How do you guys calculate a "good" commercial deal?

[John Lee]

Hello BP,

Excuse my ignorance, because I do mostly single family rental investing. It's pretty straight forward, because I base my numbers on the ARV, purchase price and repairs. But, how do you guys compute a "good" deal for 5+ units? I only hear people say that its based on cash-flow, but there has to be other factors included! A good book recommendation will help here too...

[Ed Matson]

Try "What Every Real Estate Investor Needs to Know About Cash Flow" by Frank Galinelli who teaches at Columbia in its graduate RE program. And what other factors do you think would be important besides cash flow? Commercial RE is all about cash flow. Property valuation is based on cash flow (NOI divided by Cap rate). If you increase cash flow without a corresponding increase in operating expenses, the value of your property increases and you force appreciation. So, IMO, its all about the cash flow.