How to analyze properties from a listing

Question

Hi All,

I am beginning to research commercial multi families to invest in in NYC. I am wondering how much information you can garner from the listings (I have been using LoopNet) and at what point do you inquire further and what is the next step?

How can I ensure what the rent rates are and how profitable the building really is? When looking at properties for sale are you also looking for local rents on a different site to get a feel for the area market (which sites)? What are the best initial calculations to run and how do you know when to investigate further?

Looking for some general know how. Thanks for any respo;nses!

Thomas Santella · Answer

When it comes to multifamily, the listing has a price and tells you info about the property such as how many units, location, what kind of condition it is in... Use that to estimate rent roll. Rent per Unit X Units X occupancy (.95%) = NOI. NOI/PP = Cap Rate. Compare your expected return with those of similar properties in the area to see if its a good fit. To ensure you are making $ each month, PP x (IR+RF)= Interest and Principal Payments. RF = rate factor (+1.458%), you add this to inclide principal payments. With I&P Payments x DSCR (1.25(what banks will loan at a minimum on usually)) and that will give you the minimum NOI the property will need to achieve for you to make a return based on basic lending rules. However, you can make certain properties work depending on your strategy, implementing creative financing strategies (seller financing if they have 100% equity usually), to keep your debt service lower. That is the most basic analysis of CRE MF, and if it passes those and seem like a go, I would then explore more information and do a deeper analysis. MF provides the amazing opportunity to have multiple exit strategies and ways to increase value during ownership, so beginning analysis can also vary depending on your goal with the purchase.

Hope this helps, and if you have any further questions, I am a real estate agent in Brooklyn and Long Island, and would be happy to connect

Hope this helps, and if you have any further questions, I am a real estate agent in Brooklyn and Long Island, and would be happy to connect

Thomas Santella · Answer

Simply, if your cap rate is below your debt coverage, you will have negative leverage. a 5% cap rate at 7% IR environment will not be profitable if you are SOLEY relying on borrowing from the bank to fund your purchase. For the purpose of just understanding the napkin math I provided above it would be the following assuming an IR of 7% and the RF of 1.458%:

PP X (IR+RF)= Int and Principal PMT

1.69M x (8.458%)= $142,940

DSCR= 1.25 (To Ensure your Debt is Serviced by Your Income)

$142.940 x 1.25 = Min NOI of $175,675

Now I am not saying this is not a good deal, but if you were planning on ONLY borrowing at market rates from the bank, it would clearly not work so thats what the quick math would tell you. You would have to explore other purchasing options like putting down a sizable down payment to bring down PP, ask the seller if he/she would be open to seller financing at a lower borrowing rate on all or some of the PP, work with a partner who could put up some of the money, etc...

To provide a more simple resonse for this example, PP X CR = NOI. Figure out at what size down payment and/or borrowing rate you would need for your cost of debt to be below your monthly Income. If this doesn't seam feasible, neither does the deal.

Michael Smythe · Answer

@Vincent Fiorilli most MFR listings will have Proforma information.

Proforma is just "code" for, "this is the best-case scenario" - which will hopefully get the seller the highest price.

You SHOULD always so your own evaluations and ask for documentation from the seller to support their numbers.

Sloane Kraftsow · Answer

Hi there,

Navigating NYC's commercial multi-family market can be complex, but it's great that you're diving in! LoopNet is a solid starting point, but deeper research is key.

To ensure accurate insights, verify rent rates through platforms like CoStar or local property management companies. Let's connect to discuss further—I'm also based in NYC and keen to share insights.

Looking forward to connecting!

Best, Sloane Kraftsow

Thomas Santella · Answer

I've never heard of a DSCR that lends on 1x, that is interesting.

Robin Simon · Answer

Thomas - are you familiar with DSCR Loans for Multifamily / Mixed Use?  Typically max out at about 8-10 units, but can be a really good option for these types of properties.  DSCR can typically be down to 1.00x and only calculated on Rent/PITIA (even on 5+ units and with commercial spaces).  Also have 30-year amort and IO options

Thomas Santella · Answer

A minimum 1.25 DSCR is what banks look for, so many people look at that as a guideline to their investment decisions. You are more than welcome to ask me questions anytime, and if you would like help looking for your first RE investment in NYC area just let me know!

Vincent Fiorilli · Answer

Great so the way that I am reading this equation PP x CR = NOI is that the NOI must be at least 1.25 of the monthly payment for the investment to begin making sense.

Thank you very much for the insight everyone I randomly picked this property for mathematic purposes.

@Thomas Santella if i have additional questions about properties in the NYC area (which I am sure that I will haha) i will definitely reach out!

Robin Simon · Answer

Agree with this - if you are shopping commercial or anything with a rent roll more complicated and extensive than a couple units - you really should find a knowledgeable broker for the process - not a great area to dive in as a DIY beginner..

Lucia Rushton · Answer

@Vincent Fiorilli my suggestion bout be to factor into your underwriting the cost of a Buyers agent/broker. If you have never done this before, allow someone with experience and a network to help you make a sound investment.

In my opinion too many first time syndicators & individual buyers got burned in the last gold rush because they did not have someone on their side and solely relied on the listing ( sellers ) broker to provide them with the information. AND they got paid yet did not represent the buyers interest.

Today we are seeing many limited partners feeling the pain from that experience as well.

As always just my opinion.

How to analyze properties from a listing

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