What are some rule(s) of thumbs for evaluating Multifamily props?

10 Replies

I'm new to real estate investing. I'm starting to get my mind around evaluating deals, learning the rules of thumbs expectations, etc.

What are some rules of thumbs you all go by when evaluating a multi-property deal?

What information do you normally request from the sellers?  

Any links to some resources, please share. 

Thanks

Ask for a T12 (trailing 12 month profit and loss statement), a current rent roll, and offering memorandum (OM). That will give you everything you need to evaluate whether you have a deal or not. As for rules of thumb, the most accurate is to go off of the historical expenses on the property. Depending on age and condition the property is in you can assume $250-500 per unit annually for maintenance and $200 per unit for Capital Expenditures. You can get more accurate with Cap Ex by taking into consideration the remaining usable. Figure the cost, years of usable life left, and determine how much you should be saving annually to cover that expense.

Start doing a lot of reading/listening:

Podcasts - Jake & Gino, Todd Dexheimer, Michael Blank, Joe Fairless

https://jakeandgino.com/buying-your-first-multifamily/ 

Books - search "buying apartment buildings" on Amazon

Web:

https://jakeandgino.com/how-to-buy-your-first-twenty-five-unit-apartment-complex/

Read info on BP...there's a lot if you just go back through these threads

@Rema W. - multifamily is a great place to focus your efforts


Personally, I think @Michael Blank offers the best deal analysis tools and education available out there, specifically for multifamily (i think his Syndicated deal analyzer is worth the fee). The BP.com calculators are excellent, as well.. but they are tailored for 1-4 unit deals.

@Scott Skinger already mentioned some of the best podcasts out there. Def agree with his callouts


I think a monthly Audible.com subscription is also worth it, while you're in early REI learning-mode. You can digest audio-books as a compliment to reading. Good luck!

@Rema W. You chose wisely - MFH is a great asset class to invest in. In addition to great recommendations above, I recommend reading books on MFH: start with Steven Berges on apartment complexes investing and two of David Lindahl books on multifamily. I have a library with more recommendations. If you'd like PM me for the link. I cannot post here as it will be considered self promotion. 

Also, find local MFH REI groups and start networking with people locally. This will get you surrounded by the right crowd.

Best!

J&G's book Wheelbarrow Profits (and their podcast by the same name) are excellent. They lay out their criteria to 1. buy right 2. manage right 3. finance right. I am following their framework and it's been great so far!

Thanks, everyone for the feedback. I'm definitely going to do a deep dive into more audible books on the topic. I love those. 

Appreciate the comments. 

I'm still working on my first deal, but one of the tips I was given was to ask for the filed taxes and use the expenses claimed there since everyone tries to maximize their deductions.  

@Rema W. simple, get  all expenses.  Get copies of water, elect, and gas bills, if owner pays, Make sure you include, Taxes, INS, PM,  10 % for V/M, water, gas  if owner pays,  ,garbage, snow,/ grass, common electric, , keep it simple, do not over analyze,   good luck 

@Rema W. A lot of good advice by knowledgeable people and let me add that this is not a very good time to buy because of the low cap rates and competition in the market that reduces the time for due diligence specially for newbies because it is going to take longer for a newbie to close and in rush they are going to miss some necessary steps but it is a good time to learn .

Here's a quick way to evaluate a property: take the annual gross income, multiply times .5 (half goes to expenses, divide this (the net operating income), by your desired cap rate (e.g. 8%)

Here's an example: $100,000 gross income, x .5 = $50,000 net operating income, divide this by .08 and you get the purchase price of $625,000.

If they're asking $650K, the property is probably worth looking into. If they're asking $800K, I would probably pass.

@Kay Kay Singh I really enjoyed your recent podcast with Jake & Gino, lots of good info there! https://www.youtube.com/watch?v=TmfokyNk4jw