How to evaluate multi unit property?

Question

What is the best method to evaluate a multi unit home? I am in the process of educateing myself and maybe reading to may books to fast (information overload). Sooooo? what is it Cap rate, Sq/Ft compareables, Price compareables, GRM, ROI, or DSCR and I'm sure I'm missing some. I run the numbers one way then what about this way and that way and that way and so on. You get the picture. I've read a very popular and recomended book on Duplexes, Triplexes and Quads and, Yes the information is sound advice but not everyone lives in very popular vacation destination.  What if its just an very soild neighborhood in the coal country of the north east. The community has not risen or falling in any dramatic way in 100 years. Just very nice, well kept homes blue collar homes. There are a number  of multi units at very resonable prices,I think.  Is it worth investing?

Kristopher K. · Answer

@Stephen Dominick - here's a couple of @Brandon Turner links

http://www.biggerpockets.com/renewsblog/2013/04/09/how-to-buy-a-small-multifamily-property/

http://www.biggerpockets.com/renewsblog/2013/06/14/50-percent-rule/

And an excellent @JScott link (they'd be more excellent if the mentions worked, oh well)

http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/

Stephen Dominick · Answer

Thank you for all the responses. I will be buying and holding, re habing each unit as tenants leave,raiseing the rents and refinanceing after a year or so. With forced appreciation hopefully get enough money to get another one. The place is 100% rented now. I'll get the numbers together and present them here. Thanks again.

Jean Bolger · Answer

I think the type of area you are describing can be an excellent place to invest for cashflow, probably not for appreciation. If you are careful about the properties you acquire and are very conservative about estimating the repair/maintenance costs when you do your analysis you should do just fine.
	All those financial metrics that you mentioned should be considered, but really it comes down to: Can I afford this property (usually that = get financing) and will it make me plenty of money over time without being a big pain in the butt?

Only you can determine the plenty-of-money/pain-in-the-butt ratio that works for you!

Steve L. · Answer

What are you planning to do with it?

- Hold it, rent as-is; hold it, repair and rent upgraded; wholesale it; flip it (fix it and sell it fully occupied)

That will base how to answer your question.

In my multi-family deals I am looking at:

1. proximity to my existing portfolio, neighborhood areas

2. pro-forma cash-on-cash return,

3. pro-forma cap rate and comparable sales cap-rate

If you are looking to flip it, you would care mostly about pro-forma cap rate compared to the comparable sale cap-rate.

If you are keeping it you probably care mostly about cash-on-cash return.

Kevin D. · Answer

All links are from here: http://www.biggerpockets.com/articles/category/property-analysis

Cap rate

Understanding Cap Rates (Capitalization Rates)

Sq/Ft compareables, price comparables

Estimating Price Without Comparable Comps

GRM

Gross Rent Multiplier - I read about this here

For my current abode:

Duplex, Purchase price of $260k, half rents for $1000/month

130k acquisition (half of the property) 12k annual rent = 10.83 GRM for me

This property is my home and this is just an offset. No 1% rule here until I move out.

ROI

Return on investment

Many articles on this on BP

DSCR - Debt Service Coverage Ratio

Defined here

Kevin D. · Answer

At risk of pimping BP too hard...I think there are some great resources on this site. I really like the podcasts. I have a lot more to listen to, but they are always packed with information.

I'm having trouble locating a link, but Podcast #40 had a link to this video. I suggest you start with this.

• How to Quickly and Easily Evaluate a Deal!
	
		about 5 years ago by Jason Hanson 
	
	
		Learn how to evaluate a deal in five minutes or less.

How to Quickly and Easily Evaluate a Deal!

about 5 years ago by Jason Hanson

Learn how to evaluate a deal in five minutes or less.

How to evaluate multi unit property?

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