Analyzing my first multi-family transaction...

[Everett Stephens]

Greetings! Thank you much for your time and consideration with my newbie question. We've been a SFR company in Memphis, TN for about a year with 20 units and growing steadily. I've found a couple of potential multi-family apartment complexes that are right sized for consideration as our first entry into this business segment. But, I'm not sure I'm looking at these deals with the right set of optics. For example, for simplicity purposes, let's say multi-family prospect has a total price point of $5 million with a reported cap rate of 6.6% and a cash on cash return of 7.5%. However, if I invest $5 million into several more SFRs in our targeted areas, then I know I should be able to get a cap rate in the range of 9.5 - 10% with a cash on cash return in the 15% range. My novice conclusion will easily say, I should just continue investing in SFRs. I feel like I'm missing some other fundamental considerations. One last "big topic" question, where are primary price negotiating points on multi-family apartments? SFRs are fairly straight forward based on abundantly FMV data and experience. Again, thanks much for your time and consideration.

[Brian Plajer]

I think you may be missing how Multifamily (commercial over 5 units) are valued and how value can be created quickly vs SFR in which the value is determined by the comps. The value-add growth potential is huge in multifamily