Analysis on multi-units
Developer · Hobart, IN · Member since 2014 · 773 posts · 225 votes
So I have mainly stayed in SFR arena but wanting to expand my knowledge base. Looking for a rundown on what factors you're running on your deals when analyzing them. Such as maintenance, utilities... Just some things that are different than single family. Thanks in advance for the input.
Hi John, if you have access to Co-Star or ALN Research - they can help you TREMENDOUSLY - to estimate the 'AVERAGES' in the particular submarket for the expenses - Another great resource is property management companies - as they have experience in these areas and especially in the submarkets - Also - if you are ever considering a MF Complex you should also be able to ask the Selling Broker / or Seller for the T12 - Or Trailing 12 month financials - which should give you a history of the property itself - If you ever make it to Texas I have a great seminar to referr you too - - I hope you find this helpful - if so please VOTE - Good luck to you - MF is much better than SF - I've done both - Best to you!!
I think the other posters have hit the key points already. I am also a SFR investor looking into MFH , and besides the utilities (where a SFR tenant usually pays all) I would allow a higher vacancy rate , plus is there any maintenance common to all units that is paid by landlord (ie snow removal, lawn maintenance , common area cleaning ) I have seen these types of expenses on landlords financials on some propoerties
The name of the game in RE is ROI (Return on Investment). $100,000 invested at 10% ROI will give you $10,000 annually after all expenses including mortgage is paid. I analyzed SFR and MFH and the ROI is simply higher for MFH. 2-6 family is higher than SFH. 12-20 Family is typically the sweet spot for me which provides the best Cash on Cash Return (ROI). Large multifamily 30+ tends to have lower ROI than the 12-20 units from what I've seen.
Things To Consider (Multi Family)
Income: Gross Income, Laundry, Storage, Garage, Signs, Solar Panels, Cell Phone Antenna,
Expenses: Common area utilities, Heat, Sewer, Water, Insurance, Landscaping/Snow Removal, Pest Control, Professional Fees (Accountant, Eviction Attorney), Repairs, Maintanance, CapEx (Reserves for Boiler, Roof, Etc.) Fire Monitoring, Trash Removal, RE Tax, Management Fee (5-10%), Vacancy, Renovation (Value Add).
Metrics:
Cap Rate (return if your bought the property all cash ) = Net Operating Income divided by Sales Price. You want a minimum of 8% and 10% or higher is preferred.
ROI (True return including paying Debt Service) = NOI - Debt Service / Total Investment Amount. 12% is ok, 15% is great, 20%+ is really where you want to be (Home Run)
Price Per Unit: ex $500,000 Purchase price for a 10 unit MFH. Each unit is $50,000. See what other comparables are selling for in that market area.
Price Per Sq.Ft. = Sales Price divided by total Sq.Ft. or GBA (Gross Building Area)
GRM (Gross Rent Multiplier): Sales Price divided by Annual gross rents.
DCR: (Debt Coverage Ratio): Net Operating Income (NOI) divided by Debt Service (Mortgage). Banks want a minimum of 1.25. 1.5 or higher should make it smooth through the banks.
My 2 cents. When / if you get ready to get going on working on a purchase, I would recommend checking out Charles Dobens MFIA. He is a real estate attorney that specializes in MF and teaches you how to purchase. I attended his course a couple years ago and closed on a MF deal a year later. Good info. You do have to pay to be a member of his site, but I found the info to be well worth it. If you can catch a class, I would attend.
Hi Jason,
Just a few points of clarification. Full disclosure, I am also a student of Brad's.
Originally posted by @Jason V.:
No referral fees for attending the seminars but there are if someone does decide to sign up as a student.
Not true. You do not have to be a student to invest within the group's syndications.
There are no true minimums since it's up to the sponsor to set but generally they are $50k. The larger deals will have minimum of $100k to minimize number of investors. Very typical.
Brad does not advocate this either and I have yet to see a deal structured this way. My most recent one the sponsors and KPs invested 30% and raised the other 70%. Significant skin in the game.
BP was founded on the concept of gurus are bad. It's within the culture here and I think for good reason because there are a lot of scammers out there. But it can get extremely caustic for people who are just looking for mentors/coaches. It's funny some of the people you mention earlier like Brian Burke and Michael Quarles. In Rod Khleif's most recent podcast Brian mentions he wished he had a mentor to save him all the trouble of learning it himself. And Michael is a mentor himself.
My profile doesn't mention Brad either. Why would it? He's my mentor not my partner.
His organization is top-notch imo but take it for what it's worth. It wasn't too long ago I was looking for a mentor that I went through these same threads trying to figure out what was best for me. It's not easy filtering out the noise.
Yeah, I had considered that originally but realized with syndication there is no reason to do small scale. The reason most people start with SFR or smaller multis is to try to learn and minimize any damage from their mistakes. Well, that's the exact reason why I got Brad as a coach.
@Michael Le - Thanks for the clarifications! It really does sound like Mr. Sumrok is a savvy and successful investor, and runs a legitimately good training program. It's also nice to get this feedback from someone who's obviously invested a lot into the BP community, and who is active in their education as well.
I think one of the reasons so many of us are anti-guru, anti-seminar, anti-whatever, is that we've seen it all go horribly wrong so many times, and also have to put up with a lot of the "I'm so fired up because I just paid $25,000 for a mentorship (which you don't find out about until later) and you should come invest all your money with me even though I have absolutely no idea what I'm doing!" It seems like the first and only thing some of these gurus teach is how to raise money - but why on earth would anyone want to invest with someone like that?
I think one of the biggest risks is that people without any sort of direct REI experience aren't even able to tell the difference between a legitimate education and a complete scam. It might be similar to buying a used car without ever having seen one, and not knowing it's supposed to have an engine in it. If the folks who were paying for an education were more open about it, maybe there wouldn't be such a stigma. (Or maybe they'd get harassed so much they all left the community - I'm really not sure.)
In any event, thanks for taking the time to respond to my post. I try to be even-handed because I know there are good programs out there, but I also tend to look at paid coaching/mentorships in REI as playing Russian Roulette with 4 or 5 rounds in the cylinder.
@Jason V., totally understand. I've been on here long enough to have read the heartbreaking stories of people getting tricked into learning how to 'negotiate' by calling their credit card companies and increasing their credit lines and end up losing $40-50k. And especially when so much of the information you can find right here on BP.
The other thing to consider for multifamily is…you will likely want to engage a 3rd party professional mgt. company. This can vary, but as a general rule, this is typically approx. $1,100/unit/year. So, for 100 units, it would cost you $100k. But, as long as you account for this on your pro forma then you are good. This is one of the major advantages to buying a larger property…you get to engage others to run the day-to-day while you can focus on finding new deals.
Note: For Utilities…it is not uncommon in some areas to implement RUBS (Ratio Utility Billing System) whereby you bill back tenants for the utilities.
On the topic of gurus…
There are a lot of gurus out there and we have taken a lot of training on multifamily. We are syndicators ourselves and have been involved with gurus in the past. We have had good ones and some that are not so good. For the good ones, I have no issue paying them and in some cases a lot of money because I make it back quickly. But, the good ones are hard to find.
We started doing our own real estate training because we have found there are too many people that spend all kinds of money and end up still not having a clue what to do and/or having a guru that takes their money and then are no longer available. This is what gives gurus a bad name and rightfully so!
Our goal is to share information and we don’t hold back on that…anything we know, we share with others. We want people to be educated because it helps everyone.
I would highly recommend before you join any program...
Ask how many personal students do they have? Some groups limit this to a small number so you know you are actually getting what you paid for. Other groups have a lot of students (sometimes in the hundreds) for one guru.
I would ask…have they ever kicked anyone out of their group and if so, why? Have people ever left their group and if so, why?
Ask others how responsive the guru is and if anyone has ever lost a deal due to the guru not being responsive.
Make sure you understand the RULES of any group (written or unwritten, that are expected to be followed) - and that they support your personal business plan.
Can multiple students go after the same deal?
Do they teach by talking or by having you actually do?
It is a small world out there, so ask around before you pay a guru any money.
Hi everyone - I just got on line and I am seeing my name written several times -
# @Jason V. I was just trying to be helpful and when one person asked where I would refer him to - I did not want to post public - as not to be in compliance with BP rules -
#2 @Mike Dymski - Thank you yes - I was just trying to be helpful and work within the protocol (no hidden agenda)
#3 Jason - I am not Paid by the mentoring company - I am a student and the training worked for me and my family.
I hope everyone found the Educational Content helpful
Hi John
I wrote an article on BP about how to calculate the value of Multifamily real estate:
Hope this helps. I have other articles on BP specific to multifamily
Good Luck
it's a great niche!!
Gino