge to create my own, though it, of course, closely resembles what he puts together in the course.
I've been using it for all buy-and-hold analysis with fixed interest rates and hold period at least 5 years long. This is an example I was just sharing on a fourplex deal in another forum thread:
The biggest thing the particular course was "missing" was itemizing the expenses. In the particular course I took, he just assumes a particular NOI and growth, whereas my model breaks out both the revenue and expenses a little more as is done in other models to calculate NOI.
@Brian Adams, that's awesome! I feel like eventually, I'll do the same once I have a solid grasp of how to actually underwrite a deal. Now for me, it's just practicing how to underwrite and ensure I do it correctly.
@Anthony Blanco my advise is always the same on this. Make your own calculator. You can use others as a template, but stick to what is important to you with your investing goals and cut out all the rest of it. It's the best way to truly understand your own numbers and learn to trust yourself. If you're using someone else's calculator, you're trusting someone else and that adds an extra layer of "paralysis" in my experience.
- Jeff Schemmel
#5 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
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#5 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
@Anthony Blanco, in order to quickly disqualify:
1. Have a set of parameters that are your buy box, and anything that doesn't meet those, immediately discard:
a. Market and Submarket
b. Unit Count
c. Amenities
d. Year built/latest upgrades
e. Minimum area household income...
2. If you are looking at value-add assets, quickly look for market rents in the submarket and current rents, if current rents are within $100 of market rents, there is not enough juice in the deal to make it worth while
3. Look at purchase price and T12 NOI. Assuming you are keeping fairly apprised of debt options and interest rates, if the T12, cap rate is less than your interest rate, I would personally move on (exceptions apply if rents are several hundred behind market rates)
These are three quick ones that shouldn't take more than 10, maybe 20 minutes to quickly determine and you don't even need a simple or complex excel model to complete.
@Jeff Schemmel, valid point. I have a clear understanding of what constitutes a viable opportunity for me. I guess it's about cross-referencing my work with someone else's to reduce the possibility of errors.
@Evan Polaski, Thanks for the tips; using strategies like numbers 2 and 3 could really help avoid headaches and save time.
Most of the advice here is solid. Dennis's 55% expense ratio as a quick filter is a good starting point, but one thing worth adding — that ratio shifts meaningfully by asset class and age.
Pre-1980 buildings in markets with deferred maintenance routinely run 60-65% expense ratios once you account for actual capex, not the number the seller's proforma shows you. Post-2000 construction in stable markets can run closer to 45-50%. Using a flat 55% across both will make old buildings look better than they are and new buildings look worse.
On the "one tool" question — I'd push back on the premise. The screening tool and the underwriting tool shouldn't be the same thing. Screening is speed: rent comps, price per unit, GRM, quick NOI estimate.
Takes 5 minutes. You're just deciding whether to keep looking or move on. Underwriting is precision: unit-level rent rolls, actual T12 expenses, capex reserve based on building condition, debt terms you've actually quoted, exit cap assumptions tied to real comps. That takes hours and should only happen on deals that survived screening.
The mistake I see most often is people trying to build one spreadsheet that does both jobs. It ends up too slow for screening and too shallow for underwriting.
One practical thing that saves time: build your expense assumptions by market, not by deal. If you've underwritten 10 deals in the same MSA, you already know what insurance, property tax, and management costs look like. Those numbers don't change much deal to deal. What changes is rent growth, vacancy, and capex — focus your time there.
The screening vs underwriting distinction is spot on. From what I've seen, the capex piece tends to have the most variance deal to deal, especially on older buildings, where scope assumptions can swing the numbers significantly. How do you typically approach that side during underwriting?