Getting into Commercial Real Estate – Understanding Underwriting & Value-Add Strategy

[Simandu Yakubov]

Hey everyone,

I've been investing in single-family homes (SFH) for some time and have completed 13 deals. I'm now looking to scale into commercial multifamily properties and want to ensure I fully understand how to underwrite and maximize value in the CRE space.

One thing I've been wondering—when a seller advertises a pro forma, are they typically pricing the property based on existing NOI or the projected NOI after improvements? Would buying at projected NOI take away from the value-add strategy of commercial real estate?

Also, suppose I find a multifamily property where the current NOI is not at full capacity (due to below-market rents, vacancies, deferred maintenance, etc.), and I go in and rehab, raise rents, and increase NOI—would my new property value be determined by applying the area's average cap rate to my new NOI? If so, could I then use that to support a cash-out refinance, allowing me to recycle my capital and scale up?

I want to make sure I’m digging into the right numbers when underwriting. How do you break down all the potential costs, earnings, vacancies, maintenance, and other key factors to ensure you’re making an accurate and profitable investment decision?

I'd love to hear from investors who have successfully transitioned from SFH to commercial multifamily. Any tips, insights, or strategies would be greatly appreciated!

If anyone here has extensive experience in the commercial multifamily space and would be open to mentorship, I would greatly appreciate the opportunity to learn from someone who has successfully navigated this industry. I'm eager to absorb as much knowledge as possible, fine-tune my underwriting skills, and build a strong foundation in CRE investing. I am extremely committed to long-term success, and I would love to connect with a mentor who is willing to share insights and guidance.

Looking forward to your thoughts.

Thanks!

[Robert Rixer]

Congrats on the SFH's. Your theory on the multifamily is correct however in practice in today's market conditions, it can vary wildly. Few properties these days will support a full cash-out, most won't even get a partial cash-out. Sellers expect to take a good amount of the upside, even if their rents are low.

For someone who is coming into this new, you will likely be taken aback by how little these deals make sense.