Multi Units Analysis

3 Replies

Hello Tampa BP - I am coming across triplexes that Id like to wholesale. I can do all the due diligence, repairs, cash flow, etc.. Except for when it comes to cap rate and find comps, which i can rarely find in certain areas, but my main question is how do I price a multi unit property to wholesale? What is it the buy and hold end-buyer price goal is around my area? Is here where the cap rate comes into place?  Is there a magic spreadsheet or calculation?

Thank you!! - I am more familiar with SFR, then when it comes to duplex, triplex+

Tampa, Clearwater, St Petersburg

2-4 unit multifamily falls in kind of a unique area. They CAN still qualify for FHA financing and most of the time they're able to be sold on the promulgated contracts from that particular state, in Florida its the FAR-BAR AS-IS. So they need to be evaluated both with the sales comparison model and with the income approach.

The sales comparison model is exactly what you're used to. Look at other triplex sales in Clearwater and see what they're selling for. If you've got one for $200,000 that's rented out for $3,000/month but the other triplexes in the area are selling for $100,000 you're probably buying it too high. It's also essential to look at the cap rate which I'm sure you're aware, is NOI divided by TOTAL INVESTMENT. NOI is generally where I see a lot of people make mistakes. On a survey of almost a million multi family units (most grade A and B) you'll find an operating expense ratio of around 35-40%. So if you're gross income is around $20,000 for the year you can figure around $7-8,000 of that are going to go to management, repairs, taxes, etc.

The final piece to the puzzle is figuring out what an acceptable rate of return for investors for that particular project is. There's no easy way to figure that but for grade A single family houses (2000 build, 3/2/2 block) the hedge funds have targeted between 10-12% returns. Those are institutional investors with billions of dollars. Most individuals are going to want to see at least a 12% return for that type of product. However when you go into less desirable areas, more work required, less qualified tenants, etc. investors are going to want to see high rates of return for the effort. If you're trying to pitch a property in South St. Pete you better be looking at a cap rate in the 20's. Conversely, large apartment projects like the Fusion 1560 in downtown St. Pete or any of the channelside buildings, will typically sell for lower cap rates to REIT's as long as they meet their guidelines.

@Julio Vasquez, Hello, Ryan Harthan obviously has all the numbers for you to crunch and can't be a better reference. I would say that the first thing in a hot Market that may be at the Top of the RE Cycle is for me to look at what the dirt is worth? Do you know what the lot values are in that area? I have a half acre, CG for sale down by the AFBase just fronting Dale Mabry Hwy. and no one is giving me any more than the Residential value for the land. So, the closer you can come to that value in your offer for the triplexes, at a time where we may see a fall in RE values is essential.

Good Morning, I am New to BP. Would you guys consider the market to be at or near the top of the RE Cycle?

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