Multifamily Investing: Knowing the numbers so you can BRRRR

Multi-Family and Apartment Investing
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Multifamily Investing: Knowing the numbers so you can BRRRR

Omari Heflin
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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  • Rafael Norat
    Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
    4y

    @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

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  • Matt Horn
    Investor · Tucson, AZ · Member since 2020 · 15 posts · 10 votes
    4y

    Hello Omari,

    I think the biggest step to take is to have a strategy discussion with your lender(s). The parameters of the loan program you use to refi will dictate how much cash you will be able to pull out. I would specifically focus on the DSCR requirement and max LTV. Then you can reverse engineer the numbers to see what the NOI will need to be to satisfy the lender requirements and see how realistic it might be to achieve those numbers. And just as Rafael wisely pointed out, do some homework to understand the comps in the area so you can accurately anticipate what the appraised value might look like.

    Also, make sure to double check on any title seasoning requirements the lender may have that could limit the LTV on your new loan.

    Those are just some general pointers but let's dig into the hypothetical numbers you provided. This is how you might be able to BRRR...

    Projected rental income: $172,800 ($200x12X12 + $144,000)

    - Expenses (if they were to remain at $72k) = $72,000

    NOI = $100,800

    Let's assume it appraises at a 6 cap, the ARV would be $1,680,000.

    Max LTV on new loan is 70% = $1,176,000 (assuming DSCR is in line)

    $1,176,000 - $700,000 (orig loan amt) = $476,000 but then subtract the rehab + loan fees for both loans.

    If you can fine tune the numbers with actuals and with some input from a property manager (as there are many variables here), we can clean this up but this is conceptually how I would look at it.

    Hope this helps!

    Matt

    2Reply
  • Omari Heflin
    OP
    Fishers, IN · Member since 2017 · 126 posts · 20 votes
    4y

    @Matt Horn My Man !! That makes more sense. I think I'll have a call with my bank today and get these numbers more concrete. We've BRRRR over 40 SFH units here in Indianapolis, just bit different when it comes to multifamily.

    This def helps !!

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