Discounts on Multifamily Properties

[Ryan Goldfarb]

Hi all,

I’m looking to take my next step in my RE investing career with a foray into the multifamily realm. In the single-family/duplex/triplex/quad-plex world, I know that purchasing property at a significant discount (60% of market value, for example) is not out of the norm.

How much does this differ in the multifamily world? I’m focusing on smaller multifamily properties in the 12 to 20 unit range. I suspect that this asset-size offers more opportunity as there are likely more operating inefficiencies.

If comparable properties in this market trade at a 10% cap, would it be unrealistic to shoot for an acquisition with, let's say, a 14% cap? Assuming an NOI of $50k, "market value" at a 10% cap would be $500k while purchasing at a 14% cap would yield a purchase price of about $357k (a "discount" of 28.6%).

Any insight or examples from personal experiences would be great. Thanks!

[Paul Timmins]

@Ryan Goldfarb

We shoot for CAP 8%+, Debt coverage ratio 1.6%+, and cash on cash return 12%+

Paul;