Buying Multifamily - Metrics and Methods for Analysis of many

5 Replies

I'm currently looking to buy multifamily (apartments) in Southern California 4.5-6+ cap or South/ Central Florida 6+ cap (LA, Inland Empire, South East Fl etc)

I currently own manage a portfolio of about 40 units with some ownership.

Search: 15-50 units (this varies a lot...currently we're looking at south LA versus Inland Empire.)

So a little background on how I usually buy a property... I start with a wide net, first focusing on broad markets, then  like a funnel then focus on lesser, look at dozens in several focus areas

How do you guys generally do your broad multifamily searches? I have a Excel spreadsheets where I just plug in a lot of different metrics (below) for looking at dozens of properties at a time.  

Any suggestions on making these like-for-like comparisons for about a dozen or so properties?

Metrics:

ppsf price per sf

ppu - price per unit

SF

Class of property A - C (we're usually looking for B-C properties in B-C locations)

Class of locations A-C

down payment (different multifamilies have different amounts down especially if it's a value-add)

GRM - go to metric... I've noticed a lot of lenders use for their "quick" metric

1% rule (this is my first quickie metric)

CAP rate- this is so variable but in LA county lower income areas I notice about 30-40% depending on how much of a value-ad property we're dealing with (fixer) Often I just use 35% for repairs across the board and

IRR- this is more difficult to compute as it has so many variables-- usually a value-add property with major repairs/ rent raise will have a 50-100% IRR over a few years

Once I focus on just a few properties or if I'm going for more of a 'value add' property...I will plug in an IRR spreadsheet and make a bunch of assumptions, exit strategy etc. Usually, it's a higher IRR for value-add properties in LA but they involve more work.

Oops I forgot I also at some point look at CoC!


So do ya'll see why this can be so confusing looking at so many properties (I usually look at 100 before pulling the trigger on a few, then you only get a few selected.

My main quickie metrics are GRM 1% rule (or less if A property/locatioon) then I might quickly look at estimated cap

Anyways if someone has a better system let me know I'm all ears all the time!

@Will F. Just curious ... Where do you get your numbers from? How many per week do you get? 

I use Michael Blank's SDA tool. I adapted it to my own check list and process. I'm only focus on value add assets. Stabilized properties are not of interest to me at this time.

(919) 434-3132

@Henri Meli Hey..Which numbers are you referring to? the assumptions?  I'm sorry I don't understand your question?  In different cities and neighborhoods, assumptions are usually different.  You can get them from a local broker or off forums...I think the most important thing is that you use the same metrics across the board in each market. (But I even change these if it's an older or newer property)

If you're referring to the numbers for things like price per sf, GRM, etc that's from the deal.

If you're referring to the 35% for repairs to determine cap I had mentiioned above, then that's just because that's what I've experienced in my local market LA county south bay and Long Beach.  It's just so I can quickly compare a bunch of properties.  

I don't actually know how 'good' a property is until I run the 'actual' numbers based on the property's tax returns or at least what I can get out o the management..

I've done mainly value-add properties that's where IRR comes more in handy. You just have to use a lot of assumptions and sometimes your capital improvements can kill your intended cash flow. Almost all real estate is value add to some extent so that caries too ;-)

@Will F. My question wasn't clear enough. What I was asking for was where you get properties/deals to analyze from.

I'm on a few list, but not enough, I think.

(919) 434-3132
Originally posted by @Henri Meli :

@Will F. My question wasn't clear enough. What I was asking for was where you get properties/deals to analyze from.

I'm on a few list, but not enough, I think.

 Oh gotcha. No prob bud.

Some are off lists etc .  But I also have tried direct to landlords but that has not amounted to much... 

Most of my deals have come through network-- mainly from real estate agents, commerical brokers, wholesellers (mainly for smaller properties) Most I've known for 10+ years so there's some trust there and they know I deliver. It's very difficult to find off market. I also have Costar access but most of what's on Costar you can get from a quick loopnet or MLS search.

But really the true source has just been the MLS and agents for the majority of deals. It's just what they do for a living and they're really the gateway to deals imo.

But I'm open to other sources.  And things area always evolving and changing.  Like back in 2009-12 (buyers market) I was getting hounded to buy (mainly SFRs and 1-4s) but really now it's the reverse

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