Multifamily Investing: Knowing the numbers so you can BRRRR

[Omari Heflin]

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 !!

[Rafael Norat]

@Omari Heflin 

Hey Omari! With regards to value after renovations..

If you're performing rehab work, include this cost with the purchase price in your initial cap rate calculation.

If your increasing the NOI after purchase, update this number once complete.

To calculate your post value, you need to know the local market cap rate. Then use your cap rate equation with the local cap rate and new NOI to determine the purchase price. This is what your property would be worth. From, there, use the difference between this and your initial cost of purchase (including any rehab) to determine the equity you just gained.

Hope that helped!

Rafael