Multi-Family Deal Analyzer

[Brady Tome]

Hello all,

I am currently searching for my first multi-family investment property. I've been using the basic Google mortgage calculator, but I want to know if there are any other tools I can use to get a more detailed assessment of the deal or the maximum amount I can pay. Thanks.

[Erik W.]

There are free tools online everywhere, but basically you want to do the following:
Gross Potential Income
Less Vacancy
= Gross Income

Subtract the following expenses:
Real Estate Taxes
Hazard Insurance
Liability Insurance
Maintenance (yes, even if you plan to DIY)
Supplies
Property Management (yes, even if you plan to DIY)
Utilities
Lawncare/Snow removal
Legal Costs (evictions, LLC formation/maintenance)
Bad Debt (non-paying residents)
City Occupancy Licenses
Payment processing fees (for debit/credit cards)

This will get your Net Operating Income.

Then subtract debt service. 
1st mortgage
2nd mortgage (if applies)
Line of Credit (if applies)

This leaves you your free cash flow. That's what you get to keep in your pocket... pre-tax. Fortunately, it is going to be rental income which the IRS considers "passive", so it gets taxed at a different rate. It also doesn't have Social Security or Medicare taken out of it like W-2 income.

Now that's not the only thing to consider. There's also tax savings from depreciation, loan amortization (i.e. paying off the loan principle), and appreciation in the value of the asset.  Those vary widely, so you just have to crunch the numbers when the time comes.

I have spreadsheets I've created myself to do all this for me by just plugging in numbers. No one's situation is going to be the same though. I've just given you a basic road map.