How do you analyze a multifamily deal?

5 Replies

When someone sends me an off-market deal, I find a property on LoopNet or on the MLS, the first metric I look for (kind of my first filter) is the cap rate. If it has a competitive cap (using MY expense ratio and the current market conditions) then we move to the next filter.

In this second filter I estimate the loan terms (based on the market, my experience and the property), and with that we come up with a CoC (or cash-on-cash) and IRR (or Internal rate of return). If these numbers are aligned with what we look for then we move forward to the next filters.

On my third filter, we schedule a touring of the property and perform a physical preliminar analysis of the property (not an inspection) to figure out how much CapEx will be necessary. If it all comes positive, we submit an offer.

Once we have the property under contract we start due diligence (reconcile financials, rent roll analysis, inspections, appraisers, estoppel certificates, etc etc).

If no surprises or negotiated a reduction due to a surprise, we move forward to the closing.

In parallel I am working with the lenders to find the best financing terms possible.

It’s important to know that these steps work only if you already know the market you are investing in. If you don’t really know the market, surround yourself with people that do and start learning about cap rates in that market, vacancy rates, rental growth rates, unemployment rates, employers (job generators), governmental policies and regulations, and so on.

This is just a short version of the way I analyze a deal and I hope it helps. Feel free to reach out if you have questions or want me to elaborate more on a specific point.

What is your purchase process? I’m interesting to know !

Originally posted by @Alberto Mazatan Trevino :

When someone sends me an off-market deal, I find a property on LoopNet or on the MLS, the first metric I look for (kind of my first filter) is the cap rate. If it has a competitive cap (using MY expense ratio and the current market conditions) then we move to the next filter.

In this second filter I estimate the loan terms (based on the market, my experience and the property), and with that we come up with a CoC (or cash-on-cash) and IRR (or Internal rate of return). If these numbers are aligned with what we look for then we move forward to the next filters.

On my third filter, we schedule a touring of the property and perform a physical preliminar analysis of the property (not an inspection) to figure out how much CapEx will be necessary. If it all comes positive, we submit an offer.

Once we have the property under contract we start due diligence (reconcile financials, rent roll analysis, inspections, appraisers, estoppel certificates, etc etc).

If no surprises or negotiated a reduction due to a surprise, we move forward to the closing.

In parallel I am working with the lenders to find the best financing terms possible.

It’s important to know that these steps work only if you already know the market you are investing in. If you don’t really know the market, surround yourself with people that do and start learning about cap rates in that market, vacancy rates, rental growth rates, unemployment rates, employers (job generators), governmental policies and regulations, and so on.

This is just a short version of the way I analyze a deal and I hope it helps. Feel free to reach out if you have questions or want me to elaborate more on a specific point.

What is your purchase process? I’m interesting to know !

Thats a great way to analyze a deal! Similarly I figure out if it is a value add deal. NO, not interested, YES okay tell me more. Then I calculate potential rental rates and potential ARV. If it can cash flow $1500+ and have more then $100k in equity, im game!

@John Erlanger

Hi john. You are right, I used the wrong word to define my analysis process. What I meant by filtering looking at cap rates is my personal first step to see if the portfolio meet my fund’s requirements. We are constantly looking at properties in different sub markets and need to understand if (as you said it) the subject property is trading at market, above or below and figure out if the price is right.

Do you have a specific strategy?

Thanks for the comment

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you