MultiFamily Investing: Knowing the numbers so you can BRRRR

MultiFamily Investing: Knowing the numbers so you can BRRRR

Fishers, IN · Member since 2017 · 126 posts · 20 votes

Hey BP Family !!

I understand how to find the Noi, cap rate, price per door, and purchase price for multifamily. Where I'm getting stumped is knowing how much appreciation you forced from increasing rents and decreasing expenses to gain a new purchase price. 

Example 

Purchase: $1M

Down Payment: $300K (30% average)

Debt: $700,000

Units: 12

Cost per door: $83k

Rents: $1,000 per door (GOI = $12,000 per month x12 = $144,000) 

NOI: $144,000 - $72,000 (50% for expenses is what I'm hearing) NOI = $72,000

Cap rate: NOI $72,000 / Price $1M = 7.2 cap

Let's say this is a value add opportunity and you're able to increase the rents by $200 per unit. Is that enough to BRRRR completely and pull all of your money back out? I appreciate all the help if you guys could go into DETAIL about your answer ! I'm not looking for a critique on the numbers, this is a very random scenario so I can get more comfortable with running numbers correctly and being confident I can BRRRR out, or atleast know what the value will be worth after renovations. I know this may be something simple to a lot of you but I'm having a brain fog moment and need help from the BP family !

All comments are welcomed if it pertains to helping me undersea nd my after repair value and what the bank would want me to be at after Reno 

Love you guys !!

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Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
4y

The amount you would be able to pull out from a refi will depend on the NOI and cap rate. So to use rough numbers, if your NOI went up $200/door/month, and we assume a 5% cap, your value will have increased $576,000.

New value $1.576. If the bank requires 25% equity (discuss with them to get an answer, but this is reasonable), then you'll be able to get a loan for $1,182,000, so you would theoretically be able to pull your cash out. Assuming you didn't have a pre-payment penalty on the initial loan.

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  • Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
    4y

    The amount you would be able to pull out from a refi will depend on the NOI and cap rate. So to use rough numbers, if your NOI went up $200/door/month, and we assume a 5% cap, your value will have increased $576,000.

    New value $1.576. If the bank requires 25% equity (discuss with them to get an answer, but this is reasonable), then you'll be able to get a loan for $1,182,000, so you would theoretically be able to pull your cash out. Assuming you didn't have a pre-payment penalty on the initial loan.

  • Fishers, IN · Member since 2017 · 126 posts · 20 votes
    4y

    @Adam Lacey 

    Thank you so much for your input, absolute last question for you 

    How are you coming up with a 5 cap rate just with this example ? I guess I’m looking for a tule If thumb

    are you usually looking to buy at a 7+ cap and refi at a 5 cap (which is stabilized in the market) 

    Hopefully my question makes sense 






  • Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
    4y

    Hey @Omari Heflin, I just pulled 5% out of thin air for explanation purposes. That number will be market and timing specific. It's impossible to predict what the cap rate will be 2 or 3 years from now when you refi, so I generally assume that the cap rates will rise a certain amount from when you purchase to when you sell/refi to be conservative.

  • Investor · Dallas, TX · Member since 2013 · 100 posts · 31 votes
    4y

    @Omari Heflin it looks like you are on the right track! I recommend using a model that will show a % change annually for your rent income, expenses, ect calculating your NOI & potential sales price each year with growth

  • Fishers, IN · Member since 2017 · 126 posts · 20 votes
    4y

    @Brandon Beatty

    Thanks Brandon, my biggest issue was understanding the new purchase price of the asset 

  • Investor · Dallas, TX · Member since 2013 · 100 posts · 31 votes
    4y

    The purchase price is determined by cap rate. I recommend building a model to forecast future NOI. The cap rate will vary by market & asset class.

  • Fishers, IN · Member since 2017 · 126 posts · 20 votes
    4y

    @Brandon Beatty Ok thank you Brandon !

  • Fishers, IN · Member since 2017 · 126 posts · 20 votes
    4y

    @Brandon Beatty You mind sharing the calculator that you prefer for running deals through your analysis ?

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